campaign to convince architects, builders, engineers to design multi- story office blocks using steel rather than concrete for the structural frame of buildings. Product diversification involves addition of new products to existing products either being manufactured or being marketed. Expansion of the existing product line with related products is one such method adopted by many businesses. Adding tooth brushes to tooth paste or tooth powders or mouthwash under the same brand or under different brands aimed at different segments is one way of diversification. These are either brand extensions or product extensions to increase the volume of sales and the number of customers.
2.3.1 COMPANIES THAT HAVE SUCCEEDED USING DIVERSIFICATION STRATEGIES: …show more content…
By 2006, Wesfarmers ranked among the 20 largest companies headquartered in Australia based on the market value of its stock. Wesfarmers became a five-division corporation with a wide spectrum of enterprises, from supermarkets to coal mining to the sale of chemicals, fertilizers, insurance and industrial safety products.
2.3.2 SEVEN STEPS TO SUCCESSFUL DIVERSIFICATION
There are seven key steps for successful diversification which are as follows:
Firstly; Establish a supportive corporate center– Assemble a corporate headquarters staff that adds value to the company’s divisions but does not provide detailed operational direction. The home office should primarily supply basic support, including regulatory compliance, corporate governance, accounting and financial reporting. In addition to these functions, some central offices also handle corporate planning, human resources and investor relations.
Secondly, Select capable division managers– Bidvest follows a policy of hiring division managers who perform as if they were “owner-managers” of their divisions.
Michael Chaney, former chief executive officer of Wesfarmers, hired division managers who offered “emotional intelligence,” not just technical …show more content…
Wesfarmers’ Chaney believes firms should reject narrow operational goals like “being the world’s biggest something.”The success of these companies confirms the potential power of diversification. All four firms took similar actions to build their business portfolios and adhered to seven essential steps to manage the issues that diversification commonly entails. In fact, if the financial performance of any of these four companies worsens in the future, the reason probably will stem from failure to follow one or more of these seven steps.
2.3.3 TYPES OF DIVERSIFICATION STRATEGIES
The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. Generally, the final strategy involves a combination of these options. This combination is determined in function of available opportunities and consistency with the objectives and the resources of the company. There are three types of diversification: concentric, horizontal, and conglomerate.
2.3.4 Concentric