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Note on Diversification as a Strategy

Note on Diversification as a Strategy. Group 10: Bhargav Uday Chandra (211) Tushar Ganatra (224) Shilpa Kaul (228) Nihal Kumar (231) Vaibhav Kumar (232) Tanya Goel (264) Harsh Kumar (269). Categories of Diversified Companies. Performance of Diversified Companies.

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Note on Diversification as a Strategy

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  1. Note on Diversification as a Strategy Group 10: Bhargav Uday Chandra (211) TusharGanatra (224) Shilpa Kaul (228) NihalKumar (231) Vaibhav Kumar (232) Tanya Goel (264) Harsh Kumar (269)

  2. Categories of Diversified Companies

  3. Performance of Diversified Companies • Conglomerates achieved risk reduction compared to individual firms. • Unrelated Companies – Highest Growth Rates but lower capital productivity. • Related Companies – Second highest growth rate but highest ROC. • Traditional businesses can lead to mediocre growth. • However, wide ranging diversification increases risk. • Chances for successful related diversification depend on the characteristics of the industry. • Hence, diversification is not a panacea for poor corporate performance and a diversification needs to be in place.

  4. Components of Strategy in Diversified Company Concept of Fit Among Businesses Concept of Corporate Management of Business Units Corporate Goals Concept of assembly of the portfolio Generic Functional Policies

  5. Value Creation and Strategic “Fit” • Related Business Companies: • Skills of one partner are applied to the problems of other. Eg: BIC pens • Investments in markets closely related to current fields of operation. Eg: P&G

  6. Contd… • Business expansion in an area of competence can lead to “critical mass”. Eg: Small Laboratory Instrumentation companies offering competition to HP, Tektronix etc • Diversification into related product markets can help reduce systematic risks.

  7. Contd… • Unrelated Business Companies • Can route cash from one unit to another according to need eg: Tata Group • Investment funds can be transferred • Risk Pooling

  8. Diversification

  9. THANK YOU

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