diversification strategy is one of the four main strategies for growth identified by igor ansoff in 1957, which enables companies to look at other markets they could tap into, or new products they could launch to increase their reach and revenue. for instance, diversification can also allow a company to minimize the risk of an industry downturn, it can boost brand image, and it can also be used as a defense mechanism to protect a company from strong competition. diversification can present itself in a variety of different forms depending on the direction a business wishes to move in, and can either be related or unrelated to the current business offering.
this is a different product altogether, but it has the potential to attract many of your existing customers. the parent company that owns all of the individual entities is known as a conglomerate, and it became one by successfully implementing a conglomerate diversification strategy. once an initial round of funding was secured, they began to develop their own seo software and market it as a subscription-based solution. in summary, a diversification strategy can be a goldmine in terms of reach and revenue, but it comes with an element of risk.
creating a diversified company is beneficial, as it provides several different product lines and customers, resulting in the company being shielded from any economic downswings or business fluctuations. the subsidiaries or independent components of the company report to the parent company of the conglomerate. this diversification is achieved to generate economies of scaleeconomies of scaleeconomies of scale refer to the cost advantage experienced by a firm when it increases its level of output.the advantage arises due to the inverse relationship between per-unit fixed cost and the quantity produced. typically, companies with extremely high cash flows go for unrelated diversification, and it is used to hedge the risk of the industry the company operates in.
the company needs to assess if the industries it is diversifying into are attractive in terms of market demand and revenues. a company owns both financial and non-financial resources, and it is important to align the overall company on both factors. a company that is already diversified needs to constantly monitor its business units and look for further opportunities that can allow it to grow. cfi is the official provider of the global certified banking & credit analyst (cbca)™cbca® certificationthe certified banking & credit analyst (cbca)® accreditation is a global standard for credit analysts that covers finance, accounting, credit analysis, cash flow analysis, covenant modeling, loan repayments, and more.
1. forward diversification. if you’re at the beginning of a supply chain in terms of your business a common example of a diversified company is a related diversification involves diversifying into products or services disney’s diversification identifies new products and markets that are close enough to its core business that the company, . notable examples are jp morgan and chase bank or meryll lynch and the bank of america. even insurance companies such as state farm and allstate offer bank products and limited investment products.
as an example of the first factor, consider ikea, the global home furnishings company. but there are plenty of other diversified companies whose portfolios are coherent because they examples of horizontal diversification apple | from computers to mp3 players and phones disney | if the generated revenue is between 70 percent and 95 percent, the company’s business is dominant. 5m security,
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