Diversity strategy

Diversification strategies are used to expand EVA operations by adding

markets, products, services, or production stages to existing businesses.
The purpose of diversification is to allow EVA to enter business lines that
differ from current operations. When a new project is strategically linked
to existing business lines, it is called concentrated diversification. Cluster
diversification occurs when there is no common thread of strategy or
relationship between new and old business lines. New and old companies
.are irrelevant

Diversification in context Of growth strategies

Diversification is a form of growth strategy. Growth strategies include a
significant increase in performance targets (usually sales or market share)
beyond previous levels of performance. Many organizations pursue one
or more types of growth strategies. One of the main reasons is the view of
.many investors and executives that 'Akbar is better
Growth in sales is often used as a measure of performance. Even if ★
profits remain stable or declining, increasing sales pleases many people.
It is often assumed that if sales increase, profits will eventually be tracked

Bonuses for managers are usually greater when EVA pursues a growth
strategy. Often managers pay a commission based on sales. The higher
the level of sales, the greater the compensation received. Recognition and
strength also accumulate for growing corporate managers. They are often
invited to speak to professional groups and often interviewed and
written by the press more than EVA executives with higher rates of
return but slower growth rates. Thus, growth companies have also
.become more and more capable, to attract quality managers

Growth may also improve the effectiveness of the organization

EVA has a number of advantages over small companies operating in
.limited markets

A large or large market share can lead to economies of scale. Synergy in

marketing or production may result in more efficient use of sales calls,
reduced travel time, reduced turnaround time, and increased production
production. The effects of the learning curve and experience may result in
lower costs as the company acquires expertise in the production and
distribution of its products or services

Experience and large scale may also lead to improved planning, or gains
in work efficiency, or a redesign of products or production processes, or
larger and more qualified personnel departments (such as marketing
research or research and development). The lower average unit costs may
result from the company’s ability to distribute administrative and other
overhead costs over a larger unit size. The more intense the business, the
greater its ability to spread costs across a large scale

Improved linkages with other production stages can also lead to large
volumes. Better linkages with suppliers can be achieved through large
orders that may lead to lower costs (quantity reductions) or better
delivery or custom-made products that cannot be afforded for smaller
.operations
Links with distribution channels may reduce costs by improving
warehouse location, increasing advertising efficiency, and shipping
efficiency The size of the organization affects its clients or suppliers on
its negotiating ability and its ability to influence the prices and services
provided. Exchange of information Among the units of a large company
the knowledge gained in one business unit is allowed to be applied to the
problems faced in another unit. In particular Especially for technology-
dependent EVA, reducing R&D costs and time to develop new
technology may give large firms an edge over smaller and more
specialized companies. The more similar activities between units, the
easier it is to transfer information. Taking advantage of geographical
differences is possible for large companies Especially for multinational
companies, differences in wage rates, taxes, energy costs, freight and
freight charges, and trade restrictions affect business costs. A large
company can sometimes reduce its business costs by placing multiple
factories in locations that provide the lowest cost. Small companies with
only one location must operate within the strengths and weaknesses of
their one location

Central diversification
Central diversification occurs when EVA adds related products or
markets. The aim of this diversification is to achieve a strategic benefit.
Financial synergy can be obtained by combining a company with strong
financial resources but limited growth opportunities with a company that
has great market potential but poor financial resources. For example,
highly indebted companies may seek to obtain relatively debt-free
companies to increase the firm's ability to borrow. Likewise, companies
sometimes try to stabilize revenue by diversifying into businesses with
different seasonal or cyclical sales patterns. Strategic alignment in
operations can lead to synergy by combining operating units to improve
overall efficiency. Combining two units so that refined equipment is
removed or research and development improves overall efficiency. The
amount of discounts by order combining would be another possible way
to achieve operating synergies. Another way to improve efficiency is to
diversify into an area that can use by-products from existing operations.
Synergy between management can be achieved when applying
administrative expertise and experience in various cases. Perhaps the
manager's experience in working with unions in one EVA can be applied
to labor management problems in another company. However, care must
be taken in assuming that management experience is globally
transferable. Similar situations may require significantly different
management strategies. Personality clashes and other circumstantial
differences may make it difficult to achieve administrative synergy.
Although management skills and experience can be transferred,
individual managers may not be able to conduct the transfer effectively.
Block Diversification.
The diversification of conglomerates occurs when the company grows in
areas unrelated to its current business line. Synergy may be produced
through the application of management expertise or financial resources,
but the primary objective of diversification of conglomerates is to
improve the profitability of the acquired company. Little attention, if any,
is given to achieving marketing or production synergies with
conglomerate diversification.
One of the most common reasons for pursuing a growth strategy for a
conglomerate is that the opportunities in the current EVA & rsquo; s
current business line are limited. Finding an attractive investment
opportunity for EVA requires considering alternatives in other types of
businesses.
EVA can also pursue a strategy to diversify conglomerates as a way to
increase the company's growth rate. As mentioned previously, sales
growth may make the company more attractive to investors. The growth
may also increase the strength and position of the EVA executives.
Cluster growth may be effective if the new region has greater growth
opportunities than are available in the current business line
Perhaps the biggest drawback to the conglomerate diversification strategy
is the increase in administrative problems associated with operating an
unrelated business. Managers from different divisions may have different
backgrounds and may not be able to work together effectively.
Competition between strategic business units of resources may involve
diverting resources away from one division to another. This move may
create competition and administrative problems between units
Caution should also be exercised when entering companies that appear to
have promising opportunities, especially if the management team lacks
experience or skill in the new business line. Without knowing some of the
new industries, the company may be unable to accurately assess the
industry. Even if the new business succeeds at first, problems will
eventually arise. The executives of the conglomerate will have to
participate in the operations of the new organization at some point.
Without sufficient experience or skills (Synergy Management), new
businesses may become underperforming.
Without some form of strategy, the combined performance of individual
units may not exceed that of the operating units independently. Indeed,
the joint performance may deteriorate due to the controls imposed by the
parent units on the individual units. Decision-making may become slower
due to longer review periods and complex reporting systems.
Diversity: grow or buy?
Diversification efforts may be either internal or external. Internal
diversification occurs when EVA enters a different business line,
but it is usually relevant, through the development of the new
business line itself. Internal diversification often involves
broadening the base of the product or market. External
diversification may achieve the same result; however, EVA enters
a new field of business by purchasing another company or
business unit. Mergers and acquisitions are common forms of
external diversification
Internal diversification
One form of internal diversification is the marketing of existing products
into new markets. EVA may choose to expand a geographic base to
include new customers, whether within their home country or in
international markets. Businesses can also pursue an internal
diversification strategy by finding new users for their existing product.
For example, Arm's Hammer has marketed baking soda as a scent.
Finally, companies may try to change markets by increasing or
decreasing product prices to make them attractive to consumers of
different income levels
Another form of internal diversification is the marketing of new products
to existing markets. This strategy generally includes using existing
distribution channels to market new products. Retailers often change
product lines to include new items that appear to have good market
potential. Johnson's Johnson added a children's play line to its current line
of materials for infants. Canned food companies have added salt-free or
low-calorie options to existing production lines.
It can also be agglomeration growth through internal diversification. This
strategy will entail marketing new and unrelated products to new markets.
This strategy is the least used among the strategies of internal
diversification, because it is the most dangerous. It requires EVA to enter
a new market where it has not been established. EVA is also developing
and introducing a new product. Research and development costs, as well
as advertising costs, are likely to be higher than if existing products were
marketed. In fact, the investment and probability of failure are much
greater when both the product and the market are new
External diversification
External diversification occurs when EVA appears outside its current
operations and buys access to new products or markets. Mergers are a
common form of external diversification. Mergers occur when two or
more companies combine operations to form one company, possibly with
a new name. These companies are usually of a similar size. One of the
goals of consolidation is to achieve managerial synergy by creating a
stronger management team. This can be achieved in the merger process
by bringing together management teams from the merged companies
Acquisitions, which are a second form of external growth, occur when the
acquired company loses its identity. The acquisition company sucks it.
The acquired company and its assets can be absorbed into an existing
business unit or remain healthy as an independent subsidiary within the
parent company. Usually acquisitions occur when the largest company
buys a smaller company. The acquisition is called friendly if the company
being purchased is receptive to the acquisition. (Mergers are usually & #
x0022; friendly. & # X0022;) Mergers of unfriendly or hostile takeovers
take place when the target company's management of the acquisition
resists being purchased.
Diversification: vertical
Diversification strategies can also be classified according to the direction
of diversification. Vertical integration occurs when companies perform
operations at different stages of production. Participation can be
developed in the various stages of production within the company
(internal diversification) or by obtaining another company (external
diversification). Horizontal integration or diversification involves the
company moving into operations in the same production stage. Vertical
integration is usually associated with existing processes and will be
considered a concentric diversification. Horizontal integration can be
either concentric or form a diversification
Vertical integration
The steps that a product passes through converting it from raw materials
to a final product in the customer's possession form the different stages of
production. When the company grows closer to the sources of raw
materials in the production stages, it follows a backward vertical
integration strategy. Avon's main business line was selling door-to-door
cosmetics. EVA followed a backward form of vertical integration by
entering into the production of some cosmetics. Forward diversification
occurs when companies approach the consumer in terms of production
stages. Levi Strauss - a clothing manufacturer traditionally, by opening
retail stores to market its textile products rather than producing and
selling them to another retailer
The different merger allows the diversified company to exercise more
control over the quality of supplies purchased. Reverse integration can
also be achieved to provide a more reliable source of necessary raw
materials. Front integration allows the manufacturer to ensure an outlet
for their products.
The forward integration also allows the company more control over how
its products and services are sold. Moreover, EVA may be better able to
distinguish its products from those of its competitors by forward forward
integration. By opening their own retail outlets, EVA is often better able
to control and train employees selling and maintaining their equipment
Since maintenance is an important part of many products, an excellent
service department may provide EVA Company a competitive advantage
over carefully manufactured companies
Some companies use vertical integration strategies to eliminate the
broker's earnings.
★ Companies sometimes are able to efficiently perform the tasks
performed by the broker (wholesalers and retailers) and obtain additional
profits. However, brokers receive their income through efficient service
delivery. Unless EVA has equal efficiency in providing that service, the
company's profit margin is less than the mediator. If the company is very
ineffective, customers can refuse to work with the company, resulting in
lost sales
★ If demand for the product decreases, basic supplies are not available,
or if the replacement product replaces the product on the market, the
earnings of the entire organization may be affected
Horizontal diversity.
Horizontal integration occurs when a new business company (either
related or unrelated) enters the same stage of production as its current
operations. For example, Avon's move to the jewelry market through
door-to-door sales force involved marketing new products through
existing distribution channels. An alternative form of horizontal
integration that Avon has done is to sell their products by mail (such as
clothes and plastic products) and through retail stores (such as Tiffany's).
Either way, Avon is still in the retail phase of the production process.
Diversity strategy.
And management teams.
As documented in a study conducted by Marilyn, Lamont and Geiger,
ensuring that the corporate diversification strategy matches well with the
strengths of senior management team members in the success of that
strategy. For example, the success of the merger process may depend not
only on how the participating companies are merged, but also on the
suitability of senior executives to manage this effort. The study also
indicates that different diversification strategies (concentric versus
clustering) require different skills on the part of senior managers in EVA
and that factors must be taken into account before joining companies.
There are many reasons for pursuing a diversification strategy, but most
relate to the management and desire of the organization to grow. Firms
must decide whether they wish to diversify by going into related or
unrelated businesses. They must then decide if they want to expand by
developing new businesses or by purchasing ongoing business. Finally,
management must decide at what stage of the production process it would
like to diversify.