Diversification
This is the strategy where a large company with many different business units will have a presence in a broad array of industries (Porter, 1985). This is in an effort to avoid the risks of being in a single industry. Single industry firms are vulnerable to shocks in the market that may affect their sector. Airlines experienced this kind of shock after the 9/11 terrorist attacks. Flying was unattractive to the public and thus airlines suffered huge losses in customers and revenue. Since most airlines are not part of diversified companies they were left with a weak business model.
Changes in technology and customer tastes are other vulnerabilities for single industry firms. The broad changes in entertainment and music brought on by the digital revolution has deeply affected the movie theaters, video stores, and music stores.
On the other side there are risks to being too diversified and loosing focus on any particular business unit. Some firms can become too fragmented with a wide range of business units that do not relate to each other and draw resources from the organizations core functions. Thus a diversification strategy must be implemented with careful thought on how each unit can contribute to the overall goals of the organization.
Example of diversification strategy.
Changes in technology and customer tastes are other vulnerabilities for single industry firms. The broad changes in entertainment and music brought on by the digital revolution has deeply affected the movie theaters, video stores, and music stores.
On the other side there are risks to being too diversified and loosing focus on any particular business unit. Some firms can become too fragmented with a wide range of business units that do not relate to each other and draw resources from the organizations core functions. Thus a diversification strategy must be implemented with careful thought on how each unit can contribute to the overall goals of the organization.
Example of diversification strategy.