Question

Describe the “number of businesses” cost of the diversification strategy.

Answer 1

ans....
Many organization believes that when reaching at the peak of the business growth and no other option or opportunity remains with the organization to move forward, they think about diversifying. Hence, an organization diversified in various business segments and markets. Also, by introducing new product or getting into new market.
Diversification has been risk minimizing strategy for a business and does not influence business negatively. For example, if one of the business is getting into loss then other business which is doing good in the market can counterbalance the losses. There are two types of strategies used
(a) Concentric, which is called as related diversification that means diversification in the same business. This helps in keeping the senior executive aligned based on the strategic plan by retaining knowledge and skills in good ways.
(b) Conglomerate, which is called as non-related diversification and used in two or more different business lines. This helps in neutralizing the effect of more matured business to the immature one. Also, knowledge and skills can be shifted to the other business to achieve strategic goals.
Many organizations use diversification strategy to minimize the risk by maximizing the returns by having a good spread of investment instruments in different places to achieve long-term financial goal.