Question

Under what circumstances that related diversification is useful to the organization? Please explain in more detail.

Answer 1

Diversification approaches are used to broaden company operations by introducing markets, goods , services or phases of development to established business. The goal of diversification is to allow the company to join business lines that are different from current operations. When the new company is strategically connected to the current lines of operation, it is called concentric diversification. Conglomerate diversification happens because there is no common thread of strategic health or partnership between new and old lines of business; new and old ones are unrelated.

Rewards for managers are typically higher when a business pursues a growth plan. Managers are also paid commission on the basis of revenue. The higher the level of revenue, the greater the amount of compensation earned. Recognition and influence often accrue to managers of rising firms. They are more often invited to talk to professional groups and are more often interviewed and written about by the press than business managers with higher levels of return but slower rates of growth. Growth businesses have are well established and will be well able to recruit top managers.

There are many reasons for adopting a diversification strategy, but most of them relate to management 's desire for the company to expand. Companies must determine if they want to diversify by moving into related or unrelated businesses. They will then decide whether to expand by creating a new company or by purchasing an ongoing business. Finally, management must determine at what point of the development cycle they plan to diversify.