Types of Diversification in Business

Questions and Answers

What is the primary purpose of concentric diversification?

To benefit from synergistic gains

To reduce dependence on a single product

To diversify into unrelated businesses

To explore new markets beyond existing areas of expertise (correct)

What type of diversification involves moving into unrelated businesses?

Concentric diversification

Lateral diversification

Conglomerate diversification (correct)

Expansion through innovation

In what way is a new product connected to the existing business in concentric diversification?

Through a different distribution channel

Through a completely new market

Through a separate supply chain

Through a loop-like manner at one or more points in the firm's existing process/technology/product chain (correct)

What is an example of concentric diversification?

A company producing clothes venturing into manufacturing of shoes Signup and view all the answers

What is vertically integrated diversification?

Engaging in businesses that are related to the existing business of the firm Signup and view all the answers

What are the two directions of concentric diversification?

Horizontal and vertical integration Signup and view all the answers

What is the primary benefit of concentric diversification?

Benefits of synergy with the current operations Signup and view all the answers

What is the main difference between concentric and conglomerate diversification?

The type of business entered Signup and view all the answers

What is the process of removing employees from a job due to reorganization?

Rightsizing Signup and view all the answers

What type of diversification involves entering a specific product or process to be used in existing products?

Vertical diversification Signup and view all the answers

Which of the following is NOT a part of corporate strategy?

Functional management Signup and view all the answers

When is vertical integration likely to be beneficial?

When lower transaction costs and improved coordination are vital Signup and view all the answers

At which level is a stability strategy typically employed?

Corporate level Signup and view all the answers

What is another name for conglomerate diversification?

Unrelated diversification Signup and view all the answers

What is the primary benefit of diversification?

Reducing risk Signup and view all the answers

What is the primary purpose of strategic options in a firm's portfolio?

To allocate resources to businesses with the greatest potential Signup and view all the answers

What is the process of removing employees from a job in one business to relocate them in another business?

Transfer Signup and view all the answers

What is the main advantage of adopting a portfolio approach in a multi-product, multi-business firm?

To allocate resources to businesses with the greatest potential Signup and view all the answers

What is the objective of analyzing the current business portfolio?

To decide which business should receive more, less, or no investment Signup and view all the answers

What is the purpose of Ansoff's Product Market Growth Matrix?

To help businesses decide their product and market growth strategy Signup and view all the answers

What should companies always be looking to?

The future Signup and view all the answers

What is the result of using Ansoff's Product Market Growth Matrix?

A fair idea about how the firm's growth depends on its markets in new or existing products Signup and view all the answers

Why do diversified companies divert resources from cash-rich businesses?

To allocate resources to businesses with the greatest potential Signup and view all the answers

What may result from analyzing the current business portfolio?

Development of growth strategies for adding new products or businesses Signup and view all the answers

What is the main purpose of Ansoff's product market growth matrix?

To help businesses decide their product and market growth strategy Signup and view all the answers

What is market penetration, according to Ansoff's product market growth matrix?

Selling existing products into existing markets Signup and view all the answers

What is product development, according to Ansoff's product market growth matrix?

Selling new products into existing markets Signup and view all the answers

What is market development, according to Ansoff's product market growth matrix?

Selling existing products into new markets Signup and view all the answers

Why is the development of new products a significant challenge for Aurobindo, a pharmaceutical company?

Due to extensive research and huge costs Signup and view all the answers

Why might Aurobindo's product development strategy be influenced by social dimensions?

Due to social and environmental concerns Signup and view all the answers

What is the primary intention of vertically integrated diversification?

To make specific product/process steps into new businesses for the firm Signup and view all the answers

What is Ansoff's product market growth matrix divided into?

Four quadrants: market penetration, product development, market development, and diversification Signup and view all the answers

What is the risk associated with conglomerate diversification?

No linkages with customer group, customer marketing functions and technology used Signup and view all the answers

What strategy can Aurobindo adopt simultaneously for its different products?

Penetration, product development, market development, or diversification Signup and view all the answers

What is the primary goal of a turnaround strategy?

To reverse the process of decline and bring improvement in organizational health Signup and view all the answers

What is the first step in a turnaround strategy?

Assess the current problems and get to the root causes and the extent of damage Signup and view all the answers

What may be changed during the turnaround process?

The firm's product mix Signup and view all the answers

What is necessary for the success of a turnaround strategy?

Focusing on both the short and long-term financing needs as well as on strategic issues Signup and view all the answers

What is the second stage of a turnaround strategy?

Analyze the situation and develop a strategic plan Signup and view all the answers

Why is a turnaround strategy necessary for XYZ Company?

The company is facing continuous losses and decline in sales and product market share Signup and view all the answers

Study Notes

Diversification Strategies

Diversification can be classified into two broad categories: concentric diversification and conglomerate diversification.
Concentric diversification involves diversification into related businesses to benefit from synergistic gains.
Conglomerate diversification involves diversification into unrelated businesses to explore more opportunities beyond existing areas of expertise.

Concentric Diversification

Concentric diversification occurs when the new business is linked to the existing business through process, technology, or marketing.
The new product is a spin-off from the existing facilities and products/processes, benefiting from synergies with current operations.
Examples of concentric diversification include a clothing company venturing into shoe manufacturing.

Vertical Integration

Vertical integration is a type of concentric diversification where firms engage in businesses related to their existing business.
It can be beneficial when lower transaction costs and improved coordination are vital and achievable through vertical integration.

Horizontal Integration

Horizontal integration is a type of concentric diversification where firms expand their business in the same industry or product line.

Ansoff's Product Market Growth Matrix

Ansoff's product market growth matrix is a tool that helps businesses decide their product and market growth strategy.
The matrix consists of four quadrants: market penetration, product development, market development, and diversification.
Market penetration involves selling existing products into existing markets.
Product development involves introducing new products into existing markets.
Market development involves selling existing products into new markets.
Diversification involves selling new products into new markets.

Strategic Options

Strategic options need to be carved out from existing products and innovations happening in the industry.
Portfolio approach helps in resource allocation to businesses with the greatest potential.
Analysis of the current business portfolio helps in deciding which businesses to invest in or divest.

Turnaround Strategy

Turnaround strategy is used to reverse the decline of an organization and bring improvement to its health.
It involves assessing current problems, analyzing the situation, and developing a strategic plan with specific goals and detailed functional actions.
Repositioning may be required, involving changes to the product mix and focus on short and long-term financing needs, as well as strategic issues.

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Description

Learn about the different types of diversification strategies used by businesses to expand and grow. Identify the key differences between concentric and conglomerate diversification.

Types of Diversification in Business

Questions and Answers

What is the primary purpose of concentric diversification?

What type of diversification involves moving into unrelated businesses?

In what way is a new product connected to the existing business in concentric diversification?

What is an example of concentric diversification?

What is vertically integrated diversification?

What are the two directions of concentric diversification?

What is the primary benefit of concentric diversification?

What is the main difference between concentric and conglomerate diversification?

What is the process of removing employees from a job due to reorganization?

What type of diversification involves entering a specific product or process to be used in existing products?

Which of the following is NOT a part of corporate strategy?

When is vertical integration likely to be beneficial?

At which level is a stability strategy typically employed?

What is another name for conglomerate diversification?

What is the primary benefit of diversification?

What is the primary purpose of strategic options in a firm's portfolio?

What is the process of removing employees from a job in one business to relocate them in another business?

What is the main advantage of adopting a portfolio approach in a multi-product, multi-business firm?

What is the objective of analyzing the current business portfolio?

What is the purpose of Ansoff's Product Market Growth Matrix?

What should companies always be looking to?

What is the result of using Ansoff's Product Market Growth Matrix?

Why do diversified companies divert resources from cash-rich businesses?

What may result from analyzing the current business portfolio?

What is the main purpose of Ansoff's product market growth matrix?

What is market penetration, according to Ansoff's product market growth matrix?

What is product development, according to Ansoff's product market growth matrix?

What is market development, according to Ansoff's product market growth matrix?

Why is the development of new products a significant challenge for Aurobindo, a pharmaceutical company?

Why might Aurobindo's product development strategy be influenced by social dimensions?

What is the primary intention of vertically integrated diversification?

What is Ansoff's product market growth matrix divided into?

What is the risk associated with conglomerate diversification?

What strategy can Aurobindo adopt simultaneously for its different products?

What is the primary goal of a turnaround strategy?

What is the first step in a turnaround strategy?

What may be changed during the turnaround process?

What is necessary for the success of a turnaround strategy?

What is the second stage of a turnaround strategy?

Why is a turnaround strategy necessary for XYZ Company?

Study Notes

Diversification Strategies

Concentric Diversification

Vertical Integration

Horizontal Integration

Ansoff's Product Market Growth Matrix

Strategic Options

Turnaround Strategy

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Description

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