Types of Diversification in Business
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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?

    <p>A company producing clothes venturing into manufacturing of shoes</p> Signup and view all the answers

    What is vertically integrated diversification?

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

    What are the two directions of concentric diversification?

    <p>Horizontal and vertical integration</p> Signup and view all the answers

    What is the primary benefit of concentric diversification?

    <p>Benefits of synergy with the current operations</p> Signup and view all the answers

    What is the main difference between concentric and conglomerate diversification?

    <p>The type of business entered</p> Signup and view all the answers

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

    <p>Rightsizing</p> Signup and view all the answers

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

    <p>Vertical diversification</p> Signup and view all the answers

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

    <p>Functional management</p> Signup and view all the answers

    When is vertical integration likely to be beneficial?

    <p>When lower transaction costs and improved coordination are vital</p> Signup and view all the answers

    At which level is a stability strategy typically employed?

    <p>Corporate level</p> Signup and view all the answers

    What is another name for conglomerate diversification?

    <p>Unrelated diversification</p> Signup and view all the answers

    What is the primary benefit of diversification?

    <p>Reducing risk</p> Signup and view all the answers

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

    <p>To allocate resources to businesses with the greatest potential</p> 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?

    <p>Transfer</p> Signup and view all the answers

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

    <p>To allocate resources to businesses with the greatest potential</p> Signup and view all the answers

    What is the objective of analyzing the current business portfolio?

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

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

    <p>To help businesses decide their product and market growth strategy</p> Signup and view all the answers

    What should companies always be looking to?

    <p>The future</p> Signup and view all the answers

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

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

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

    <p>To allocate resources to businesses with the greatest potential</p> Signup and view all the answers

    What may result from analyzing the current business portfolio?

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

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

    <p>To help businesses decide their product and market growth strategy</p> Signup and view all the answers

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

    <p>Selling existing products into existing markets</p> Signup and view all the answers

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

    <p>Selling new products into existing markets</p> Signup and view all the answers

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

    <p>Selling existing products into new markets</p> Signup and view all the answers

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

    <p>Due to extensive research and huge costs</p> Signup and view all the answers

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

    <p>Due to social and environmental concerns</p> Signup and view all the answers

    What is the primary intention of vertically integrated diversification?

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

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

    <p>Four quadrants: market penetration, product development, market development, and diversification</p> Signup and view all the answers

    What is the risk associated with conglomerate diversification?

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

    What strategy can Aurobindo adopt simultaneously for its different products?

    <p>Penetration, product development, market development, or diversification</p> Signup and view all the answers

    What is the primary goal of a turnaround strategy?

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

    What is the first step in a turnaround strategy?

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

    What may be changed during the turnaround process?

    <p>The firm's product mix</p> Signup and view all the answers

    What is necessary for the success of a turnaround strategy?

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

    What is the second stage of a turnaround strategy?

    <p>Analyze the situation and develop a strategic plan</p> Signup and view all the answers

    Why is a turnaround strategy necessary for XYZ Company?

    <p>The company is facing continuous losses and decline in sales and product market share</p> 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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    Related Documents

    Strategic Choices PDF

    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.

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