Business School 101: Diversification Strategy

Introduction

• Overview of 3M and Samsung as examples of diversified companies.
• Importance of diversification in expanding business.

What is Diversification?

• A strategy to expand market share or enter new markets.
• Involves launching or acquiring new products.
• Key aspects:
  • Innovation
  • Market disruption

Reasons for Diversification

1. Mitigating Risk

   • Protects against market volatility.
   • Example: Fashion retailers expanding product lines (e.g., children's clothing).

2. Competitive Defense

   • Expands to underserved locations or customers.
   • Example: Blockbuster's failure to diversify into online streaming.

3. Increasing Profits

   • Expanding product offerings to boost revenue.
   • Example: Coffee shops adding food options; gyms adding facilities.

Types of Diversification Strategies

1. Related Diversification

   • Moving to a new industry with similarities to existing one.
   • Example: Disney's purchase of ABC.
   • Focus on leveraging core competencies (unique skills that provide competitive advantage).
   • Example: Honda's expansion from motorcycles to automobiles using engine-building skills.

2. Unrelated Diversification

   • Investing in diverse industries without direct connections.
   • Example: Harley Davidson's attempt to sell bottled water; Starbucks offering furniture.
   • Generally has lower success rates.

3. Geographic Diversification

   • Expanding operations into new geographical areas.
   • Example: Target and Best Buy's domestic and international expansion.
   • Benefits include administrative efficiency and streamlined processes for new store development.

Summary

• Diversification allows for expanding market share and entering new markets.
• Key reasons: mitigating risk, competitive defense, increasing profits.
• Three main types of strategies: related, unrelated, and geographic diversification.
• Related diversification tends to have a higher success rate by leveraging core competencies.

Conclusion

• Encouragement to share thoughts on diversification strategy.
• Reminder to like and subscribe for more content.