Business Growth Strategies Diversification

By | March 29, 2023

Business Growth Strategies Diversification – A single business company may diversify its business by adopting several strategies, such as new ventures, joint ventures, or acquisitions. This post discusses strategies that a diversified company can adopt to strengthen its position and performance.

After the diversification of the company, the effective management of affairs of diversified lines of business becomes an important task of corporate managers.

Business Growth Strategies Diversification

Business Growth Strategies Diversification

Each line of business is known as a strategic business unit (SBU). Managers of each SBU are required to formulate overall strategies to increase the company’s profitability and strengthen its performance.

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In addition, corporate managers develop corporate strategies that affect all SBUSs under the corporate umbrella.

Differently diversified companies have been found to adopt multiple corporate strategies at different times in the company’s life. Based on the experience of these companies, today’s diversified companies can follow it to grow their companies.

A diversified company may consider any combination of the following corporate strategies to improve the performance of its various business lines:

Selling a business unit or part of a division is called a divestiture. A divestiture strategy is adopted by a company when a division does not generate enough profit for the company or its future profitability and growth prospects are poor.

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Also called a “divestment strategy,” it is not usually the first choice of strategy for a diversified company.

However, the reality is that the company may have to get rid of some part of the business that does not meet management’s expectations.

Such an operation is the main purpose of rejection. The Boston Consulting Group (BCG) model or General Electric’s business screen can be used to identify SBUs that need to be divested.

Business Growth Strategies Diversification

A divestiture strategy is particularly effective when a company finds that one or more divisions have been making continuous losses for several years, when a particular division is incompatible with other divisions of the company, or when the company is unable to provide the necessary funds to an ailing company. the company is unable to provide the additional resources required to manage the business of the respective division. There may be other reasons for development.

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Two terms are commonly used in business devices – spinoff and management buyout. Selling a business unit to “independent investors” is called a spinoff.

Sometimes a business unit is sold to its management, known as a “management buyout”. In the case of a management buyout, the company’s managers buy the unit.

Typically, managers raise money by issuing bonds and then use the money to buy stocks/shares of the business unit.

Fashion strategy is also known as “asset reduction strategy”. A harvesting strategy involves reducing investment in a business unit and extracting as much investment as possible.

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The company tries to collect all the profits it can. This reduces assets to a minimum. When a company adopts a fashion strategy, it stops investing in a business unit to maximize short-term cash flow from the unit. Later, the unit was disbanded.

A divestiture strategy is a strategy for writing off an enterprise’s investment. This strategy is usually adopted when it is difficult to find a buyer for a lost unit.

As a rule, weak (in terms of financial or managerial results) business units use a divestment strategy. If recovery is not possible, a disposal (or disposal) strategy is a last resort.

Business Growth Strategies Diversification

Because the elimination strategy is indirect: a sign of the administration’s unwillingness to fail, it is the least favorable strategy.

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Many factors can cause a company’s sales and profits to decline. In a company with declining profits, strategic managers may consider a downsizing strategy to recover. This strategy is used through cost reduction, asset reduction, or a combination of the two.

Cost reductions occur when employees are terminated or laid off, equipment is leased rather than purchased, advertising campaigns are slowed down, and other similar actions are taken.

Asset depletion occurs when a company sells any non-essential fixed or other assets, disposes of company-owned vehicles for transportation of executives or employees, cuts product lines, closes aging plants, etc.

Downsizing and turnaround strategies have the same basic goal – to restore a weak business unit. Both are designed to strengthen the company’s core distinctive competencies.

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Recovery methods may be somewhat different; If the paths are the same, there is no difference between the reduction and recovery strategies. If the company faces weak competition, it can use a return strategy.

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A turnaround strategy is a strategy to return a weak business unit to profitability. Instead of divesting or liquidating, management may redeploy additional resources to make a poor company profitable.

Lee Iacocca adopted a restructuring strategy in the 1990s to restore the position of Chrysler Corporation (one of the giant American car manufacturers) and was very successful.

Business Growth Strategies Diversification

This strategy works best when the reasons for poor performance are short-term, sick businesses are in attractive industries, and it doesn’t make long-term strategic sense to ditch losers.

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It should be noted that the spin-off strategy can be applied to both a single business and a diversified company.

A restructuring strategy involves divesting one or more business units of a diversified company and acquiring new business units. Thus, the business structure of the diversified company took a new shape. This strategy requires reorganization of the company’s business portfolio.

For example, in 5 years, a diversified company sells 2 units, closes 3 weak divisions and adds 4 new business lines to its business portfolio. The company’s efforts can be called a restructuring strategy.

A company may pursue a strategy of diversifying its business in foreign markets. When a company faces difficult times in the domestic market or finds high prospects in the foreign market, it can adopt a multinational diversification strategy.

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A multinational diversification strategy provides cooperation and strategic coordination between countries. This strategy is effective when it leads to competitive advantage and increased profitability. Let’s talk about “Ansoff’s Growth Matrix”: A solid product growth strategy is the key to the survival of a start-up business. At some point, entrepreneurs need to be able to show investors that their user base is growing, their audience is expanding, and adoption of their product or service is increasing.

If you don’t, investors may be forced to turn off the faucets and dry up your aspirations to make your venture a global success.

While they may not be under the same pressure as startups, failure to adapt, change, and discover new areas of growth can result in your market share being steadily eroded by more ambitious competitors.

Business Growth Strategies Diversification

Growth also improves your company’s sustainability, innovation through new products and markets, reliability, customer retention and, of course, profitability.

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So what tactics and productivity growth strategies should you consider? Are there methods with a proven track record of success?

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The Ansoff Growth Matrix or Product Market Expansion Grid is a tool that helps businesses analyze, plan, and execute different growth strategies and assess the risk associated with each. The model was created in 1957 by the Russian-American mathematician Igor Ansoff and focuses on two specific directions of potential growth:

In each of these areas, business owners are encouraged to expand their existing services as well as explore new products and markets. The further away you are from existing products and established markets, the greater the element of risk.

Ansoff’s growth matrix presents four alternative growth strategies as a 2×2 table or grid. The (x) axis represents new and existing products and the (i) axis represents new and existing markets:

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The first segment of the product market expansion grid focuses on increasing market share by selling existing products or services. This is the lowest-risk growth strategy and a bit of a “comfort” choice because you’re not changing anything about the product, the market, or the distribution channels.

You are always targeting the same customer demographics and geographic areas with the same products. Although risk-free, it has the lowest growth potential.

So how do you get existing customers to buy more of your product or buy it more often?

Business Growth Strategies Diversification

One effective tactic might be to try royalty rewards or a points system. Customer gets one free for every 6 items purchased. Even if you’re giving away a free product, customers will be encouraged to buy more to fulfill your offer and may choose you over a competitor as a result.

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The second grid in Ansoff’s growth matrix is ​​market development. This strategy involves finding new markets and new customers for the current product or service range.

Examples include launching your offers to a new geographic area or consumer demographic. Or it could mean exploring new distribution channels. If you primarily sell through traditional brick-and-mortar stores, exploring e-commerce may be an option.

Now, there is a moderate level of risk associated with this growth strategy because you don’t know how the market will react.

Research should be done as well as possible

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