Diversification Strategy in Business

Introduction

Business organizations run on objectives. Most organizations’ ambitions usually involve survival, profitability and growth (Slack, chambers, & Johnston 2007). Once an industry becomes concentrated, the next most viable option for a business to do is to expand its operations. These growth strategies are divided into concentration and diversification strategies. Diversification is a business growth strategy that allows organizations which exists in a saturated market to expand either vertically or horizontally.

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Diversification can be further divided into concentric diversification – whereby a company expands in unrelated industries – and conglomerate diversification – this allows an organization to grow but venture even into unrelated industries. An example of a concentrentic type of diversification is in the case of Coca-Cola Company, which has diversified its business but maintained its stance within the drink market. On the other hand, Japanese conglomerate giant Mitsubishi is one such good example of non-concentric diversification because the firm has business portfolio in the Automobile industry, banking industry, chemical industry, insurance industry, electronic industry and many other industries (Case, 2008).

Business expansion/diversification is challenging because it does not only require the right amount of resources but also the right kind of expertise, organizational culture and experience in order for business success to be realized in the long run. Organizations such as General Electric have been able to successful diversify their business portfolio while dwelling on their line of expertise thus using their organizational strengths to successfully engage the market.On the other hand, an organization such as Time Warner faced a lot of obstacles and less success as it diversified its business due to the fact that they were in unfamiliar territory (Case, 2008).

Comparison and Contrast reasons and alternative actions

General Electric is one of the most successful business organizations with a wide diversified portfolio of products. The organization concentrates on energy, technology infrastructure, capital finance and consumer and industrial issues. General Electric has over 280,000 employees and brings in revenues that amount to over $150 billion and net profits over $ 15 billion.

General Electric’s success as far as diversification is concerned has puzzled many individuals within the business community (Business & Finance.org 2011). This fact has made their former C.E.O, Jack Welch, a legend among individuals within the business community. The success of General Electric as it pursued its diversification strategy is simply because the company tried to ensure all its products were related to energy or electricity and even if not, the management usually sets up the necessary management structures to oversee these business wings (Business & Finance.org 2011).

For example, the organizations finance wing is responsible for financing clients by offering them financial products that are related to purchasing capital intensive products from General Electric therefore reducing risks that the company would face were it to become an open public financial institution.

Some of the products under the organization’s portfolio include; electrical appliances, aviation electrical gadgets, consumer electronics, electrical distribution, electric motors, energy, gas, electrical healthcare equipment, lighting, locomotives parts, oil, energy-related software, weapons parts and wind mills turbine engines. The main reason for the success of General Electric can be attributed to their good leadership and highly effective management structure. Good leadership and management structure has enabled the organization implement and monitor their strategic business units (SBU’s) very effectively and correct any deviation in their business targets as they occur (Koontz & Weihrich 2009).

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Additionally, General Electric acquires the best manpower and trains them regularly to support their financial targets and business growth strategies thereby enabling the organization to develop the best products. A customized workforce of General Electric has the necessary skills, more confidence and the necessary knowledge to carry out their duties successfully. In summary, the role of planning, staffing, controlling, organizing and directing has ensured that the organization is not only able to grow but also control every aspect of its growth by motivating the organization because of a well developed operation strategy (ZDnet 2009).

The Time Warner Company (formerly known as AOL Time Warner) is among the world’s leading media conglomerate owning media outlets such as New Line Cinema, Time Inc., HBO, Turner Broadcasting System, TheWB.com, Warner Brothers, Cartoon Network, Boomerang, Adult Swim, Cable News Network, DC Comics, together with the Castle Rock Entertainment and many other media outlets. The organization earns revenues over $25 billion and net profits well over $ 2.5 billion.

In the year 2000, the organization growth plan demanded that the organization enter into a merger with AOL where the merger cost $360 billion but the merger is now perceived as one of the most significant failures in the corporate world in the past decades. The growth ambitions of Time Warner failed not only because of the bursting of the dot-com bubble but mainly because of poor planning and management of the two companies that failed to synchronize the two organizations’ operations (Koontz & Weihrich 2009).

Although the idea to merge the internet giant with the media giant was good, the poor execution of leadership and management structure led to poor operational strategies. Also the incompatible culture of the two organizations led to the actual demise of the merger and the eventual break-up that took place in 2009 (Case (a) 2008). Alternatively, if the organization merger were to succeed, the organizational leaders could have first and foremost initiated culture change programs that involve the lowest level of staffing so that the company’s mission, vision and strategic objectives could be reformulated but the failure to do this led to the eventual failure of the organization (Case (b) 2008).

General Electric’s Jack Welch adopted a good organization structure and culture that encouraged clear channels of communication and quick decision making but AOL Time Warner failed to do this. Therefore, despite a new organization being formed, the now new Internet-charged media giant’s performance deteriorated because numerous realities of turf wars and power struggles within top management and the board together with cutthroat politics led to the eventual failure of the organization (Koontz & Weihrich 2009; ZDnet 2009). If the organizations were to merge, then it would be necessary to carry out a complete management reshuffle and bring in new talent, which has similar ambitions of pushing the organization forward by forging new organization culture and better organization structure within various functional units in order for the business success to be realized (Koontz & Weihrich 2009).

Conclusion

Growth strategies particularly diversification are quite expensive and when they normally involve mergers, takeover and acquisitions, it is necessary to ensure that they are carried out carefully to ensure that the synchronization of different organizations’ results in success. AOL Time Warner’s failure is a clear indication that poor planning can be detrimental to diversification thus it is necessary to change leadership, recruit new talent/fresh minds, alter organization structures and culture just as Jack Welch did during his successful tenure in General Electric. The failure to plan adequately in pursuing a diversification strategy could be disastrous to the organization’s profitability and even its sustainability.

References

Business & Finance.org.(2011). Analysis of Success Factors of GE’s Diversification Strategy. Web.

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Case, J. (a) (2008). Competition: The Birth of a New Science. New York, NY: Farrar, Straus and Giroux.

Case, J. (b) (2008). Competition: The Birth of a New Science. New York, NY: Farrar, Straus and Giroux.

Koontz, H. & Weihrich, H. (2009). Essence of Management an International Perspective. New Delhi: Tata McGraw Hill.

Slack, N. Chambers, S. & Johnston, R. (2007). Operations Management. Harlow: Pearson.

ZDnet. (2009). Case accepts blame for AOL-Time Warner debacle. Zdnet.com. Web.

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