Introduction
Organization theory remains a powerful model for influencing business operations, strategies, and goals. Managers need to design appropriate activities and initiatives that resonate with the outlined mission and vision statements. Diversification is an evidence-based strategic option that firms can pursue to venture into new markets by introducing additional products or services that they have never offered before. This choice presents different advantages and disadvantages that companies need to take into consideration if they are to remain sustainable and profitable.
Conglomerate Diversification: Advantages and Disadvantages
The suggested option for this analysis is known as conglomerate diversification since it seeks to deliver new products to unrelated or existing markets. The organization will have to identify and target a new customer base to become more competitive and maximize its revenues (Le, 2019). This has become a common model for corporations that have huge resources and support systems. When done properly, chances are high that the identified firm will achieve its business goals much faster. The involvement of all key partners and workers is essential since insures that the process is seamless and capable of delivering the intended aims. Organizations that lack adequate financial and human resources will find it hard to consider this option.
Just like any other diversification strategy, this option delivers various benefits that can revolutionize business performance. First, the initiative will minimize the potential impacts of the obstacles and risks that might be existing in the original industry (Dhir and Dhir, 2015). Second, any company following this path will expand its product portfolio to attract more customers and partners. For example, Samsung’s decision to diversify into new markets and offer additional products had made it more profitable (Knöpfle, 2016). The model can guide a firm to transform the nature of its brand image, become admirable, and will eventually record additional profits.
Third, this diversification option reduces the negative impacts of competition in the selected industries or markets. The company will identify more possible buyers from original and new sectors, thereby increasing the chances of recording meaningful results. Fourth, the model is suitable for the company to market its original products in a new region or group of customers (Cole and Karl, 2015). The increasing number of consumers in the identified market means that the company can rely on this approach to increase sales. From the nature of these advantages, it is agreeable that conglomerate diversification is appropriate and capable of supporting the goals of any given company. Such an approach can eventually result in an increased competitive advantage.
On the other hand, this diversification initiative presents specific challenges that different stakeholders or entrepreneurs need to take seriously. The first one is that the company will have to incur additional expenses to hire more professionals who can support the targeted business practices, such as human resources personnel, research, and development (R&D) technicians, and marketers (Cole and Karl, 2015). This critical requirement can strain the organization’s finances and eventually disorient the level of performance and profitability. The second drawback is that of taxation since a new group structure would be used to audit the company. This aspect will reduce the benefits that the organization might have recorded before (Cole and Karl, 2015). The third disadvantage of this diversification option is that the firm might have increased chances of losing focus. The unrelated business and market might present additional challenges to the management, R&D, and sales departments.
The fourth problem with this form of diversification is that the corporation might encounter a unique opposition to change from its existing workers or stakeholders. Such partners might find it hard to be involved since the new process will disrupt their normal procedures and practices. The fifth challenge arises from the issue of cultural differences in different regions (Le 2019). For example, a European company that plans to venture into the Chinese market should be prepared for diversity predicaments that might emerge. It will have to incur additional costs to train its workers or the identified new ones. The company may also find it hard to understand the unique expectations and demands of the targeted customers in the new market.
When such obstacles arise, it becomes critical for those in leadership positions to consider the best initiative to minimize and reduce their impacts, make timely decisions and implement evidence-based strategies to reduce the level of resistance or objection to change. For instance, Kurt Lewin’s change theory can guide businesses to minimize this potential challenge (Le 2019). Nonetheless, the presence of these critical drawbacks should not discourage companies from pursuing this form of diversification (Cole and Karl, 2015). The most important action plan should be to identify possible opportunities and eventually leave more customers satisfied.
Conclusion
Business leaders need to think strategically and identify emerging opportunities that resonate with the anticipated goals. Due to the challenge of rivalry, companies can introduce additional products or services and deliver them to more people in different regions. When done properly, corporations can increase sales and become more sustainable. However, all organizational managers and decision-makers pursuing such a model should be prepared for each of the above drawbacks. Future researchers should undertake additional studies to present evidence-based initiatives to reduce the possible negative impacts of this diversification option
Reference List
- Cole, C.R. and Karl, J.B. (2015) ‘The effect of product diversification strategies on the performance of health insurance conglomerates’, Applied Economics, 48(3), pp. 190-202. doi: 10.1080/00036846.2015.1076149
- Dhir, S. and Dhir, S. (2015) ‘Diversification: literature review and issues’, Strategic Change, 24(6), pp. 569-588. doi: 10.1002/jsc.2042
- Knöpfle, G. (2016) Samsung Electronics and the global market. The history and the competitive advantage. Munich: GRIN Verlag.
- Le, H. (2019) ‘Literature review on diversification strategy, enterprise core competence and enterprise performance’, American Journal of Industrial and Business Management, 9(1), pp. 91-108. doi: 10.4236/ajibm.2019.91008