What is it? Diversification strategy is one of the tools for a strengthened business, when in order to maintain high financial indicators it is necessary to use the development of business areas other than the main one.
Who is it suitable for? This approach is not always justified, especially when it comes to small businesses. However, large companies should also carefully weigh the feasibility of developing a particular area. Strategic analysis can help with this.
The article explains:
The essence of instagram database the diversification strategy
When to Use a Diversification Strategy
Diversification of small and large businesses
Types of diversification strategies
Types of diversification strategies
Stages of developing a diversification strategy
Finding finance to implement a diversification strategy
The nuances of planning in a diversified company
Mistakes When Using Diversification Strategy
Examples of diversification
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The essence of the diversification strategy
Diversification (from the English word diversity - "variety") is a strategy, the essence of which is the distribution of resources, mainly financial (assets, investments). This term was introduced into circulation by the American economist Harry Markowitz in 1952. When we talk about diversification in the context of business, we are talking about launching different projects, services and goods within the framework of the company's activities. In addition, it involves investing money in different assets and markets.
The essence of the diversification strategy
Diversification strategy for financial institutions is the distribution of risks using different assets, credit and other monetary instruments. Thus, mutual funds invest in industries, the degree of danger in which can be completely different. Whereas venture funds invest money in high-risk start-ups.
Goals and objectives of diversification
competent distribution of resources for effective protection against loss of funds and maximum profit extraction;
creating a financial safety net that can be used in times of crisis or in the interests of the company’s development;
risk reduction;
protecting an enterprise during periods of difficulty in a particular industry or in the economy in general;
reorganization or scaling of the company;
providing a business with a promising area of work that can be developed if problems arise in the main industry and it becomes unprofitable.
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Benefits of Diversification
the company becomes more resilient to crisis situations or increased competition;
resources are distributed much more usefully and efficiently;
new products and areas of activity appear, which contributes to the growth of competitiveness;
the enterprise has a flexible long-term strategy that can easily adapt to the current situation;
thanks to the leading areas of activity that bring in the main profit, all the others can also develop;
the company becomes more attractive in terms of investment and partnership;
the enterprise gains access to loans with favorable terms, including on the international market.