Diversification Strategy GP, Research Paper Example

The company should go into related diversification because, as a technology company, we have internet-related issues. The company is going into an area that will create a strategic fit and hence achieve some synergy. I propose this kind of strategy because it deals with related diversification. Related diversification provides a chance to exploit capabilities and resources in the current firm (Flouris& Oswald, 2006, p. 106). There will be an overlap of resources used so that the company does not duplicate all aspects of the business. What the company will utilize is the horizontal form of related diversification. This means that the company will be producing a new product for the same class of people.

The reasons for the diversification include; increasing the firm’s value through improvement of its overall performance, which can be done to allow the company’s business to reduce costs and increase revenue (Hitt, Ireland &Hoskisson, 2008, p. 157). Another reason would be the need to match and hence neutralize competitor’s market power.The strategy will allow the firm to obtain the benefits of risk pooling.This means the risk of revenues falling and rising sharply will be reduced.

The strategy can also have hard effects on the firm. The diversification can result in falling profitability especially when managers refuse to acknowledge the fact that their strategy is failing (Hill & Jones, 2009, p. 324).The firm should divest from the project, if it is becoming unprofitable instead of making excuses on how it is important to keep their businesses intact. When the new strategy fails, the firm should not try to enter into the market in the anticipation that it will be rescued and can lead to long-term profitability and growth. The major problem with diversification is the fact that it is hard to predict the future success. It is for this reason that managers should be willing to divest units of business, as they are willing to acquire them. Another problem is the fact that findings that previously appeared to support the new strategy may contradict each other.

The firm’s identity in the market will be used to build the brand equity,as well as awareness about new product. The rapport the firm has with the government will help in the establishment, as well as, in the running of the new venture. The customers of the site will be assured of the fact that they are using a valid product. The credibility of the firm will be utilizedto effectively buildbusiness relationships. It will also be used to assure and produce honest dealings. The advantage with this strategy is that it will attract foreign investors since it will put the business in the diverse world. The new strategy will be related to the other businesses being carried out in the firm.

The dimensions of relatedness will be in the form of sharing customers, emphasis on customer service where customer satisfaction is key, production of high value-added products, share quality emphasis, share investment requirements as well as distribution network (Kenny, 2009, p. 16). It is for this grounds that wedecided to take the related diversification strategy. The same activities and resources are used to make and sell the product, which is the social networking website in this case. The businesses that the firm is dealing with are different but related providing synergy with the firm.

The new strategy will increase the demand of the firm’s products as they satisfy the customer’s and business growing needs. There is a growing demand for social networking sites, meaning that there will be increased demand for the firm’s products(Hill & Jones, 2009, p. 322). What we will be doing is developing and exploiting economies of scope between the businesses of the firm. Economies of scale will be created successfully when the firm will share the capabilities and resources. It will also be created through the transfer of corporate-level core competencies that were created and implemented in one of its businesses to another of its businesses. The business getting the transfer here is the new strategy that is being created in the firm.

The concerns of the strategy will be addressed through the organization knowing how to utilize the social media effectively. The marketing strategy used should first meet the business objectives of the organization. The organization will also support the goals of the target social community. By so doing, the organization will be better prepared and we can generate a market (promotion) strategy that will help us reap maximum benefits of the social networking.The revenue for the new venture will come from the dominant business of the firm and all the businesses will share technological, product and distribution linkages (Hitt, Ireland & Hoskisson, 2008, p. 156). The benefits will be realized only when our top managers understand the meaning and reliability of the new venture. This will prevent confusion on the actions to take as well as the complexity. Our hope is the strategy will help in the smooth running of the website.

References

Flouris, T.& Oswald, S. (2006).Designing and executing strategy in aviation management. Aldershot, United Kingdom: Ashgate Publishing Ltd.

Hitt, M., Ireland, D.& Hoskisson, R. (2008).Strategic management: Competitiveness and globalization, concepts & Cases. New York: Cengage Learning.

Hill, C.& Jones, G. (2009).Strategic management theory: An integrated approach. New York: Cengage Learning.

Kenny, G. (2009).Diversification strategy: How to grow a business by diversifying successfully.London: Kogan Page Publishers.