In diversification can create value in strategic management by reducing risk, increasing revenue, and taking advantage of synergies and opportunities. Product diversification involves expanding into new product categories or markets, while product differentiation focuses on making existing products distinct. The choice between these strategies depends on the company's goals, market conditions, and resources available.
Yes, diversification reduces risk by investing in vehicles that span different financial instruments, industries, and other categories. Unsystematic risk can be mitigated through diversification, while systematic or market risk is generally unavoidable. However, diversifying by acquiring a company in a related product market can enable a company to reduce its technological, production, or marketing risks. If these reduced business risks can be translated into a less variable income stream for the company, value is created. Diversification strategies can help mitigate the risk of a company operating in only one industry. If an industry experiences issues or slows down, being in other industries can help soften the impact. Companies can also diversify within their own industry. There are three types of diversification: concentric, horizontal, and conglomerate. In the concentric strategy, the business launches a similar product in the existing product line. In the horizontal strategy, the company launches an unrelated, new product in the product mix.Reduces risk due to your investments being spread across multiple areas; if one market fails, success in others will reduce the impact of failure. Helps you gain access to larger market potential, due to lower competition in foreign markets and increases your business's overall market share. The firms can create value by using related diversification strategy through operational relatedness and corporate relatedness. Under operational relatedness the firm share its activities; whereas, under corporate relatedness the firm relocate its core competencies. Strategies that imply a need to change or improve can be more value-added than a strategy that rarely changes what the organization is currently doing. Strategies that are easy to understand can be more value-added than a strategy that is complex and fails to take advantage of the resources that the organization has. Diversification entails how a company deals with different products simultaneously or puts its focus on various ventures in the market to enable realize more profits. In contrast, differentiation strategy entails how the company makes its products distinct from its competitors. Eg an airline branching into setting up a hotel chain (related diversification) or a supermarket setting up a bank (rather unrelated diversification). Differentiation is staying in or entering a particular business but producing a product or delivering a service which is better than your rivals. Product differentiation is the process used to distinguish one company's goods and services from another company's goods and services. Conversely, price discrimination is a strategy used to distinguish prices for the same goods and services. Differentiation as a concept should be distinguished from the concept of diversity. Diversity is a term indicating the variety of entities within a system. While differentiation denotes a dynamic process, diversity refers to a static situation.