DIVERSIFICATION STRATEGIES

Diversification Strategies



Diversification Strategies

Diversification Strategies

There are two major types of diversification: related and unrelated diversification. Related diversification is done in a new business operation related to the activity, or existing business applications of the company by common relations between one or more components of the value chain of each activity. In addition, there is vertical and horizontal integration, which relate well and work together (Chan-Olmsted, 2006). Vertical Integration involves taking control of the various stages of production, from initial processing of raw materials to final delivery, mean-while, horizontal integration seeks to control or acquire competitors, or create subsidiaries, which create economic activities in the same level of the value chain. Unrelated diversification is presented in a new business area, which has no obvious connection with any of the existing areas of the company.

Compare and Contrast the Two Businesses

General Electric

A century old, the General Electric Company today employs over 300,000 people worldwide. It operates in over 100 countries, with 250 manufacturing plants in 26 nations. The company has operations in five businesses, which include GE Capital, technology infrastructure, energy infrastructure, NBC Universal, and home and business solutions. The key geographical areas of operations are North America, Europe, Asia, and Africa. Other areas include Africa and Australia. GE's headquarter is in Fairfield, Connecticut and has more than 300,000 employees all over the world. GE earned revenues of approximately $150,000 million in 2010, which indicates a decrease of nearly 4% from the 2009 results (Hitt, 2010). The operating profit of GE was nearly $30,200 million in 2010, which reflects an increase of nearly 7% from the 2009 results. On the other hand, the net profit was nearly $11,400 million in 2010, with an increase of almost 6% over 2009.

Time Warner

Worldwide media company, which operates several media businesses. Time Warner was formed through the merger of Time Inc and Warner Communications (formerly Warner Bros) in 1990. It merged with Turner Broadcasting in 1996 and the Internet company America Online in 2001 (Duncan, 2006). The resulting Time Warner Inc company operates a range of businesses, including cable networks, publishing, filmed entertainment, music, and information systems.

The company earned revenues of nearly $27,000 million in 2010, with an increase of 6% from 2009. On the other hand, the operating profit was almost $5,500 million in 2010, with an increase of almost 22% over 2009. Time Warner earned a net profit of nearly $2,600 million in 2010, which shows an increase of 4% from 2009 (Hitt, 2010).

Comparison of Outcomes

GE's Successful Diversification Strategy

The diversified company can create value in three important ways, by (1) acquisition and restoration of companies operating poorly (2) transfer of skills between businesses, and (3) economies of scope. We see a clear example of this strategy to observe the General Electric Company, as it is a highly diversified company. General Electric manufactures locomotives, light bulbs, light and power plants and refrigerators. It handles credit cards, American Express and has more commercial aircraft than American Airlines. General Electric has been successful with its diversification strategy, ...