SPECIFICATION OR DIVERCIFICATION

Specification Or Divercification In Businesses

Specification Or Divercification In Businesses

Business planning tools in general have been criticized because of the lack of analytical techniques employed and the failure to keep up with the dynamism of business markets. For example, tools that were designed for production industries in some cases have little relevance to new service business models both in statistical pedigree and in language relevance. Authors have added to these criticisms by critiquing the tools' detachment from practical experience and their short-term, cost-reduction approach. The inference being that to ensure business sustainability one cannot rely on myopic decision making. Later debate on the subject has been concerned with the problem of “framing,” where the tool itself incorrectly generates a focus on some elements of a company's strategic environment at the expense of others.

The term diversification is used to describe a business strategy based on variety. Diversification strategies are the plans that involve choosing one or more options to improve the likelihood of success in diversification. There are many forms of diversification, and describing a few of them will illustrate what diversification strategies are and why they are important.

In investing, diversification means spreading risk by making investments across a variety of forms: small company stocks, large company stocks, bonds, money market instruments, banks, certificates of deposit (CDs), domestic and international companies, and on, and on. The hope is that by diversifying, the risk of a failure in any one type or size of investment is mitigated or at least reduced in impact on the entire portfolio of investments.

Applications, however, can be a bit more complicated to modify. Whether developed by a vendor or developed in-house with existing staff, the application programs must conform to the design specifications developed by the system designers after the analysis of user needs. If the application programs do not function as defined by the specifications, then the necessary changes must be made so that they do “meet specs.” If, however, the user determines that the application program does not function as well as desired but still meets specs, then the application must be redesigned and reprogrammed. That can cost additional money and can delay the implementation of the system. Balancing the workload of critical changes versus desired changes is a major headache experienced by GIS project managers, who are under both time and money constraints in implementing the system.

In business strategy, the meaning of diversification is similar, but the application and execution is different. Diversification strategies in business may be horizontal, in which expansion moves into similar product or service areas but in different geographic or price/specification market segments. Or the diversification strategy may be vertical (also called vertical integration or backward integration), whereby an organization acquires the suppliers of the raw materials, components, or goods and services it uses in its business or activities.

One of the latter forms of vertical diversification, called vertical integration, was very popular in the early 20th century, following the success of legendary giant Henry Ford, whose ...