Diversification & Competitive Advantage: How It Impacts Business - Essay Sample

Introduction

Diversity strategy is the extent of partaking in various businesses as well as the main relationship model among different businesses of the firm. Diversification strategies can impact the competitive stability of the business. Competitive advantage is referred to as an added value in operative circumstances via competing institutions or firms. Competitive advantage may take place in financial stability, innovativeness, development, and asset accumulation or the support of the client and retention ability. There are various steps to achieving competitive advantages via a related diversification strategy, which are discussed in this paper. They include the following;

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Step 1 Identify the Present Corporate Approach

For the diversified firm to comprehend the competitive recompenses of its diversification approach fully, it must meticulously comprehend its current corporate policy by probing all business aspects as they connect to edifice a bearable competitive advantage (Njoroge). As the firm is defining its present corporate strategy, the management has to ask themselves several questions.

Step 2 Evaluate the Continuing Appeal of Each Firm in Which the Industry Holds Dealings

In this step, the firm evaluates the long-lasting allure of each sector in which it contains businesses. A suitable approach is to recognize the factors which make the firm attractive, allocate weights to every element, plus rate each firm on a scale starting from one to ten. Once the weighted rankings are put together, the company will have a justly good idea of the universal long-term appeal of every industry that is epitomized in its portfolio. This information can be used by the firm in assessing both the absolute and attractiveness of all comprised sectors in the collection of the business.

Step 3 Appraise the Competitive Advantage of the Company’s Business Units

Here, the firm evaluates all the business parts from a chastely competitive perspective. This aims at determining how well each business is positioned compared to its rivals as well as decide if the enterprises are adequately competitive to acquire market leadership. One method is to identify the factors making business unit viable, allocate weight to all elements, a well as rate each scale starting from one to ten. Once the weighted rankings are put together, the company will have a justly good idea of the universal competitive forte of its various business units. Once the company determines the businesses that can become or are market leaders, it can proceed to the next step.

Step 4 Apply Tactical Fittest

Under this, the company determines the business unit with competitively gorgeous value chain collaborations that can aid the company in acquiring cost decreases, leverage a famous brand name, transfer technological skills as well as intellectual capital, or create valuable novel competitive capabilities (Njoroge). Diversified corporations are prospective to gain competitive advantages of the diversification strategies if the units of their business web properly in terms of distribution, technology, management, and operations.

Step 5 Apply Supply Fittest

The reserves fit test's basic purpose is to determine if the parent corporation has enough resources to fund its commercial units effectively and if those corporate units promote the parent firm's financial, competitive along with managerial supply strength. If the answer for both is yes, then the firm is building a competitive advantage via diversification strategy.

Step 6 Rank Commercial Units Grounded on Financial Presentation

At this point, the company rants its various groups grounded on chastely financial standards to determine the units that are donating most to the firm's bottom line. After identifying the factors that are making the units of the business financially stable, it can allocate weights to every element, plus rate each firm on a scale starting from one to ten (Njoroge). Once the weighted rankings are put together, the company will have a justly good idea of the universal financial advantage of its business lines.

Step 7 Ranking the Units of Business Grounded on Resource Allocation Precedence

After listing the business units, the firm can make best use of its position of strategy by financing the expansion or strengthening of the current companies. It uses its financial possessions to clear the existing debts, repurchase the stock, and increase dividends.

Step 8 Develop and New Plus Modified Corporate Approach to Create Competitive Advantage

This obliges as a strong podium for bearable competitive benefit in the present and future. Any business unit which does not subsidize the competitive advantage of the firm will be restricted and strengthen the once with long-term strategic attractiveness (Njoroge). In this, the firm should be able to respond to this question; can the firm manage to create a justifiable competitive advantage using its existing businesses? If yes, then no major alteration in the diversification strategy of a company. If no, the firm will determine if the commitments of more resources will fill the gap.

Work Cited

Njoroge, I. "Building competitive advantage through diversification. A case study of Kenol/Kobil Oil Corporation." Unpublished MBA Project, School of Business, University of Nairobi (2006).