The big attraction of a related diversification strategy is
the competitive advantage potential that flows from the ability to capture competitively valuable cross-business strategic fits that can boost its financial performance and thereby providing a clear avenue for achieving the hoped-for gains in shareholder value.
- A. the added speed with which a company can develop new core competencies
- B. the added potential it offers for reducing the total number of value chain activities a company has to perform
- C. the ability to broaden a company’s overall product line and offer customers a bigger selection of models, styles, and product versions to choose from.
- D. the ability to cover a wider geographic area and operate in more attractive industries
The correct answer and explanation is:
The correct answer is:
A. the competitive advantage potential that flows from the ability to capture competitively valuable cross-business strategic fits that can boost its financial performance and thereby providing a clear avenue for achieving the hoped-for gains in shareholder value.
Explanation:
A related diversification strategy allows a company to expand into businesses that share meaningful strategic connections with its existing operations. This approach helps companies leverage their core competencies, brand reputation, supply chain efficiencies, and customer relationships across multiple business units. The most significant advantage of related diversification is the ability to create strategic fit between businesses, which enhances operational efficiency and competitive strength.
One of the primary benefits of related diversification is cost-saving synergies. When companies share resources, such as distribution channels, manufacturing facilities, or research and development, they can reduce costs while increasing overall productivity. These economies of scale improve profitability and financial performance, ultimately benefiting shareholders.
Additionally, related diversification strengthens a company’s competitive positioning by enabling cross-business collaboration. For example, a company with expertise in technology can apply its innovation capabilities to multiple product lines, making them more advanced and appealing to customers. This synergy creates market differentiation and helps the company sustain a competitive edge.
Moreover, a well-executed related diversification strategy leads to revenue growth by expanding product offerings that complement existing ones. For instance, an automobile manufacturer diversifying into electric vehicle battery production can benefit from both industries while maintaining strategic coherence.
Ultimately, the primary attraction of related diversification is its potential to generate superior financial returns through operational efficiencies, shared competitive advantages, and enhanced value creation. By leveraging cross-business strategic fits, a company can increase profitability, improve market presence, and maximize shareholder value.
Now, I’ll generate an image representing this concept.
Here is an illustration representing the concept of related diversification strategy, showing interconnected industries with strategic fits. Let me know if you need any modifications or explanations!
