Specialization and diversification are the two forces that promote the development of enterprises. They are “to carry the main business to the end†or “put the eggs in different basketsâ€, and the enterprises should analyze the specific problems.
In the 1960s, with the tremendous changes in the external business environment of enterprises, Western scholars and entrepreneurs gradually realized the need to reconsider the future profitability of enterprises, and needed to re-strategize to adapt to changing challenges, threats and opportunities. The need of reality has spawned a series of strategic management ideas and management theories. The diversified business strategy has gradually attracted the attention and attention of enterprises.
What is a diversified business strategy The strategy of a company is divided into a company-level strategy, a business-level strategy, and a functional-level strategy. The company-level strategy is a plan to manage the growth and development of the organization and to create greater value-creating capabilities. This level of strategy determines which businesses and which regions of the market the company should be involved in. A diversified business strategy is a corporate strategy.
The company-level strategy includes focusing on a particular business (specialization), vertical integration (integration), diversification and internationalization. Almost all companies are concentrated in a certain business in the initial stage, forming a strong competitive advantage in the industry, forming and accumulating core capabilities, and thus gradually develop. In this process, the company has expanded its scale, established its position in the market, strengthened its development strength, and completed capital accumulation and capacity preparation for future development. It can be said that specialization is the realization of other strategies by enterprises. The basics. Vertical integration or vertical integration is to expand the business and business areas of the company along the value chain, including moving back into the upstream industry that provides inputs for the company's core business, or moving forward into downstream industries that use the company's core business products. Dell entered the memory chip industry and produced memory chips for its own personal computers, which is a typical backward vertical integration. In 2001, Apple decided to establish an Apple chain store and enter the retail industry, which is a typical forward vertical integration.
In recent years, due to the changes in the competitive environment and the need for business expansion, the diversification of enterprises has become a hot topic in theory and practice. In terms of concept, diversification is a strategy to expand into new or new industries and produce new products or services. Microsoft's entry into the video game industry through XBOX and GE's entry into the online broadcast industry through the acquisition of the NBC is an example of diversification. From the perspective of the relationship between the newly entered business areas and the current business areas, diversified operations can be divided into two types: related diversified operations and unrelated diversified operations. Related diversification refers to entering a certain business or industry in order to establish a new competitive advantage in the company's existing department or business. Non-related diversification refers to the entry or acquisition of an industry that is not related to its current business or industry. There are three main types of diversified operations: investing in new business units and expanding into other business areas; acquiring other business areas from outside the company; and diversifying through strategic alliances.
Why do diversified companies do not adhere to long-term professional strategies and adopt a diversification strategy? In summary, there are basically several reasons:
1. The impulse of the company's internal expansion and the need to strengthen the competitiveness of enterprises. After the enterprise develops to a certain stage, it is inevitable to implement a diversification strategy. By diversifying operations, enterprises have increased the variety of products in the market. On the one hand, they can expand the market capacity and coverage of enterprise products, and become bigger and stronger in diversification. On the other hand, diversification can extend the operation of enterprises to many fields. Different fields can encourage enterprises to cultivate different abilities, and their capabilities have been enhanced, which will be in a favorable position in the market competition.
2. Decentralize business risks and maintain stable income. A good way to avoid all the eggs being smashed is to put the eggs in separate baskets. The quality of business operations depends not only on internal factors, but also on external factors such as changes in national policies, macroeconomic trends, natural disasters, and other competitive situations within the industry. The diversification strategy “puts eggs in different basketsâ€, which disperses the business risks of the company to a certain extent.
3. Make full use of the internal resources of the company and play a synergistic effect. The corporate diversification strategy can open up new business areas for enterprises and extend the application space of internal resources and core capabilities (such as capital, brand, technology, market, etc.) so that they can be fully and effectively utilized. The enterprise diversification strategy can promote mutual promotion and synergy through the interconnection and sharing of new and old products and services.
4. Make great use of market opportunities and get big profits. On the one hand, when the original operation and development of the enterprise cannot satisfy the pursuit of profit, the enterprise will intervene in other businesses and obtain more profits through diversification; on the other hand, the changes in industrial structure during the economic development process. There will be some high-margin industries that are more attractive to social resources, and they also encourage some companies to diversify.
5. Adapt to the needs of the industry life cycle, product life cycle changes, and industrial transformation and upgrading. With the changes in technology and environment, the demand for products will change. Products and industries will enter the recession period after the introduction period, growth period and maturity period. Therefore, the diversification of enterprises is also the response to changes in product and industry life cycle. One way is to achieve long-term survival and transformation and upgrading of enterprises by entering other businesses and industries. For example, some large enterprises gradually enter the modern tertiary industry from the manufacturing industry and become the service industry companies.
The goal of diversification is to improve the company's performance and ultimately maintain the company's sustainable development. Diversified ways to improve performance include: leveraging the core capabilities that the enterprise has formed; making full use of the benefits of the scope economy; and forming internal governance. All enterprises that have achieved diversified success have achieved these benefits well. Any enterprise that has failed in diversification basically lacks support from these aspects and practices blind diversification. Instead, it causes the company to lose its competitive advantage and fall into a quagmire of diversification. It is difficult to extricate themselves.
In the 1960s, with the tremendous changes in the external business environment of enterprises, Western scholars and entrepreneurs gradually realized the need to reconsider the future profitability of enterprises, and needed to re-strategize to adapt to changing challenges, threats and opportunities. The need of reality has spawned a series of strategic management ideas and management theories. The diversified business strategy has gradually attracted the attention and attention of enterprises.
What is a diversified business strategy The strategy of a company is divided into a company-level strategy, a business-level strategy, and a functional-level strategy. The company-level strategy is a plan to manage the growth and development of the organization and to create greater value-creating capabilities. This level of strategy determines which businesses and which regions of the market the company should be involved in. A diversified business strategy is a corporate strategy.
The company-level strategy includes focusing on a particular business (specialization), vertical integration (integration), diversification and internationalization. Almost all companies are concentrated in a certain business in the initial stage, forming a strong competitive advantage in the industry, forming and accumulating core capabilities, and thus gradually develop. In this process, the company has expanded its scale, established its position in the market, strengthened its development strength, and completed capital accumulation and capacity preparation for future development. It can be said that specialization is the realization of other strategies by enterprises. The basics. Vertical integration or vertical integration is to expand the business and business areas of the company along the value chain, including moving back into the upstream industry that provides inputs for the company's core business, or moving forward into downstream industries that use the company's core business products. Dell entered the memory chip industry and produced memory chips for its own personal computers, which is a typical backward vertical integration. In 2001, Apple decided to establish an Apple chain store and enter the retail industry, which is a typical forward vertical integration.
In recent years, due to the changes in the competitive environment and the need for business expansion, the diversification of enterprises has become a hot topic in theory and practice. In terms of concept, diversification is a strategy to expand into new or new industries and produce new products or services. Microsoft's entry into the video game industry through XBOX and GE's entry into the online broadcast industry through the acquisition of the NBC is an example of diversification. From the perspective of the relationship between the newly entered business areas and the current business areas, diversified operations can be divided into two types: related diversified operations and unrelated diversified operations. Related diversification refers to entering a certain business or industry in order to establish a new competitive advantage in the company's existing department or business. Non-related diversification refers to the entry or acquisition of an industry that is not related to its current business or industry. There are three main types of diversified operations: investing in new business units and expanding into other business areas; acquiring other business areas from outside the company; and diversifying through strategic alliances.
Why do diversified companies do not adhere to long-term professional strategies and adopt a diversification strategy? In summary, there are basically several reasons:
1. The impulse of the company's internal expansion and the need to strengthen the competitiveness of enterprises. After the enterprise develops to a certain stage, it is inevitable to implement a diversification strategy. By diversifying operations, enterprises have increased the variety of products in the market. On the one hand, they can expand the market capacity and coverage of enterprise products, and become bigger and stronger in diversification. On the other hand, diversification can extend the operation of enterprises to many fields. Different fields can encourage enterprises to cultivate different abilities, and their capabilities have been enhanced, which will be in a favorable position in the market competition.
2. Decentralize business risks and maintain stable income. A good way to avoid all the eggs being smashed is to put the eggs in separate baskets. The quality of business operations depends not only on internal factors, but also on external factors such as changes in national policies, macroeconomic trends, natural disasters, and other competitive situations within the industry. The diversification strategy “puts eggs in different basketsâ€, which disperses the business risks of the company to a certain extent.
3. Make full use of the internal resources of the company and play a synergistic effect. The corporate diversification strategy can open up new business areas for enterprises and extend the application space of internal resources and core capabilities (such as capital, brand, technology, market, etc.) so that they can be fully and effectively utilized. The enterprise diversification strategy can promote mutual promotion and synergy through the interconnection and sharing of new and old products and services.
4. Make great use of market opportunities and get big profits. On the one hand, when the original operation and development of the enterprise cannot satisfy the pursuit of profit, the enterprise will intervene in other businesses and obtain more profits through diversification; on the other hand, the changes in industrial structure during the economic development process. There will be some high-margin industries that are more attractive to social resources, and they also encourage some companies to diversify.
5. Adapt to the needs of the industry life cycle, product life cycle changes, and industrial transformation and upgrading. With the changes in technology and environment, the demand for products will change. Products and industries will enter the recession period after the introduction period, growth period and maturity period. Therefore, the diversification of enterprises is also the response to changes in product and industry life cycle. One way is to achieve long-term survival and transformation and upgrading of enterprises by entering other businesses and industries. For example, some large enterprises gradually enter the modern tertiary industry from the manufacturing industry and become the service industry companies.
The goal of diversification is to improve the company's performance and ultimately maintain the company's sustainable development. Diversified ways to improve performance include: leveraging the core capabilities that the enterprise has formed; making full use of the benefits of the scope economy; and forming internal governance. All enterprises that have achieved diversified success have achieved these benefits well. Any enterprise that has failed in diversification basically lacks support from these aspects and practices blind diversification. Instead, it causes the company to lose its competitive advantage and fall into a quagmire of diversification. It is difficult to extricate themselves.
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