Qualities of diversification that you should consider

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Hello readers, today I will be writing about diversification. This could be seen as a situation whereby a business enters a new market by developing a new product (goods or services). Diversification in business is also done to minimize risks just like when you diversify your investment portfolio. However, it is also done to create more profit as well as a competitive advantage for a business.

Some researchers say that diversification could destroy as well as create value. As such caution must be taken to ensure that the business is entering a market that they fully understand. The business must also ensure that they possess the tools to compete in the market. That way value will be created rather than destroyed. Businesses in a declining industry tend to diversify their products, with the goal of mitigating the risk associated with a declining industry.

Porter's essential tests can also be used to know if diversification will add value or not. This includes three tests which are

- The attractiveness test: The new market being entered must possess some qualities your business will find attractive. It could be the market size or the market growth or the profit being made in the market.

- The cost of entry test: The barrier to entry must be low, the cost to enter the market must not consume all your financial resources.

- The better off test: A competitive advantage must be gained when a business decides to diversify its products. If no competitive advantage will be gained then the business should not diversify.

Among other factors will be the condition of the market such as the legislations governing the market, is it practicable by your business if not do not enter the market and other factors. The financial capability of the business will also matter. When all of these factors have been considered and they all seem positive then a business should go ahead and diversify. That is all, keep checking my blog regularly. Cheers!

Comments

Eid Mubarak

Hope you have a good one

How can your strategy be successful

Hello readers, today I will be telling you about ways to make your strategy a successful one. The scope is your strategy must be fit, in other words your strategy must be consistent with the environment your business operates in. When I say environment, I am talking about both external and internal environments. Thus, you must understand the political, economic, socio-cultural, technological and legal environments your business operates in. The environmental protection that affects your organisation must also influence you when formulating your strategy. Therefore, PESTEL analysis can be used to understand the external environment of your business. The internal environment also needs to be understood, as your strategy must also be in alignment with the internal environment. Understanding your internal environment will help you know the resources your business has, the capabilities of your business as well as the structure and system. The SWOT analysis can be used to help y...

Managing Employees

Hello readers, today I will be writing about managing employees. It is common knowledge that employees of an organisation are not owned by the organisation they work for. Thus, employees should always be treated as humans and not assets. An employee will be motivated to deliver high quality results if the employee enjoys his/her working environment. In other words, employees deliver good results when they work with employees that act nicely, when the working environment is conducive and when managers implement decisions that does not lead to dissatisfaction. There is always a relationship that exists between an organisation and its employees that requires each party to satisfy each other's needs. It is usually perceived as a psychological contract. Thus, both the employees and the organisation will be doing the giving and the receiving. The initial impression that a employee perceives about the relationship between the organisation and employees goes a long way ...

Islam and Business Finance

Search This Blog