Diversification Strategies - Research Paper Example

Diversification Strategies Throughout the years, companies resort to diversification either at the corporate level of sometimes at the business unit level. The use of different diversification strategies makes it possible to choose strategies that will work for their business. Despite the differences in strategies employed by a different organization, the goal remains similar for most of these firms. They all seek to make profits by increasing their target market. However, not all organizations, which attempt, to diversify achieve success.

Therefore, discussed are two companies, one of which was successful while the other was unsuccessful in their attempt to diversify (Michael, 2010).Google’s diversification strategies prove successful throughout the years. They attribute their success to the fact that diversification in an online market attracts significant lowers costs compared to diversification in the real, physical world. Therefore, most online companies capitalize on this as an advantage. However, this advantage is not merely enough to guarantee success.

Sarah Kaplan, a business professor at Wharton University advances that companies like Google find success because they know how to look for what to leverage to their consumers. For example, Google’s current product named Google Docs and Spreadsheets; seeks to compete with Microsoft Office. In this case, Google’s leverage was the provision of a product that would offer more convenience to their clients over an already existing product owned by another company. The fact that Google is online based also makes sales and marketing of their products easier because they are able to reach a wide market range.

The diversification strategy employed by Google includes an eclectic approach where the combination of different strategies happens at the same time, for example, Google combines both concentric and horizontal strategies. This ensures that they stick to products with technological similarities to their current products. Concurrently, they stretch themselves slightly by introducing products which differ technologically and commercially to their current products because they can depend on their loyal customers (Kaplan, 2006).

Time Warner AOL is among the companies in which their attempt to diversify proved unsuccessful. The merger of these two corporations caught people’s attention because of the strategy it symbolized a merger of two separate spheres; the old and the new. Throughout its 10 year merger, the conglomerate suffered a variety of setbacks. Firstly, the strategy they employed included their adopting of the conglomerate or lateral diversification strategy. Astronomical potential risks characterize this strategy.

This is because it involves the company venturing into a market technologically and commercially different from what it normally deals with. In addition, the fact that the target market involved new customers who were not loyal to the company also proved disadvantageous (Charles &Hill, 2004).Both Warner-AOL and Google are large companies. They are also similar because they are successful in the different niches they occupy. They also both have financial stability and people recognize both companies all around the globe.

They also adopt top of the line marketing strategies. Therefore, from all the similarities they seem to share it would be safe to assume that diversification would work in their favor. However, this is not the case considering Warner-AOL failed at its attempt to diversify. The outcome of this failure was considerable losses. The three reasons for this outcome included the diversification strategy used proved to be too risky for the company. Secondly, both companies overstretched themselves by going into the merger.

Thirdly, the companies did not plan well for future setbacks (Charles & Hill, 2004).In conclusion, Warner-AOL would have probably adopted the horizontal diversification strategy first before going all out and adopting the lateral diversification strategy which presents a lot of risks. In addition, these companies would have calculated their long term well in advance instead of waiting to deal with the risks as they went along. This would have prevented the many setbacks encountered over the 10 years merger duration.

Both Warner and AOL should have cut their losses at an earlier date instead of letting the merger stay on for the duration of ten years (Charles & Hill, 2004).ReferencesCharles W. L. Hill, G. R. (2004). Strategic management theory: an integrated approach. Pennsylvania: Houghton Mifflin.Kaplan, S. (2006, December 13). To Diversify, or Not to Diversify: Whats at Stake for Online Giants in Growth Mode. Retrieved from Knowlegde at Wharton: http://knowledge.wharton.upenn.edu/article.cfm?articleid=1624Michael A. Hitt, R. D. (2010). Strategic Management: Competitiveness and Globalization, Concepts.

New York: Cengage Learning.