What is it?

Diversification is the process of entering new business markets with new products. Such efforts may be undertaken either through acquisitions or through extension of the company's existing capabilities and resources.

The diversification process is an essential component in the long range growth and success of most thriving companies, for it reflects the fundamental reality of changing consumer tastes and evolving business opportunity. But the act of diversifying requires significant outlays of time and resources, making it a process that can make or break a company. Small business owners, then, should carefully study diversification options, and their own fundamental strengths, before proceeding. "The range of success [of diversification efforts] varies considerably," observed the editors of the Complete MBA Companion. "The odds of success decline precipitously the further the firm strays from existing competencies."

Analysts of diversification generally break such efforts down into two categories: 1) related or concentric diversification, and 2) unrelated or conglomerate diversification. "In related diversification," wrote Henry Mintzberg and James Brian Quinn, authors of The Strategy Process: Concepts and Contexts, "there is evident potential synergy between the new business and the core one, based on a common facility, asset, channel, skill, even opportunity." But they also noted that "no matter what its bases, every related diversification is also fundamentally an unrelated one, as many diversifying organizations have discovered to their regret. That is, no matter what is common between two different businesses, many other things are not."

Source: referenceforbusiness

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