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"Every diversification decision is an entry decision" - Discuss this statement in terms of its implications for the success of new business diversification.

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Introduction

"Every diversification decision is an entry decision." Discuss this statement in terms of its implications for the success of new business diversification. Your answer should address issues of competitive advantage, industry analysis and industry evolution. What is the motivation for diversification? What is the process to set up the diversification venture? What are the determinant factors that make diversification successful? And what are the rules to manage diversification? Many firm in mature stage find themselves have little room to grow, difficult to capture more market share and to earn more profit. The future of the established firms could be threatened by industry disruption as innovative start-ups entering the market. Those more capable incumbents would constantly adapt to the new rules of competition through both innovation and imitation. There are several reasons that would motivate firms to consider diversification. First, the volatile business could cause firms' earnings uncertain, or the changing business climate could cause firms less profitable than before. EMI Ltd. is a good example, emerged as the Electric and Musical Industries, and then redirected itself towards the development of sophisticated electronic devices during the war. After the war was over, EMI was struggling to make profits because its business was largely aligned with the defense-related products. So the CT scanning came into birth, after EMI's vision on the great opportunity this breakthrough medical technology would bring. ...read more.

Middle

In order to make the new business successful and to improve a firm's value or lower its cost through continuing innovations, building up dynamic capability is a key activity needs to be enacted repeatedly. Strategies should be developed to address how to produce a greater economic contribution than rivals and how to retain customers and prevent imitation to have a sustainable market. The five factors also need to be taken into consideration are financial capital, resources, capabilities, entrepreneurial management skills, and general management. Financial capital should be available for the new business hoping for a greater return in the long term. Resource such as a brand or geographical location or operational capacity is value-add asset that contributes to the firm's performance. Capability is firm's ability to continuously accomplish tasks at a high level of expertise by using its organization and people. The success of Microsoft's office suite application largely replied on the heft investments, the Window's OS brand name and the quality products it brought to the market. Bundling software applications together into a Suite with a discount price is an indeed genuine strategy. Microsoft also took full advantage of Windows to offer applications by smartly making the software applications and operating system complementary to each other. Therefore, Microsoft could offer customer with more value and lower cost that eventually led the company to take over the software application market. ...read more.

Conclusion

To manage a new venture well, we must know how to differentiate it from or integrate into firms' exiting business and we also need to learn how to coordinate between the venture and the rest of the corporation. When the venture entering into a market requires substantial different mechanisms, then it will be a better idea to separate new business from the firm, having independent resource allocation, incentives system, coordination and control systems. When the existing resources and capabilities can be served as the foundation for new business development, then the new business should take these available advantages to leverage the scope of economic. EMI's misjudgment of choosing integration to run the US operation was the cause for the company to face a number of troublesome problems. Despite EMI identified the US as the most profitable market, it was still running a centralized organization based on UK, which made the company lost control over CT Scanner business in US, ranging from differentiable products, manufacturing, marketing, sales muscles to pricing. While Microsoft's leveraging its OS Windows advantage to diversify its business into the software application and Internet Browser is a successfully case utilizing integration. In conclusion, every diversification decision is indeed an entry decision. The new ventures have to continuously and consistently demonstrate their executions on growth and innovations and build up barriers preventing competitors from imitating, and have to accumulate more competitive advantage while developing better dynamic capability during the course of industry evolution. ...read more.

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