Diversification is a form of corporate strategy to increase profitability of a company through greater sales volume obtained from new products and new markets. Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. I will be discussing diversification strategies of Johnson & Johnson who have benefited from diversification and National Semiconductors Company which was not able to succeed in their diversification efforts.
Diversification is a form of corporate strategy to increase profitability of a company through greater sales volume obtained from new products and new markets. It occurs either at the business unit level or at the corporate level. It is a risk management technique that mixes a wide variety of investments within a portfolio. It attempts to smooth out unmethodical risk events in a group so that the positive performance of some investments will neutralize the negative performance of others. Companies may diversify for strategic objectives, expected outcomes, valuable comparison between strategy and expansion. Some companies diversify by conquering new positions through mergers and acquisitions whiles others diversify when there are not much growth opportunities for the market they are in.
There are many reasons for pursuing a diversification strategy, but most pertain to management's desire for the organization to grow. Companies must decide whether they want to diversify by going into related or unrelated businesses. They must then decide whether they want to expand by developing the new business or by buying an ongoing business. There are advantages to diversification, beyond simply expanding one's product line. For example, a diversified company is potentially better insulated against a loss of revenue in one business tranche.
Diversification strategies are used to expand firms' operations by adding markets, products,