WHAT IS CORPORATE DIVERSIFICATION?
Diversification continues the topic of corporate strategy by focusing on two specific types of actions: product diversification – when a firm operates in multiple industries simultaneously, and geographic market diversification – when a firm operates in multiple geographic markets simultaneously. ► Example: Beatrice Companies Since its founding as a regional dairy company in 1891, Beatrice Companies grew to be a $12.5 billion diversified producer of a variety of products – ranging from grocery products to chemicals – by 1985. A succession of CEOs had propelled the company through a series of acquisitions to diversify the company’s activities. As a diversified company, previous leaders ran Beatrice as a decentralized operation and made no attempt to coordinate activities among the businesses. When James Dutt became CEO in 1979, he decided on an aggressive strategy of corporate marketing and attempted to create synergy among the business units. This proved to be an extremely difficult task and the company ran into financial problems. A leveraged buy out firm, Kohlberg Kravis Roberts (KKR) acquired Beatrice and sold it piece by piece. Diversification proved not to be a value creating strategy for Beatrice largely because the management was never able to exploit potential synergies between divisions. This example helps to illustrate the importance of implementation issues in the context of diversification strategies. (Beatrice
TYPES OF CORPORATE DIVERSIFICATION
When a firm chooses to diversify, it faces a decision as to how related the new business(es) is(are) to the existing businesses of the firm. When Charles Bluhdorn was CEO of a company called Gulf+Western in the 1950s, he diversified into a host of industries: motion pictures (Paramount Pictures, the makers of The Godfather, Chinatown, and other movies), clothing, cigars, zinc mines, auto parts, and sugar, among others! In contrast, a company...