Diversification Strategies: A Case Study of Syco

Running Head: DIVERSIFICATION 1
Diversification Strategies: A case Study of Syco
By (Student’s Name)
University Affiliation
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DIVERSIFICATION 2
PART 1
According to Weil, Schipper, & Francis (2013), revenue is the amount of money that a
business gets from offering its services or selling its goods. Revenue basically captures the price
per unit, the units sold, the discounts, and deductions due to returned goods. Profits, on the other
hand, refer to the financial benefit that is earned when the total revenue surpasses the expenses,
taxes, and costs required to sustain the business.
There are various factors which could influence variability in profit and revenue which
include: marketing cost which is the total cost that is incurred to create awareness about the
product (David, 2011). This comprises of commissions paid to sales agents, advertising cost,
product promotion cost, among others. In the case of Syco it seems that marketing products in
the retail industry require more investment than it is in the insurance industry. The second factor
is the margin per unit which is the difference between production/ buying price and the selling
price. The higher the margin the more the profitability per few units (Weil, Schipper, & Francis,
2013). Syco’s retail products, therefore, have a smaller margin than its insurance products.
The third factor is the industry in which the business operates (Hitt, Ireland, &
Hoskisson, 2012). It seems that the retail industry has stiffer competition than the insurance
industry, therefore forcing Syco to sell its products at a relatively low price in order to get a wide
market share. The fourth factor is the distribution channel that the product goes through before it
gets to the final consumer, in which case the larger the distribution channel the lower the profits
(Rothaermel, 2015). The insurance distribution channel may involve Syco selling directly to the
clients, while the retail business may involve, wholesalers, retailers, and eventually the final
consumers.

DIVERSIFICATION 3
PART 2
Related link diversification strategy is middle-high level cooperate diversification
strategy in which the primary business generates less than 70% of the total income. It is
characterized by limited links between the businesses (Freeman, 2010). Syco’s diversification
can be said to adopt this model due to facts such as; some of its businesses have limited links, an
example is the retail business which is not related to insurance and stock brokerage businesses, it
has no business which contributes above 70% of the total income, and knowledge and
competence such as good leadership styles can be transferred among the businesses in order to
uplift any of the business which could be having a deficiency of the competencies. A good
example is that a good sales agent can be transferred from the retail business to the insurance
business. Adoption of an Enterprise Resource planning system can be useful in linking all the
business in this bracket since it will provide an essay way of managing the businesses.
Related constraint diversification is also a middle-high level corporate diversification
strategy. It has direct links between the firm’s businesses, the diversified businesses contribute
over 30% of the total income, and the business share resources such as technology (Hill, Jones,
& Schilling, 2014). Syco has adopted this type of diversification since its businesses have the
following features; the insurance and stock brokerage business are directly related since they are
both in the finance industry, and the retail business and the consumer credit card operation
business have a direct link and they are both in the retail industry. The businesses can be linked
by creating a single E-commerce website that will be used for advertisement and online selling
thus creating a common distribution channel.