Strategic Management Report: Diversification and Differentiation

This report delves into strategic management, specifically focusing on diversification and differentiation strategies. It explores the benefits and drawbacks of diversification, including increased revenue potential, integrated supply chain advantages, and reduced transactional costs. The report also highlights the risks associated with diversification, such as market uncertainty and limitations in technological integration. Furthermore, it examines differentiation strategies, differentiating between tangible and intangible aspects. Tangible differentiation involves unique product characteristics, while intangible differentiation focuses on customer relationships and subjective factors. The report emphasizes how these strategies impact a company's competitive advantage in various markets. Overall, this report offers a comprehensive analysis of strategic management principles, providing valuable insights for business development and strategic decision-making.

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Benefits and costs of Diversification
Diversification is a corporate strategy that means entering a new market with a new
product. According to the Ansoff Matrix, this is the riskiest strategy in strategic business
management. Along with the risks, there are some benefits to this strategy. Diversification
could cause an increase in revenue for its integrated processes. Integrated supply chain
management for the new market and product brings benefits to the company economies.
Another significant advantage of diversification is diminished transactional costs.
Diversification causes avoidance of transactional costs in the vertical exchanges in the
markets that have a limited amount of information, a small number of firms and transaction-
specific investments. The coordination between the parts of the organisation increases in the
diversification strategy to a great extent.
The cost of diversification has a considerable variation in different stages of strategy
implementation and production. This is the result of the uncertainty of demands in the new
markets. Another disadvantage is the limitation of flexibility in technology integration and
response to demands changes. Though sometimes, the flexibility in system-wise productions
is experienced. Diversification strategy could give birth to the incentive program in the new
business market, and the risks could also increase with time. The organisation might face
these challenges as the new market is mostly unpredictable, and demand might change at any
time.
Different sources of Differentiation
Differentiation strategy is related to competitive advantage. This is a strategy of
developing the product or services in a unique way that positions the organisation in a better
position than any other competitors.

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The sources of differentiation could be tangible and intangible. The tangible
differentiation comprises of the elements of business like making the product unique and
inputting some observable characteristics. The company must try to differentiate their
products or services through unique materials, size, colour, packaging, performance or
complimentary services. In an unknown market, this kind of differentiation could be more
effective as this makes the company stand out of the crowd and gives competitive
advantages. This differentiation is widely visible from outside and is designed based on
customer demand.
The other differentiation sources are the intangible ones. There could be some
unobservable characteristics which a company could try to impose subjectively. This
differentiation is made according to the target customers demands and status. The luxury
products markets use this kind of exclusivity in their services for individual customers. The
intangible differentiation is a subjective approach of the firm that reflects in its customer
relations and management.