Strategic Management: Formulation and Implementation

Conglomerate Diversification /unrelated Diversification/ Strategies

Conglomerate diversification is growth strategy that involves adding new products or services that are significantly different from the organization's present products or services. Conglomerat diversification occurs when the firm diversifies into an area(s) totally unrelated to the organization current business.

Most conglomerate diversifications are based on the rationale that expansion into unrelated industries has a very attractive potential:

"... the basic premise of unrelated diversification is that any company that can be acquired on good financial terms represents a good business to diversify into" (Thompson and Strickland ).

Typically, corporate strategists screen candidate companies using such criteria as:

Three types of companies make particularly attractive acquisition targets:

Unrelated diversification has appeal from several financial angles:

However, there are two biggest drawbacks to unrelated diversification: the difficulties of managing broad diversification and the absence of strategic opportunities to turn diversification into competitive advantage.

Despite these drawbacks, unrelated diversification can be a desirable corporate strategy.