Diversification Strategies Essay Example
Diversification Strategies Essay Example

Diversification Strategies Essay Example

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  • Pages: 7 (1701 words)
  • Published: April 19, 2017
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Diversification Strategies: The concept of diversification in a company can be misunderstood. A diversified company operates multiple independent businesses, each managed separately, catering to different customers and offering various products or services. Being diversified can have advantages by reducing the impact of problems in one business on others. Diversification can happen through creating a new business or merging with an existing company.

Companies can choose to acquire another company that offers a different service or produces a different product as part of diversification. The challenge lies in generating profitable returns for shareholders and addressing concerns about corporate value through mergers and acquisitions. Notable diversified companies such as 3M, Motorola, GE, and Sara Lee have successfully tackled this challenge. However, our main focus will be on 3M in this discussion. Although 3M initially began by manufact


uring sandpaper almost a century ago, they have now introduced software specifically designed to help companies manage their warehouses, shipping yards, and logistics.

3M offers two completely different products under the same roof, operating as separate entities. This is one example of the few diversified products that 3M provides. The reason for this is that the customers are evolving, and to meet their demands, the company is adapting as well. 3M came to the conclusion that they cannot solely focus on inventing and manufacturing numerous products used by individuals and businesses; they also need to assist their businesses in effectively managing processes and supply chains through which those products move. In order to address this need, they acquired High Jump Software Inc.

High Jump Software Inc. is a well-known provider of supply chain execution software. They offer applications used by various companies, including Starbuck's

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Corp., to efficiently oversee their products and operations at distribution centers. 3M, a company known for manufacturing tapes, sandpaper, and adhesive, has also ventured into the software and services industry as part of its $3.5 billion industrial business. This trend of diversifying into different sectors is not limited to 3M; other companies like FedEx acquiring Kinko's and Boeing entering the communication field are following similar paths.

The sales of High Jump Software application have risen by 30% and are expected to reach $40 million in sales since the acquisition. With the usage of 3M as the packaging tool, they are confident in their ability to succeed in this industry. High Jump Software has established a strong presence and possesses unparalleled expertise in this field. As a diversified technology company, 3M offers innovative products and services to customers and communities. All six of their businesses hold prominent market positions worldwide.

3M is dedicated to understanding the desires of customers and communities, emphasizing our ingenuity in order to transform these needs into over 50,000 inventive solutions that encompass nearly every facet of contemporary existence. Our global reach knows no bounds. In the realm of Consumer and Office, we enhance convenience and efficacy for individuals and professionals worldwide through groundbreaking merchandise that enhance residential cleanliness, sustain building maintenance, and optimize office work. Additionally, we enrich people’s lives with display enhancement films, reflective materials, captivating graphics, and other resources that provide clarity.

The Electro and Communication division has created durable and trustworthy power sources, cutting-edge electronic devices, and efficient telecommunications networks. These advancements have fostered global connectivity. The Health Care division has enabled medical professionals to deliver cost-effective patient care. They specialize

in various market sectors including medical and surgical products, dental and orthodontic products, health information systems, and personal care products.

Having the expertise of a worldwide leader in tapes, abrasives, adhesives, specialty chemicals, filtration systems, and software for supply chain management makes it much simpler to bring goods to the market. 3M's Industrial and Transportation division also caters to the transportation industry with offerings for manufacturing, repairing, and maintaining automobiles, aircraft, boats, and other vehicles. Another division called Safety, Security and Protection Services ensures that individuals have peace of mind regarding what is most important to them: their loved ones, assets, and everyday operations.

The text gives an overview of 3M's product lines, which offer a variety of innovative products. These range from personal protective equipment to counterfeiting prevention systems, reflective materials for personal safety to antiblast security window films. They also provide energy-saving products, cleaning products, and fire protection products for buildings. Examples include the Filtrete Ultra Slim Air Purifier for homes, Scotchlite Reflective Material for garments and brand identity on roads, and Scotchprint Graphics for refreshing the look of buildings. Additionally, they offer technology solutions such as Di-Noc Self-Adhesive Films for commercial buildings and cater to various industries with abrasives, adhesives, and ACCR cable used by utility companies. They also provide solutions for hospitals with surgical drapes, libraries with RFID tags, and industries involved in high-speed trains, airplanes, touch screens, and mobile projection technologies. With a global presence in over 200 countries worldwide, 3M is constantly striving to create amazing things through innovation. The company encourages its employees to think freely and foster brilliant ideas without any hindrance. For more than a century now ,

they have been renowned for their wide range of innovative technologies including adhesives and abrasives.In addition, Pepsi Co. has achieved notable progress in nanotechnology and light management. With operations spanning several European, Middle Eastern, and African locations, they employ a workforce exceeding 17,000 individuals. In 2007, their sales within the EMEA region amounted to $6.5 billion USD, constituting 26.5% of their overall sales of $24.5 billion USD. Nonetheless, Pepsi Co.'s foray into unfamiliar products and brands has presented challenges and raised doubts about their corporate strategy among numerous individuals.

PepsiCo is embarking on a transformation to establish itself in the health, nutrition, and lifestyle market. Gatorade, for instance, has been rebranded as more than just a sports drink company but also as a sports nutrition company. Furthermore, PepsiCo has strategically acquired healthy food companies such as yogurt and hummus companies. The esteemed CEO of PepsiCo has set an ambitious goal of achieving $30 billion in revenue from their "good-for-you" category by 2020 - a significant increase from its value of around $10 billion in 2010. PepsiCo is fully committed to realizing these admirable objectives and has assembled a highly skilled team dedicated to that purpose.

PepsiCo is facing uncertainty regarding the success of its diversification plans. The company has a history of unsuccessful attempts at diversification, which may indicate management problems or other significant issues. Recently, PepsiCo revised its earnings forecast for 2011, hinting at potential challenges ahead. Furthermore, when comparing PepsiCo's strategy to that of main competitors Coca-Cola and Dr. Pepper/Snapple, noticeable distinctions arise in terms of focus and financial performance.

PepsiCo’s focus on food makes it vulnerable to increased commodity prices, unlike its main competitors. Rising

costs may outpace the company's ability to raise prices. Additionally, PepsiCo's expansion into various markets outside of its core competencies leads to expensive complexity. This complexity is concerning because the negative impact is not easily identified in accounting records.

Because of the substantial investment in Russia, PepsiCo is now facing a risk in one of the most corrupt economic systems globally. The company has various interests that are not properly coordinated, as I see it. Hopefully, the shift towards a "good-for-you" product line is being carried out in an organized way, ensuring even distribution of earnings pressure across the portfolio. At minimum, shareholders should be shown the unity between corporate and marketing strategies.

As a whole, PepsiCo is recognized as a well-diversified company. However, in this specific instance, it lacks diversification due to its target product. The idea of "good for you" does not align with PepsiCo's brand and contradicts its established image. Rather than sticking to familiar ground, PepsiCo took a gamble and failed to accomplish their objectives of entering the market for healthier products. Both PepsiCo and 3M are multinational corporations with strong global presence and profitable business models. The key difference between them lies in 3M's successful diversification through emphasis on innovation and continuous improvement to cater to customer preferences.

Both PepsiCo and 3M have utilized different strategies to achieve success in diversification. PepsiCo has expanded its portfolio by acquiring companies, while 3M has focused on diversifying into different market segments based on customer demands. Both companies have achieved success in their own ways, with 3M's approach of listening to customer needs and providing the desired products or services proving to be a winning

strategy. On the other hand, PepsiCo's more experimental approach to diversification has yielded both successful and unsuccessful outcomes.

PepsiCo has been hurt by the failing market of the good for you market due to misallocating funds. This market has strong competition from more established players. Changing names and target markets may cause more harm than good. In contrast, 3M has been successful by staying within their industry domain and remaining innovative and attentive to customer needs. PepsiCo's tendency to jump into unfamiliar territory will likely lead to failure.

To increase their chances of success, PepsiCo could have taken two actions regarding the market they entered. Firstly, they could have chosen not to enter that market initially. Alternatively, they could have explored a different niche apart from oatmeal, such as something more alluring in the "good for you" market like diet pills or vitamins. These suggestions aim to highlight potential alternative strategies for PepsiCo's success.


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PepsiCo has reported strong second-quarter results, attributing their success to their diverse portfolio and growth strategy. The company has also reaffirmed their full-year guidance (Source: http://www.pepsico.com/PressRelease/PepsiCos-Strong-Diversified-Portfolio-and-Growth-Strategy-Deliver-Solid-Second-Q07222009.html).

In an article by Shor, R., the concept of managed innovation is discussed in relation to 3M, highlighting it as

the latest model for developing new products (Source: http://www.manufacturingnews.com/news/editorials/shor.html).

Steiner, A. explores the phenomenon of Post-it-Man in a August 2008 article (Source: Retrieved January).

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