Assignment 2 - Diversification Strategies
Running head: Contemporary Business- BUS 508
April 28, 2012
Assignment #2 Diversification Strategies “Virgin Group and Benetton Group”
Gilbert Feliciano II Professor- Dr. Brian Collins Strayer University
CONTEMPORARY BUSINESS- BUS 508
2
ABSTRACT
The diversification literature has largely focused on the degree of applicability of firm resources to a new industry: A firm should diversify into more related industries since synergistic benefits decrease with the distance between the new industry and the firm’s primary industry. It argues that related diversification presents a paradox; while related diversification provides more synergistic benefits. Interdependencies in production processes contribute to both synergies and coordination costs. With increasing interdependencies, coordination costs may rise faster than potential synergies and set limits to the related diversification strategy. This paper will compare and contrast the outcomes of two global groups, “The Virgin Group” and “The Benetton Group”. Both groups have the one thing in common: “Diversification”. While the Virgin Group pursued an Unrelated Diversification strategy, the Benetton pursued Related Diversification. There is no one strategy that is more superior to the other but there is a clear and significant risk in adapting either. The paper will issued an opinion on how one of them did a better job at implementation and made smarter decisions than the other, hence making it a stronger brand.
CONTEMPORARY BUSINESS- BUS 508
3
The Groups
The Virgin Group is a leading international investment group and one of the world's most recognized and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to grow successful businesses in sectors ranging from mobile telephony, travel, financial services, leisure, music, holidays and health & wellness. Across its companies, Virgin employs approximately 50,000 people, in 34 countries and global
April 28, 2012
Assignment #2 Diversification Strategies “Virgin Group and Benetton Group”
Gilbert Feliciano II Professor- Dr. Brian Collins Strayer University
CONTEMPORARY BUSINESS- BUS 508
2
ABSTRACT
The diversification literature has largely focused on the degree of applicability of firm resources to a new industry: A firm should diversify into more related industries since synergistic benefits decrease with the distance between the new industry and the firm’s primary industry. It argues that related diversification presents a paradox; while related diversification provides more synergistic benefits. Interdependencies in production processes contribute to both synergies and coordination costs. With increasing interdependencies, coordination costs may rise faster than potential synergies and set limits to the related diversification strategy. This paper will compare and contrast the outcomes of two global groups, “The Virgin Group” and “The Benetton Group”. Both groups have the one thing in common: “Diversification”. While the Virgin Group pursued an Unrelated Diversification strategy, the Benetton pursued Related Diversification. There is no one strategy that is more superior to the other but there is a clear and significant risk in adapting either. The paper will issued an opinion on how one of them did a better job at implementation and made smarter decisions than the other, hence making it a stronger brand.
CONTEMPORARY BUSINESS- BUS 508
3
The Groups
The Virgin Group is a leading international investment group and one of the world's most recognized and respected brands. Conceived in 1970 by Sir Richard Branson, the Virgin Group has gone on to grow successful businesses in sectors ranging from mobile telephony, travel, financial services, leisure, music, holidays and health & wellness. Across its companies, Virgin employs approximately 50,000 people, in 34 countries and global