A diversification strategy involves venturing into a new business to exploit growth opportunities in that area but is a high risk move because of the unfamiliarity with the new business. It makes sense when attractive opportunities are found outside the present
businesses. There are two types of diversification, related and unrelated.
Related Diversification
Here, the new business has some commonalities with the company‘s existing businesses. These typically involve skills and assets (resources) that can be shared for synergy or economies of scale. Related diversification is appropriate when any of the following
dimensions is present:
R&D/technology — Canon‘s photographic and electronic technologies have successfully allowed the company to diversify into photocopiers, video cameras, and printers. SaabScania boasts of its association with passenger cars, trucks, and jet fighters.
Even a conglomerate like Pacific-Dunlop has many related businesses. Its tyre, rubber glove, mattress, and, industrial foam and hose businesses are all rubber/latex-based.
Brand image/association — a strong brand name can help launch a new product especially one that will directly benefit from the brand association. Matsushita‘s Panasonic brand now dons its host of consumer electrical and electronic goods. However, its Technics‘ brand is reserved for its upmarket sound systems. Levi‘s was successful when it marketed a range of casual wear but failed in the sportswear
business.
Some brands are so well positioned in a given product category that extending them to other areas can be a disaster. Windex (window cleaners) lost out when the brand was extended to other household cleaners. Xerox failed when it ventured into computers and
so did IBM when it attempted to diversify into photocopiers.
Marketing skills — the marketing functional areas most responsive to synergy are distribution and promotion. Many good products failed due to the lack of adequate distribution and are targets of takeovers. For example, a major pharmaceutical company may diversify by taking over a failing toiletry company and relaunching the latter‘s brands through its existing distribution channels. Traditional soft drink producers such as Coca-Cola & Pepsi have diversified into packaged snack foods, mineral water and packaged fruit juices to take advantage of their distribution and mass marketing strengths.
Unrelated Diversification
Unrelated diversification is the seeking of new businesses that have little or no relationship with the company‘s core business. By definition, unrelated diversification has few opportunities to share or exchange skills and assets across businesses. It can be argued that the motivations for such a strategy are primarily financial. These conglomerates usually have a ―parent‖ known aptly as a holding company. Because some of these conglomerates are so diversified, the holding company or board of directors are so removed from the daily operations of each business. These businesses operate independently and are quick to be sold or new ones acquired depending on some financial criteria.
Common financial criteria include cash flow, ROI, risk spreading, and tax benefits. The text even suggested the enhancement of CEO‘s personal power. Many Japanese conglomerates have ventured into real estate, hotels, golf clubs, casinos, private colleges,
INNOVATION
Innovation is defined as revolutionalizing service delivery in terms of translating new ideas into practice, offering new customer prepositions, and implementing effective organizational change. This change adds value and is driven by one or more of the following;- transformed inputs, process/technology, habits/behavior or mindsets, experimentation, feedback and responsiveness. For example, innovation in the public service context has a wide scope which encompasses but is not limited to the following areas:-
- Innovation in the service delivery chain including systems, processes, operations, concepts, designs and technologies
- Innovation in the final product/service which is required by the customer
- Innovation in partnerships, participation and promoting social inclusion
- Innovation in governance and advancement in democracy
- Innovation in knowledge/information management and feedback systems
- Innovation in development of policy, strategy and leadership
- Innovation in value and legal systems, and corporate culture
- Innovation in career actualization and staff welfare
- Innovation in science and its application
- Innovation in organizational arrangements
Kenya Vision 2030 recognizes that innovation is crucial in making service delivery to the customer more efficient and effective.
Evaluation of innovations
1. Enhancement of customer satisfaction
- Ability to save time
- Reduction in cost
- Handling of feedback
- Access to service/information
- Safety and convenience
- Esteem
2. Enhancement of product or service features
- Originality
- Integration (muiltipurpose utility or application)
- Quality
- Modification
3. Service delivery processes and systems
- Automation
- Partnership arrangements
- Efficiency
- Service provider safety
- Reduction of fatigue
- Utilization of skills
- Workplace environment and safety
4. Community impact
- Effect on vulnerable groups
- Promotion of equity
- Social inclusion
- Social integration
5. Sustainability/Replication
- On the basis of local resources
- Evidence of having been instituoalized Simplicity in application and universal appeal.
Note.
Patenting: Individuals, groups or institutions which come up with inventions/innovations have a responsibility to make them legitimate by acquiring patents or copyrights. Innovation is not possible without knowledge. So in this session we will also cover
knowledge management. What is Knowledge? It is important to understand the concept of what is knowledge when looking at Knowledge Based Economies and Knowledge System. Knowledge can be defined as information and skills acquired through experience or education or it is a process of knowing, taking available information and translating it into action.
Knowledge is a valuable resource that holds the potential for sound governance, socioeconomic development and service delivery. Knowledge system is used to understand the process of knowledge and is often equated with ‗culture ‗ or ‗ world view‘, terms that
refer collectively to a society, its way of life and its underpinning values and beliefs. People‘s culture is not consciously learned but rather absorbed from birth throughout life. It forms the foundation of all societies by reinforcing a given society‘s way of life,
thereby giving legitimacy. Different systems of knowledge exist to allow us to understand, perceive define and experience reality.
Knowledge is an acquaintance with facts, truth or principles as from study or investigation critical for decision making. We view Knowledge in three forms, namely, tacit knowledge, explicit knowledge and Indigenous knowledge (IK).
Tacit Knowledge is Personal knowledge existing within people that enables them to know how to do things based on their experiences. This is what informs their judgment, insights, experience, know-how as well as personal beliefs and values. Explicit knowledge is documented information that can be shared with someone based on training materials read and interaction with others during training. A trainer may know the exact sequencing and/or steps in conducting and delivering his or her training. Indigenous knowledge in the other hand is traditional knowledge which requires increased focus. This has been identified through research work and documentation by coding or recoding. These are subsequently transformed into explicit knowledge through written materials and studies on the same in Africa. Indigenous knowledge thus includes African traditional knowledge systems and western knowledge systems.
Definition of Knowledge-Based Economy:
Knowledge and technology have become increasingly complex, raising the importance of links between firms and other organisations as a way to acquire specialised knowledge. A parallel economic development has been the growth of innovation in services in advanced
economies. Knowledge based economy is an expression coined to describe trends in advanced economies towards greater dependence on knowledge, information and high skill levels, and the increasing need for ready access to all of these by the business and public sectors.
The recognition of knowledge as a critical element of economic growth is not new. Over the past two decades, knowledge has become the engine of the social, economic and cultural development in today‘s world, radically transforming all other dimensions of
development and the ways in which societies operate. The issue has long been acknowledged as a factor behind the economic success of the developed world according to the Organisation for Economic Co-operation and Development (OECD, 1996). The OECD‘s definition of a knowledge economy (KE) focuses on sectors that apply the intensive use of technology and include services, which
are also heavily knowledge-based. Pillars of Knowledge Based Economy
There are four elements that allow effective exploitation of knowledge which are;
- An economic and institutional regime that provides incentives for the efficient use of the existing knowledge, the creation of new knowledge, and the flourishing of entrepreneurship;
- An educated and skilled population that can create, share and use knowledge well;
- A dynamic information and communication infrastructure that can facilitate processing, communication, dissemination; and finally
- An effective innovation system (i.e. a network of research centres, universities, think tanks, private enterprises and community groups) that can tap into the growing stock of global knowledge, assimilate and adapt it to local needs, while creating new knowledge and technologies as appropriate.
