Diversification Theory

 The Ansoff Matrix was created by Russian-American businessman, Igor Ansoff. It is basically a strategic planning application that provides a graphical framework to assist top managers, senior executives, and entrepreneurs formulate plans for the future growth of their company. The term Ansoff was derived from the word analysis. Mr Ansoff believed that if a company could be analyzed in a "mathematical" way, the company would not only be able to perform better on a national, but also an international level.

The main idea of this product was that Ansoff believed that diversification was an absolute necessity in order for a company to survive and excel at the international stage. In other words, diversification was necessary in order for the company to sustain its existence in the markets that are most volatile and dangerous, like stocks in the emerging markets or the new markets, like foreign countries. Diversification also means spreading the risk. With diversification, it is possible to reduce the effect of price fluctuations on earnings by introducing a diversified set of products or services in new markets and re-cross-marketing products and services already established in one or two new markets. The diversification plan should include a new market and new products.

The Ansoff matrix has four quadrants: an integrated approach with a mix of factors, a factor-driven strategy, a single-raid strategy, and a portfolio diversification strategy. This diversification strategy is designed around four main points. First, the company must develop its own distinctive marketing, sales, distribution, technical, and customer information products or services. Second, it must establish its own unique competitive advantage through its technical innovation.

Third, it must expand into new markets through acquisitions, joint ventures, strategic alliances, and investments in manufacturing capacity. Fourth, it must develop and implement its own unique financial performance and return strategy, which involves the long-term investment in its own growth rate of profit. Finally, it must apply its own strategies to the changes taking place in its customer and supplier industries. In this way, the company will be able to adjust its activities to the changing market conditions. These four strategies are part of the Ansoff matrix.

In contrast to the Ansoff matrix, the other two strategies that follow the Ansoff formulation do not use the idea of a unique competitive advantage or a unique customer information product. Instead, the strategies of these two companies follow the general idea of developing a diversified set of products and services in several markets. However, these companies differ in their methods of implementation of the diversification strategy. Oftentimes, they rely on a combination of unrelated diversification strategies, on the one hand, and a single-raid strategy, on the other. Thus, an important principle of the Ansoff matrix is not actually negated by this company's strategic diversification approach: diversification is not an exclusively technological activity.

To conclude, according to critics of the matrix, the idea of diversification is inappropriate when it is applied in the context of developing new products. According to them, it leads to a reduction of original value because original value refers to the benefit of the customers in the long run. As a result, the strategy fails to contribute to the overall growth and success of the organization. Its critics argue that the diversification approach adopted by Ansoff should instead focus on developing new products and services while using the Ansoff matrix as a supporting framework for doing so.

There are several methods of analysing the market position and market share of the company and the product share on thekeepitsimple. Also, things related to management.