One of the biggest tech companies in the world has dabbled in diversification which has led to its superiority in its industry. This company is Microsoft; an American mul

Response Comments - After posting your initial response to the question, begin making comments to your peers. A minimum of two comments made on two different days must be posted in the discussion for a passing grade.  The comments must be early enough before the end of the week to allow for replies. 

Gus Brown (Student 1)

This week's discussion will cover the Forbe's article To Understand The Future Of Diversification, Compare Microsoft And IBM by Christian Stadler. One of the biggest tech companies in the world has dabbled in diversification which has led to its superiority in its industry. This company is Microsoft; an American multinational technology corporation that produces computer software, consumer electronics, personal computers, and related services. They first started with computers in the 70s and 80s, then in the late 1990s, they started shifting towards more software products. They are expanding through diversification; a couple of strategies they use are horizontal diversification and concentric diversification.

For the first strategy, Microsoft uses the Horizontal Diversification method of product diversification which adds new products to a company's lines meant to serve existing customers. Microsoft has managed to bring new sources of revenue growth through various high-quality acquisitions and innovations that have grown under them. They now make revenue off apps, software, and Xbox games that work specifically for each operating system, and they don’t run in different ones; Microsoft applies this business model to Office 365 and cloud services (Ross, 2022). It was even stated “that fundamental notion that we build tools, build platforms so that others can build more technology, I think is more relevant” (Stadler, 2021). They are moving away from their hard products like computers and tablets as their focus and shifting it towards the cloud and software products for other people to build technology. As well, they use concentric diversification which is the strategy of introducing a new product to reach new customers, but the new product is like the old product. Microsoft is smart, they know the DOD is a safety net for them to create a steady revenue flowing. So, they create a new software products like Microsoft teams, One Drive, and Outlook just for the military. Microsoft made a similar product to its civilian software but added more security to it for the military to use.

The issues and challenges faced in diversification are financial problems and proper management problems. When starting diversification, you must make sure your other areas of revenue will allow you to take this risk to diversify. If you have poor management, they could slavishly follow tools that often miss important sources of value available in their portfolio (Dyer et al., 2020). That is something Microsoft hasn’t done, sometimes they even wait out the competition to see where they go and move their assets in an opposite direction.

References 

Dyer, Godfrey, Jensen, & Bryce. (2020). Strategic Management. John Wiley & Sons.

Ross, S. (2022, February 9). Apple vs. Microsoft Business Model: What's the difference? Investopedia. Retrieved June 7, 2022, from https://www.investopedia.com/articles/markets/111015/apple-vs-microsoft-vs-google-how-their-business-models-compare.asp (Links to an external site.)

Stadler, C. (2021, November 17). To understand the future of diversification, compare Microsoft and IBM. Forbes. Retrieved June 28, 2022, from https://www.forbes.com/sites/christianstadler/2021/11/15/to-understand-the-future-of-diversification-compare-microsoft-and-ibm/?sh=28d8f60446dd

Iprita Bhattarai (Student 2)

Hello Class,

Diversification is extremely important tool to help grow any business. We know, that two ways to diversify in a business are to either go at it alone or by buying your way in. There are various levels of diversification, single business, dominant vertical business, dominant business, related-constrained diversification, related-linked diversification, and unrelated diversified firm” (Dyer, 2020, p. 56). A business can add value to its diversification by having some unused resource capacity, having a synergy, sharing knowledge, spreading capital, being a steppingstone, and having similar business models.

A company that we all know has expanded through diversification is Coca-Cola. In the article I found, the type of diversification Coca-Cola chose was acquisition. “They acquired equity shareholder in Chi Ltd. A Nigerian based leading dairy and juice company, creating a strategic relationship between the two companies” (Forbes, 2016). With this acquisition, they were successful in expanding their presence in Africa and increasing their product portfolio. Coca-Cola also believes that diversification is a key driver for their growth, so with acquisitions like such, they have an advantage of catalyst growth.

Some of the issues with diversification are as follows:

· Lack of proper expertise

· Overexerting resources

· Not having sufficient capital

· No innovation

Over diversification is an issue that companies need to focus on as well. “While it is tough to lose money from over-diversification, a company could forgo gains, or paring too much in fees by watering down their portfolio with too many different investments” (Tepper, 2020).

Depending upon the size of the company, diversification can be sustainable. As diversification is about investing in a range of different products instead of concentrating on one, with proper research, and market demand, it can be sustainable.

References:

Dyer, J. (2020). Strategic management: Concepts and cases. Wiley.

Tepper, T. (2020, December 16). Can you have too much diversification? Forbes. Retrieved June 28, 2022, from https://www.forbes.com/advisor/investing/too-much-diversification/

Forbes. (2016, February 25). How coca cola is continuing its portfolio diversification strategy. Forbes. Retrieved June 28, 2022, from https://www.forbes.com/sites/greatspeculations/2016/02/25/how-coca-cola-is-continuing-its-portfolio-diversification-strategy/?sh=3fdcba4f2adf

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