Convenience

single-product
strategy
A strategy in which
an organization
manufactures just
one product or
service and sells it in
a single geographic
market
related
diversification
A strategy in which
an organization
operates in several
businesses that are
somehow linked with
one another
Chapter 3:
Planning and Strategic Management
7 7
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The Lone Ranger
in 2013, Disney was still profitable due to strong theme park revenues
and other hit movies like
The Avengers
in 2012 and
Iron Man 3
,
Monsters University
,
and
Frozen
in 2013.
Second, by managing several businesses at the same time, an organization can reduce
the overhead costs associated with managing any one business. In other words, if the
normal administrative costs required to operate any business, such as legal services and
accounting, can be spread over a large number of businesses, then the overhead costs per
business will be lower than they would be if each business had to absorb all costs itself.
Thus the overhead costs of businesses in a firm that pursues related diversification are
usually lower than those of similar businesses that are not part of a larger corporation.
27
Third, related diversification allows an organization to exploit its strengths and capa-
bilities in more than one business. When organizations do this successfully, they capital-
ize on synergies, which are complementary effects that exist among their businesses.
Synergy exists among a set of businesses when the businesses’ economic value together
is greater than their economic value separately. McDonald’s is using synergy as it diver-
sifies into other restaurant and food businesses. For example, both its McCafe premium
coffee stands in some McDonald’s restaurants and its investments in Pret A Manger, a
European chain of sandwich shops, allow the firm to create new revenue opportunities
while using the firm’s existing strengths in food-product purchasing and distribution.
“Tough Times, Tough Choices” discusses how diversification can also occasionally create
ethical challenges.