To what extent is diversification the best strategy to achieve profitable growth? Essay

Words: 1211
Pages: 5

Novartis, a large multinational pharmaceutical company, recently diversified by buying Alcon, in a £24.8bn deal. Alcon is a producer of eye care products such as contact lenses. Google has diversified by investing £124m in a wind power business. To what extent is diversification the best strategy to achieve profitable growth? Justify your answer with reference to Novartis, Google and/ or other organisations that you know. (40 marks)

Diversification - Practice under which a firm enters an industry or market different from its core business.

Growth – The process of improving some measure of an enterprise’s success. Business growth can be achieved either by boosting the top line or revenue of the business with greater product sales or
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This shows that a merger may be a much better strategy to achieve profitable growth although in this case having two mobile phone companies that operate in the same industry is less risky due to the fact that they are able to leach ideas of each other and therefore create a new company that is based on each others success. However other factors may affect the success of a merger or takeover that can inevitably limit growth and even cause the downfall of a business. In case of Chrysler (Jeep) and Daimler (Mercedes Benz) the clash of two cultures has affected the growth of both popular brands. Daimlers hierarchical structure functioning in Hofstede’s collectivist culture versus Chrysler’s informal, relaxed approach functioning in a team-working individualistic culture was simply two companies that did not understand each other and instead of growth, this inevitably has reduced Daimler’s value from $47bn to the merged company value of $38bn. This shows that the effectiveness of mergers in achieving profitable growth may entirely depend on both companies relationship in terms of their objectives, communication and culture. Another example of a takeover that was not successful was RBS’ acquisition of ABN-AMRO bank. Fred Goodwin, one of the leaders of RBS, thought that a takeover of ABN-AMRO bank would further expand their company as it had a lot of attractive businesses that performed in many attractive markets. The