To minimize risk by spreading it over several businessesIt may be used to capitalize on its capabilities – so as to maximizeorganizational strengths or minimize weaknessesif growth in existing businesses is blocked due to environmentaland regulatory factors- then going for diversification.Risks of DiversificationDiversification, especially unrelated, is a complex strategy toformulate and implementDiversification strategies demand a wide variety of skillsDiversification results in decreasing commitment to a single orfew businesses and diverting it into several of them at the sametimeDiversification often does not result in the promised rewardsDiversification increase the administrative cost of managing,integrating and controlling a wide portfolio business.---DEFENSIVE STRATEGIES
The purpose of a defensive strategy is to protect a preexisting competitive advantage. The goal of a firm using defensive strategies isto maintain a current position and to keep away threats from other businesses. The defensive strategy is not to make progress put to simply maintain the status quo.ApproachesThere are two approaches to defensive strategies. The first approach is to actively block competitors who attempt an attack on the firm's market share. For example, if a firm faces a new entrant to the market, it could take them on directly by cutting prices in order to drive them out. The second approach is to simply make it known that any attack on the business will be met with a strong counterattack, for instance by making announcements about product developments.BenefitsThe major benefit of a defensive strategy is that it is considerablyless risky than an offensive strategy and requires fewer resources.A defensive strategy can help a firm to dominate its existing market and to maintain its current success.DrawbacksThe single largest drawback of a defensive strategy is that it doesnot allow for development. A company that uses only defensive strategies may be able to hang on to its current position and present competitive advantage, but it is unable to grow beyond that stage.Defensive TacticsAccording to Porter, defensive tactics aim to lower the probability of attack, divert attacks to less threatening areas or reduce the intensity of attack.
a) Rise Structural barriers: - 1. Offer a full line of product in every profitable market segment to close off any entry points2. Channel access by signing exclusive agreement with distributors3. Raise buyer switching costs by offering low-cost training to users4. Raise the cost gaining trial users by keeping price low5. Increase scale economies to reduce unit costs6. Limit outside access to facilities and personnel7. Tie up suppliers by obtaining exclusive contracts or purchasing key location8. Avoid suppliers those who are serving competitors 9. Encourage the government to raise barriersb) Increased Expected RetaliationFor example, Management may strongly defend any erosion of market share by drastically cutting prices c) Lower the inducement for attack