What Are The Two Ways Diversification Strategies Can Create Value?

Businesses encounter competition in their industry hence must devise ways of remaining relevant. Accordingly, companies embark on various means such as the use of divesification strategy. Diversification is the process where companies expand their operations by increasing their activities or venturing into a different business (Kenny, 2009). Businesses create value through diversification strategy. Therefore, this paper discusses the two ways diversification strategies can create value in a company. Firstly, an organization can use diversification to create value through financial restructuring (Hoskisson, Ireland Hitt, 2015). Companies acquire other businesses at low prices, transforms and sells them at a higher price. However, companies must consider the level of technology and the nature of the operations. Usually, low technology companies are more straightforward to transform than high technology companies. Also, it is advisable to avoid buying service companies as their activities are dependent on people. It is impossible to manipulate humans like products. Hence, a wrong choice for acquisition. Secondly, companies can create value through diversification by resource allocation (Hoskisson, Ireland Hitt, 2015). Usually, this happens within a companies component business. Naturally, a firm has adequate information on activities of its units hence has more confidence in the outcome of diversification. Furthermore, in