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The Blackwell Encyclopedic Dictionary of Organizational Behavior

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Another form <strong>of</strong> related diversification is integration forward or backward in the business system (e.g.,<br />

manufacturing, distribution, and retailing for a particular product range). This is usually referred to as<br />

VERTICAL INTEGRATION. It may be considered related diversification because <strong>of</strong> the product or<br />

service connection involved. However, the key success factors and important capabilities at different<br />

levels <strong>of</strong> the business system are quite different, so that it is quite difficult to create value through<br />

SYNERGY. <strong>The</strong> major reasons for this type <strong>of</strong> diversification are to capture the pr<strong>of</strong>it margin at another<br />

stage in the business system and/or to obtain strategic control <strong>of</strong> a key component <strong>of</strong> supply or access to<br />

distribution.<br />

Unrelated Diversification<br />

Unrelated diversification may be defined as diversification which does not qualify as related<br />

diversification. Since the products, markets, and technologies will be different, it is less clear what<br />

synergies can emerge. Administrative and financial synergies may be gained, but marketing and<br />

operating synergies, by definition, are not possible.<br />

Unrelated diversification may occur because the organization's existing set <strong>of</strong> products, markets, or<br />

business(es) have unattractive futures and/or the organization wishes to move away from a particular<br />

business area. Those organizations which have many unrelated<br />

file:///C|/downloadnetlibrary/www.netlibrary.com.ezpro...eader/nlReader.dll@BookID=48684&FileName=Page_143.html (2 <strong>of</strong> 2) [2008-04-01 02:07:16]

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