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Why are diversification strategies often unsuccessful? 

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deangelaldixon | eNotes Newbie

Posted August 5, 2013 at 10:40 AM via web

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Why are diversification strategies often unsuccessful? 

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Ashley Kannan | Middle School Teacher | (Level 3) Distinguished Educator

Posted August 5, 2013 at 11:29 AM (Answer #1)

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As with diversification success, there are many reasons that could explain why diversification strategies are often unsuccessful.  Market volatility and entering into a new venture within such turbulence could be one potential reason why diversification strategies that are undertaken can refuse to yield success.  Another reason would be focusing on the potential upside and failing to understand difficult conditions.  If "rewards for managers are usually greater when a firm is pursuing a growth strategy," focusing on these rewards as opposed to conditions that surround the diversification strategy might be where the failure lies.  

Additionally, some diversification strategies such as mergers might not succeed because of lack of institutional support. Having the right personnel that can facilitate the strategy is key, ensuring that "well suited top executives are to manage that effort."  Some diversification strategies simply cost too much money to initiate and sustain, taking away focus from the core success that organizations had experienced.  These are reasons why diversification strategies can fail.  Some of these reasons can be seen when examining why unsuccessful diversification strategies resulted.

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