Silent Witness Enterprises, Ltd currently manufactures analog and digital security devices. Prior to 2000, the company focused much of its R&D expenses towards the development of new analog cameras and systems. At this point, Silent Witness would like to expand their business and are looking at concentric and conglomerate diversification strategies.
Concentric diversification strategies extend the product market by developing new products that are based around the technologies used in the existing products. The new products that are introduced are intended to draw in new customers, but not to take from the old customer base. In the case of Silent Witness Enterprises, they have developed a large base of core technologies. They have been at the forefront of product development for security concerns. Following a concentric diversification strategy should be very beneficial for the company, if it chooses the products wisely.
First of all, Silent Witness could choose to develop personal cameras and detection devices. They could use their existing technology and work towards the small. The market for these devices they do not currently have a direct connection to: police departments, private eyes, and the military. However, based on the company’s performance, reliability, and market share in the past, they have a proven track record which will help them into expansion in these markets. The core technology remains the same, and the company can build on its core capabilities.
Second, Silent Witness could choose to move into other areas of recording, such as voice recording or digital recordings of various natures. The market for these products is growing larger and larger as security becomes more of a concern on a national scale. This does not directly compete with their current market base, and these products can also be sold to current customers, plus new markets. Overall, concentric diversification is a good strategy for Silent Witness, as they have already developed the technologies required to be an important player in this highly competitive market.
The major disadvantage to a concentric diversification strategy is that it may draw current customers from existing products to the new products, therefore not really increasing the customer base. The other dangers inherent in a concentric diversification strategy is ensuring the internal support to create new products, as well as continuing to improve and service their existing products. Silent Witness must ensure adequate internal resources in R&D, plus an adequately trained sales force to penetrate new markets.
Conglomerate diversification is a strategy whereby the company seeks to expand its markets, offering new products which are totally unrelated to the company’s current products to entirely new markets. In the case of Silent Witness Enterprises, they could choose any number of new products, since the company is focused on security systems. However, when pursuing a strategy of conglomerate diversity, several factors must be carefully weighed and considered.
First, does the company have the internal resources necessary to support this type of diversification? Primarily, can the company devote R&D capabilities, sales staff, and manufacturing facilities if needed? Perhaps an area that may be viable for Silent Witness to expand into would be a service industry that supports the hardware that they have created. In order to develop new technologies and new products, it is especially important that the company has the internal resources to make this move.
Second, if the company pursues a conglomerate diversification strategy via acquisition, they must also make sure they have the resources to support and integrate the new division. Many acquisitions have failed in recent years, and as a method for market development, it may not be the most practical. Although conglomerate diversification can be seen as advantageous, for tapping into entirely new markets, it is incredibly important for companies to evaluate if they have the resources to support this type of market movement.
The major benefits to a conglomerate diversification strategy include new market penetration and the development of new core capabilities. The new markets may also be able to be cross-marketed with the existing products, and the new core capabilities could lead to major revenue producing activities and products in the future. Building on new assets, the company could become more able to withstand market changes and consumer preferences through diversification.