A strategy based on diversification may fail to add value because companies: a. seek to achieve a low-cost position instead of differentiation. b. diversify into areas in which they have some knowledge and miss out on profitable opportunities in other areas. c. seek to achieve differentiation instead of low cost. d. make acquisitions rather than develop new technologies on their own. e. incur bureaucratic costs that exceed the value created by the strategy.

Question

Business

Josiah Matthews

9 January, 13:12

A strategy based on diversification may fail to add value because companies: a. seek to achieve a low-cost position instead of differentiation. b. diversify into areas in which they have some knowledge and miss out on profitable opportunities in other areas. c. seek to achieve differentiation instead of low cost. d. make acquisitions rather than develop new technologies on their own. e. incur bureaucratic costs that exceed the value created by the strategy.

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Hailey Neal · Answer 1

E) incur bureaucratic costs that exceed the value created by the strategy.

Explanation:

Bureaucratic costs are costs associated with solving management or transaction related problems. Many times, companies seek to achieve differentiation by joining forces with other companies or acquiring smaller companies (related diversification), and sometimes this transactions might be too expensive and the company's efforts to provide value may fall short due to high costs.

E. g. after an acquisition, a company's structure can become too large and inefficient, resulting in bureaucratic costs that increase the price of their products. So the efforts of providing differentiated products will suffer because the product's price may be too high.