McLaren company diversification strategy

McLaren company diversification strategy

Diversification strategy of the McLaren car company

Summary of McLaren’s growth History

McLaren is an automotive company that first opened its doors in 1963 and three years later they enlisted for the Belgian grand prix, and began registering victories in this and similar competitions. In total they have had 181 wins and hence have the title of being the premier formula 1 team and company in the world. Following this successes, the company has been able to expand its operations through a total of six distinct companies. The six companies are McLaren Racing, McLaren automotive, McLaren electronic systems, McLaren applied technologies, McLaren marketing and McLaren taste. At their main production centre near working, they came up with a new McLaren Sports car, the MP4-12C and intend to have produced 4000 individual units of this vehicle by the year 2015.

The term portfolio is applied in the business world when referring to investments that a person or organization has. Portfolio diversification hence becomes the process of an entity channeling investments in a variety of ventures. The aim of this is usually to protect the owner from incurring losses that may prove disastrous if the funds were all placed in one sector. Another reason why a firm may decide to diversify its portfolio is to take advantage of different opportunities that avail themselves in the course of business.

It is highly likely that McLaren group chose to diversify for the second reason. From the brief history, it is clear that the group made a name for itself in as far as automotive excellence is concerned. The fame and respect associated with winning the races also serves as a marketing ploy which strengthens the other products that have resulted from the diversification initiative. Another advantage or opportunity that this company has take advantage of is its technical strengths that have resulted from involvement in the highly competitive sector of formula one racing. This means that they have some of the world’s best engineers, designer and team leaders among others. Thirdly, the McLaren group has possibly taken advantage of the convenient position it has in the automotive market.

There are three main types of diversification that a company can take up. This can be either conglomerate, horizontal or concentric. Conglomerate diversification involver joining up forces with another company that is in the same field or at times in an unrelated industry, though incidents of the latter example are seldom. The second one is horizontal diversification and in this scenario, the company decides to enter an industry that is completely unrelated to its initial core product. Concentric diversification on the other hand appears to be more of an internal matter whereby a firm opts to develop new products closely related to its own core product in-house. This happens in markets or industries where there is a lot of similarity in product offering (Dye, 2013; Business dictionary, n.d.).

Based on the above categorization of diversification methods, McLaren Car Company clearly falls in the final category which is concentric diversification. The term often applies to geometric objects or shapes that have a common origin and hence share common features. Likewise, McLaren’s six companies have a common origin which is the initial grand prix performance car that displayed superior engineering qualities that enabled it to win so many races and also the marketing dynamics that enabled the core product to succeed for such a long time (Ansoff, 1957).

The first company, McLaren racing, is the one that currently carries the groups’ mantle in as far as formula one racing is concerned. Their vehicle is the McLaren Mercedes. McLaren electronic systems are concerned with the development of superior electronic technologies that are used by McLaren racing as well as other customers. McLaren Marketing deals with the public relations aspect of the McLaren group. This included all media relations and other promotional activities. Absolute taste is a company whose main concern is offering exquisite services to the McLaren team and the group’s corporate clients. McLaren applied technologies mainly works on developing commercial applications for McLaren’s internal needs as well as those that are offered to the external market (Lister, 2013).

Concentric diversification is favored by many a large organization such as McLaren because it already had a faithful market segment. The reason for concentric diversification is to make the product’s appeal to its customers and possibly increase the market share to be much wider than it initially. The new companies that they came up with are just additions to their existing products. These products are derived from automotive racing and also production of high performance super cars. The superiority of their technology allowed them to reach out to other companies that specialized in the production of high performance cars. The idea behind this diversification is that the key organizational culture and principles of the initial product will be translated to the new additional products.

The fact that McLaren group has a strong brand name made the concentric portfolio diversification both practical and feasible for the group. Due to the combination of these factors, the company is poised to meet its goal of producing the 4000 cars by the year 2015 (Tatum 2013).

 

 

References

Ansoff, I., 1957. Strategies for Diversification, Harvard Business Review, Vol. 35 Issue 5, Sep-Oct 1957, pp. 113-124

Business dictionary n.d. The definition of concentric diversification. Retrieved from http://www.businessdictionary.com/definition/concentric-diversification.html  on March 12, 2013

Dye, F., 2013. What is portfolio diversification? Retrieved from www.wisegeek.net/what-is-portfolio-diversification.htm  on March 2013

Lister, J. 2013.  What are the benefits of concentric diversification? Retrieved from http://smallbusiness.chron.com/benefits-concentric-diversification-36784.html  on March 12, 2013

Spurgeon, Brad (2000-06-24). “TAG McLaren Group Revs Up Off Track”. International Herald Tribune: p. 9.

Tatum, M., 2013. What is concentric diversification? Retrieved from https://mail.google.com/mail/?shva=1#inbox/13d5c6c25e4f312f  on March 12, 2013

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