The dynamics of corporate diversification. A System Dynamics study of the effectiveness of diversification as a corporate growth strategy for leading firm in the U. K. Cement Industry.

Abstract

This thesis describes and discusses the application of System Dynamics methodology as a basis for formulating diversification strategy and control policies of the largest diversifying cement company in the 'United Kingdom. The problems of the industry such as stagnant growth, cyclic and seasonal variations in cement demand, and overcapacity are described. The formulation of a SD model of the situation which captures these problems together with its equations system are presented. The model also simulates the planning and control processes for the selection, initiation and completion of both expansion and diversification investment projects. It is argued and demonstrated that the fact that these processes consist of feedback loops should and could be utilized for understanding these processes, advancing complementary theoretical concepts, and designing and formulating more 'effective systems and decision rules. An intensive analysis of the model in SD frameworks further supports these arguments. These analyses reveal the nature of the system's dynamic properties and its likely developments, the dynamic and situational nature of diversification effectiveness, and the importance of several diversification decision factors. These analyses also show how complex the formulation of a thorough and effective diversification strategy may become together with the ways and means of dealing with these complexities.. It is concluded that the thrust of an effective diversification lies with the broadening of the conventional theoretical concepts and analysis to include the dynamic characteristics of the system. It is also concluded and shown that System Dynamics methodology can provide a strong analytical basis for achieving these ends.