Most of the specialized firms are highly vulnerable to changes in the environment especially when these changes are fast and unforeseen by the firm. Under such circumstances, firms tend to diversify their products and diversification has been identified as a tool to tide over such situations towards the latter half of 20th century (Whittington and Mayer, 2000). It is considered as a device to minimize risk from any one investment (Goold, et. al., 1993). In the case of FIAT, the process of diversification started at the time of inception itself and it was the result of the keen interest they had given on innovations. Under the leadership of Giovianni Agnelli, the process went on smoothly and resulted in fast growth of the company for over 4 decades.
A firm takes a decision to diversify under certain circumstances. These include lesser chance to increase profit in the present business, when expecting a high increase in shareholder value by diversification, when the resources and intangible assets could be easily transferred, and when the management is strong enough to consider an extension to new business. ...Show more