The business ecosystem is constantly changing and evolving. As such we as organisations need to be able to move and keep up with the changes. This leads to the need to understand how to diversify our businesses, and in the process how to also future-proof themes in order to be ‘future-ready’.
Diversification of Business
Corporate diversification is a strategy wherein an organisation enters different product and service lines with the intention of expanding its reach. This is useful for a variety of reasons, namely, it reduces risk, increases exposure which would increase opportunities, and overall leads to a growth in organisational revenue
Parker, (2020) described a variety of different types of Business Diversification. She described 6 established types of diversification strategies.
The process of horizontal diversification includes introducing new products and services to your current offering, thereby expanding your market share. This can be by innovating your products, creating new products or merging with another company. Some common examples of this includes Disney acquiring Pixar.
· Concentric Diversification
This is a type of Horizontal Diversification. It involves introducing new products that are closely related to the products and services you already deliver. This helps an organisation leverage off of the existing brand recognition. An example would be a well known grocer, such as PicknPay starting their own grocery line, No Name Brand.
· Conglomerate Diversification
Another type of Horizontal Diversification. This diversification Strategy includes introducing brand new products and services unrelated to your product. This helps enter a new market and appeal to customers who have no interest in your current offerings. An example of this is Samsung which started as a South Korean grocery store which expanded into electronic goods.
This business diversification strategy is the strategy where a company expands its product line through forward or backward integration. This means a product looks beyond the product it sells and moves into a market that sells products associated with your product. For example, A car dealership selling tyres. Some well-known examples of this process includes Apple’s new MacBook which includes their own created Apple M1 chip.
This diversification style has less to do with how businesses diversify and rather looks at why they do it. This form of diversification is creating a feature that helps you stand out in a market that has become over-saturated. This helps companies stay competitive.
This form of diversification takes place when a company is actively seeking to grow its market share and profit. This is a way for a thriving organisation to grow even further.
The process may pose some risks. As you are in the process of acquiring new skills and product knowledge whilst simultaneously gaining insights into a new market. These risks can come with high rewards. The process of diversification has been especially useful during the Covid-19 Pandemic. This is largely due to many organisations have had to migrate to a more virtual and/or different way of work. Organisations that were unable to adapt tended to struggle during the lockdown pandemics.
With the amount of change organisations have been experiencing post the covid-19 pandemic, we have been left scrambling for ways to diversify and future-proof out organisations. Diversification is one of the most widely known ways of protecting your company’s future. De Smet et al. (2021) believes that it is not necessarily possible to future proof your business, but rather that there are nine imperatives an organisation can hold which allows them to be ‘future-ready’. These imperatives are based on three basic ideas. Who are we, how do we operate, and how do we grow? Organisations that understand these imperatives stand the best chance at being prepared for the foreseeable future.
The first step is to strengthen your identity. Ask who you are as an organisation, specify your purpose, your culture, and build a clear agenda. Ensure the employees are representing this view and that the view is clearly stated to the public. The stronger your identity, the more likely your clients and employees will remain loyal to you.
The next step is to work on how you operate. The goal is to prioritise speed, flatten the structure, cut down the red tape and treat employees as essential to meeting customer outcomes. The combination of these prerogatives should ensure good quality decisions are made quickly and efficiently.
Finally look toward the future and focus on ho
w you plan to grow. Optimally, the idea is to adopt an ‘ecosystemic’ view. While each department works as smaller parts of the whole, with everybody looking to share skills and data. Your aim should always be to partner and not control. The tech platforms you use need to make use of and provide data effectively and your organisational learning needs to be prioritised and current. The combination of these skills will ensure our company is future ready. Sharing this view and skills with your employees will ensure they are future ready as well.
Business Diversification is a necessary part in ensuring your business is prepared for the future. By strengthening your brand, putting customers first and promoting collaboration with your partners you should be optimally prepared for whatever may come next.
De Smet, A., Gagnon, C. & Mygatt, E. (2021). McKinsey. Organizing for the future: Nine keys to becoming a future-ready company.
Parker, Brianna. (2020). What is a diversification strategy, its types, and why is it important? Business Strategy Hub.