Successful Diversification Strategy 

Successful Diversification Strategy

Introduction

According to Alessandri and Seth (2014), business diversification is mainly about the development of novel products, the exploration of novel markets, as well as the taking of novel risks. Regardless of the risks involved, diversification might additionally turn out to be one of the greatest means of maintaining the measure of stability, diversification should be considered within the business world given that it is also a means that businesses may use to safeguard their investments from the uncertainties in the market and also as a backup plan that they may use to buoy the investments in hard situations. The diversification concept tends to be similar to that of investment. Given that the market is increasingly unpredictable, it is vital that organizations diversify their business, as it always pays to broaden the firm’s horizon and also pursue novel opportunities, regardless of the confidence that one might be with regards to the existing situation of the organization (Chen et al., 2014). The costs related to the failure to diversify may be immense. A good example of the outcomes of the failure to diversify may be found in the entertainment industry, which is marked by numerous firms that failed to diversify and effectively adapt to the dynamic market. Organizations such as Video King and Blockbuster failed to diversify and as the digital age commenced, they made efforts but miserably failed to include the new order into their operations (Curi, Lozano-Vivas & Zelenyuk, 2015). This resulted in their collapse and subsequent closure. This paper has been written with the objective of analyzing the best way to craft a successful strategy for diversifying an organization.

Discussion

Shen (2018) maintains that firms often diversify for a myriad of reasons, and that diversification may be a key survival strategy for organizations operating in uncertain markets. For example, in case an organization is only able to make most of its sales at a given point in the year, it will be logical to take diversification into consideration. Moreover, through the extension of the organization’s products and services portfolio, the management will make certain that the firm has a regular revenue streams that run from the start of the financial year to the end. A good example of such instances include the ice cream seller who takes up the job of a hot soup purveyor during the cold seasons.

Nevertheless, there are a number of better reasons for business diversification and not just the extension of the firm’s range of services and products, one might either sell increased amounts of products to the extant clients or even expanding the firm’s operations into novel markets (Nasr & Cheraghi, 2017). Such diversification strategies are mainly meant to supercharge the organization’s growth prospects. Moreover, this will also enable the organization to extend the brand reputation into novel markets that it might have not explored before, while understanding that such moves may result in immense growth of the organization.

Developing Diversification Strategy

In order to develop and effectual diversification strategy, the management of the organization tasked with decision making will have to take a number of measures. This include adapting the firm’s products to meet the needs of the target consumers and the market. To attain this objective, the service or product has to be tweaked to enable it appeal to the novel market, users and consumers (Nasr & Cheraghi, 2017). In case the firm produces high-end services and products, it should take into account producing an inexpensive versions of the products and services to cater for the consumers who may not be able to afford the high-end ones (Grant, 2016). Nevertheless, the management should act cautiously to ensure that in producing the inexpensive product or service versions, the company does not undercut itself. In given instances, either the hobbyist or professional versions of the product and services may be effectual.

Secondly, to effectively diversify, the firm and its management should add features that are likely to make the products and services increasingly appealing to diverse consumer groups (Chen et al., 2014). Given that the firm is dealing in specified products and services, it should acknowledge the existence of market for the spare parts of the products, as well as the consumer who might require regular maintenance of their products, and add the spares sales to the firm’s parts inventory division.

Thirdly, to develop a sturdy diversification strategy, the firm should follow the growth. Thus, in case the firm is operating in a location that is marked with increased and punishing tax rates and demographics that are disheartening, the management should make the decision to expand the firm’s operation to locations with low tax growth (Casas, Luzzi & Mendonca, 2014). It is recommended that the organization should consider relocating to regions that have increased number of customers using its products or even to the region in which most of the target customers reside. The management should place higher value on the diversification process and this should entail drawing a good plan for the firm (Grant, 2016).

Fourthly, the organization and its management should ensure that they find products that are correlated to those that they produce. To do this, the company’s management should seek to answer the question of whether there are other products in the market that also go along with the products that they produce or even those products that go with the firm’s products and are purchased by the company’s clientele from other vendors (Bowen, Baker & Powell, 2015). These might turn out to be products that the organization might also produce and sell together with its products. For instances, a firm dealing in agricultural equipment may also sell various types of lubricants and oils that are used in the maintenance and running of the machines, and this might turn out to be a novel and profitable niche for the company (Curi, Lozano-Vivas & Zelenyuk, 2015). Nevertheless, one of the most aggressive might entail buying an organization producing the various products or offering services that are related to the firm’s products and services. In case the organization is able to buy such an organization, the move may turn out to be profitable in the long-run. Moreover, it will not only enable the company to diversify its product and service offerings but additional eliminate the probable rivals from the market (Casas, Luzzi & Mendonca, 2014). This has been witnessed within the technology and internet companies including Amazon and Facebook.  Still, to further the diversification strategy, the company should also consider offering integrated solutions. To do this, the management of the firm should ask whether the firm and its employees can do more. Doing more may entail anything from training customers on the use of the products, manufacturing other products that go with the firm’s product, to offering after sale services to the clients.

Fifthly, the management of the company should find out what is happening within the organization’s environment. For instance, it should be determined whether the technological changes and advancement have begun eroding the company’s base (Nasr & Cheraghi, 2017). This will prevent the firm from being the last in the market and industry to discover the changes that are occurring within (Kono, 2016). The management should, therefore, commit part of the business to satisfying the requirement of the initial adopters of technological changes so as to ensure that the company is ready in case of the occurrence of any key shift.

Additionally, the company should come up with new ways of selling its products and services as a diversification strategy (Rothaermel, 2015). This might include selling its products and services online. Thus, in instances where the firm does not sell its products and services online, it is advisable that it adds the e-commerce feature on the website (Casas, Luzzi & Mendonca, 2014). However, in case it is selling the products and services online, it is recommended that the firm should strive to sell more of the products online, Thus, the management should get insight on the diverse marketplace programs of key retailers such and e-bay and Amazon. In this regard, the firm’s management should take into considerations the needs to open a store on e-bay in case the organization possesses an assorted overstock products within its warehouses. As opposed to marking such product down to nearly nothing in addition to undercutting the novel products, the company should sell them on various online marketplace for a such as eBay. Still, the company may open its outlets in other locations (Chen et al., 2014). For instance, in case the firm exclusively sells its products online, it should take into account the need to have a physical location, and if one has only one physical location, the management should strive to open another one. This might also be done in other countries. Nevertheless, it should be noted that note every organization has adequate resource to open branches in other countries; however, there is a need for networking in the industry so as to discover available opportunities, and see whether foreign markets are offering increased opportunities for growth (Rao-Nicholson & Cai, 2018).

Lastly, to effectively diversify the business, it is recommended that the firm should consider diversifying its customer base (Kono, 2016). To do this, three key diversification strategies have been developed. Firstly, the firm’s management should come up with a novel business development group (Grant, 2016). The development of an extra novel team is considered vital as the role of the team entails focusing particularly on the novel target market being courted by the company. Though the management might be tempted to task the existing sales team with extra target audience, this is likely to result in a major mistake. This is mainly as a result of the view that the extant sales teams have their hands full and as a result might be unable to effectively pursue another distinct industry (Curi, Lozano-Vivas & Zelenyuk, 2015). The management, therefore, has to come up with a novel sales team that has its concentration on the prospects so as to deliver better outcomes. In case the team has its plate full, the outcomes might turn out to be increasingly mediocre.

Further, the management of the firm should also come up with an inside sales group.  Seismic alterations have been witnessed from the outside sales to the inside sales to improve the services offered to the smaller consumers, even as a profitable model is developed simultaneously (Nasr & Cheraghi, 2017).  Though the inside sales tend to be increasingly cost-effective compared to the outside sales for the business organizations, they additionally deliver a higher number of regular and personalized services than they did prior, and this can be attributed to webinars, social media and video conferencing. As a result of the B2B customers becoming comfortable with called on, it has created the best chances for the firm’s sales team to amplify their remote sales. Furthermore, the inside sales teams tend to be aptly equipped to not only build but also nurture the continuing relations that are essential for attracting and maintaining novel customer bases.

Lastly, the firm should restructure its customer segmentation strategy. It should be stressed that every segment must not just have some sense of significance but must also have a perception of a deeper and focused expertise from the firm’s teams. The most effective means of attaining these while also portraying the expertise entails the creation of the advisory council in all spaces. This will lead to the development of novel touch points that will indicate to the customer segments that they are being taken serious. Moreover, at the diversification core is the adherence to similar principles applicable to the extant target markets.

Conclusion

Several business diversification strategies exist. However, for firms that plan to diversify, it is vital to observe the Hedgehog Concept, which maintain that three circles have to be taken into considerations in the course of deciding on diversification. This entails asking the question on whether the diversification is viable commercially, whether the firm is good at the new venture, and whether the workers will be passionate about it. The last question is the most vital as the diversification might be ignored and, therefore, fail to generate the desired outcome in case the workers and management are not passionate about it.

References

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