To focus or to diversify has always been a debatable subject amongst Management. It has been noted that some public listed companies who are in the sun-set business or pressures from investors to generate more sterling results could have coerced managers to look at diversification.
Whether diversification is a right direction or not, Management needs to carefully review some critical questions before embarking on this strategy.
The below are extracted from Harvard Business Review on Strategies for Growth pertaining to some critical questions that managers need to review before embarking on diversification:
- What can our company do better than any of its competitors in its current market?
To diversify on some loose/vague decisions rather than on a systematic analysis of what sets their company apart from its competitors. By determining what they can do better than their existing competitors, companies will have a better chance of succeeding in new markets
- What strategic assets do we need in order to succeed in the new market?
Excelling in one market does not guarantee success in a new and related one. Managers considering diversification must ask whether their company has every strategic asset necessary to establish a competitive advantage in the territory it hopes to conquer.
- Can we catch up to or leapfrog competitors at their own game?
All is not necessarily lost if managers find that they lack a critical strategic asset. There is always the potential to buy what is missing, develop it in-house, or render it unnecessary by changing the competitive rules of the game.
- Will diversification break up strategic assets that need to be kept together?
Many companies introduce their time-tested strategic assets in a new market and still fail. That is because they have separated strategic assets that rely on one another for their effectiveness and hence are not able to function alone.
- Will we be simply a player in the new market or will we emerge a winner?
Diversifying companies are often quickly outmaneuvered by their new competitors. Why? In many cases, they have failed to consider whether their strategic assets can be easily imitated, purchased on the open market, or replaced.
- What can our company learn by diversifying and are we sufficiently organized to learn it?
Savvy companies know how to make diversification a learning experience. They see how new businesses can help improve existing ones, act as stepping-stones to industries previously out of reach or improve organizational efficiency.
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Tags: Diversification
