By Hauwa Abubakar
We often hear the word ‘diversification’ being used across the globe. It is almost as if businesses and governments can’t help but promote the idea of diversification and that is understandable. In a world where people are constantly seeking innovation, diversification is becoming the norm. But what does it entail for a business to diversify? To diversify simply means expanding your business to increase your value proposition and income streams.
It is no news that technology has brought newer challenges and businesses are attempting to keep up with these challenges. Interestingly, the difficulty isn’t adapting to innovation but more than ever, it exposes businesses to increased capability and expertise.
More customers are understanding their rights and are open to alternatives if they are unhappy with the products or services they are receiving. The monopoly market is being broken and customers can now see the incompetence of businesses who controlled the market in the past – thanks to digitisation. Not only that, consumers can now reach out to businesses faster than before, and the most challenging yet for businesses, is how fast customers can ruin their hard earned reputation with a simple social media rant. As a business in the digital age, you have to understand how social media can make or break your brand.
Diversifying your business is all about timing and finding the right balance as times change. Choosing to diversify and deciding on the right areas to invest in, has continued to pose a huge challenge for businesses. Diversification is not only about investing in new products or services, or buying bonds in numerous industries. In this digital age, risks abound. For instance, a high profile technology can become obsolete in less than two years when new innovations emerge. Many big and small brands have sweet and sour stories to tell about their diversification attempts and many will agree that it is indeed a high-risk game.
However, the key to diversification is not farfetched. Certain factors would help you plan a diversification strategy and here are some important ones:
Identify your core strengths
Before diversifying, it is important to assess what you do better than your competitors. This would help you determine whether you need to create additional or related products or try something completely different. According to Markides (1997), “identifying what you do better forces an organisation to identify how it might add value to an acquired company or in a new market —be it with excellent distribution, creative employees, or superior knowledge about information transfer.”
Diversification can be a process filled with uncertainties however, exploring the areas you have expertise before plunging into something extremely new could be more profitable.
Have a strategic plan to succeed in the new market
You must first learn about the new market or industry you are expanding to. This would allow room for strategic planning.
Related Article: How to Develop a Strategic Business Plan
A strategic plan helps you prepare and analyze the market. Competition on the other hand, guides you in identifying adequate assets and source needed capital to launch the new business at the right time.
Related Article: Why Business Planning Must Be Strategic
Ask salient questions
Markides says it is important to find out “Will diversification break up strategic assets that need to be kept together?” If yes then it is important to go back to your strategy and find a way to not make that happen. At the end of the day, you don’t want to record losses for diversifying to an industry or market that would make you bankrupt.
What are the chances of excelling in the new market?
Ask yourself if you are you going to be a major player in this new market or will you be struggling for recognition? How long will it take to become a household name?
Are you ready to diversify?
Do you have sufficient capital, raw materials and manpower to diversity or will this stretch you too thin? How will you respond to risks and challenges and most importantly, what is the value add for diversifying your business?
By sufficiently answering some of these questions, you can identify if diversification is what you need to grow your business.
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