Diversification
In the growth phase we discussed the importance of making the business stronger, here we focus on making it bigger, by a significant factor. Classically there are two types of Diversification; "Horizonal" & "Vertical". One focuses on growing products and geographies the other on acquiring operations up or down the supply chain. ​
Overview and Outline
Business diversification involves expanding a company's operations by adding new products, services, or markets. This strategy can reduce risk by spreading investments across different areas and can create new revenue streams, enhance market share, and improve competitive advantage.
Diversification can be categorised into horizontal diversification (expanding into new products or services at the same level of the value chain) and vertical integration (expanding into different stages of production or distribution).
1. Strategy Development
Purpose and Vision:
Define why the business wants to diversify. Is it to mitigate risk, leverage existing capabilities, enter new markets, or capitalise on emerging opportunities?
Align the diversification strategy with the overall business vision and mission.
Alignment with Core Competencies:
Assess how the diversification aligns with the company’s core competencies. This involves identifying areas where the company already has strengths, such as brand recognition, technology, customer base, or operational efficiency, and exploring how these can be leveraged in new markets or products.
Connection to the 10 Determinants of Success:
Utilize the determinants (such as financial acumen, leadership and team building, market understanding, and innovation and adaptability) to analyze the business's readiness for diversification. For example, strong financial acumen is necessary to secure funding for diversification, and deep market understanding is critical for entering new markets effectively.
2. Goals & Objectives
SMART Goals:
Set specific, measurable, achievable, relevant, and time-bound goals for the diversification effort. Examples include launching a new product line within 12 months or achieving a 10% market share in a new geographic region.
Objective Setting:
Define clear objectives that support the overarching goals. This could include objectives around market penetration, customer acquisition, revenue targets, or operational efficiency.
Integration with Business Model:
Determine how these goals and objectives fit into the existing business model. Assess how diversification will impact current operations, resource allocation, and financial performance. Utilize data analytics from the business model to forecast outcomes and adjust objectives accordingly.
3. Research and Validation
Market Research:
Conduct thorough market research to identify opportunities and threats in potential new markets. This includes understanding customer needs, competitor landscape, regulatory environment, and market dynamics.
Feasibility Studies:
Perform feasibility studies to evaluate the financial viability and strategic fit of diversification options. This may involve cost-benefit analyses, revenue projections, and break-even analyses.
Horizontal Diversification vs. Vertical Integration:
Horizontal Diversification:
Assess the potential to introduce new products or services that complement the existing portfolio. Validate if there is a market demand and if the company can meet this demand profitably.
Vertical Integration:
Explore opportunities to control more of the supply chain, either upstream (acquiring suppliers) or downstream (acquiring distributors). Validate whether this will reduce costs, improve quality, or provide other strategic advantages.
4. Strategy Formulation
Diversification Pathways:
Choose the best pathway for diversification based on research findings. This could include developing new products, entering new geographic markets, forming strategic partnerships, or acquiring other companies.
Integration Plan:
Develop a detailed plan for integrating the new operations, products, or markets with existing ones. Consider how to align new activities with the existing corporate culture, processes, and systems.
Resource Allocation:
Identify the resources needed for diversification, including financial investment, human capital, technology, and marketing. Allocate resources based on the priority of diversification initiatives and expected returns.
​
5. Risk Assessment and Mitigation
Risk Identification:
Identify potential risks associated with diversification, such as market acceptance risk, financial risk, operational risk, and strategic risk. Assess how these risks could impact the overall business.
Risk Mitigation Strategies:
Develop strategies to mitigate identified risks. This could include phased rollouts to test market acceptance, securing additional financing to manage financial risks, or implementing new technologies to enhance operational efficiency.
Use of the 10 Determinants of Success:
Leverage the determinants to develop robust risk mitigation plans. For instance, strong leadership can help navigate change effectively, while effective risk management ensures proactive identification and management of risks.
6. Implementation
Action Plan Development:
Create a detailed action plan outlining the steps needed to execute the diversification strategy. Include timelines, responsible parties, key milestones, and performance indicators.
​
Organisational Readiness:
Prepare the organisation for diversification. This involves training staff, realigning teams, adapting processes, and ensuring that leadership is prepared to manage the change.
Performance Monitoring:
Establish KPIs (Key Performance Indicators) to monitor the progress of diversification efforts. KPIs should be aligned with the goals and objectives set in the earlier stages.
Feedback Loops and Adaptation:
Implement feedback mechanisms to gather data on the performance of diversification initiatives. Use this data to adapt strategies and plans as needed to ensure alignment with business objectives and market conditions.
​
7. Continuous Improvement and Scaling
Review and Analyse Outcomes:
Regularly review the performance of the diversification strategy against the established goals and KPIs. Use the insights gained to refine and improve the approach.
Scaling Successful Initiatives:
Identify successful aspects of the diversification strategy that can be scaled for greater impact. Develop plans to expand these initiatives to new markets or product lines.
Alignment with the Business Model:
Continuously align diversification efforts with the overall business model and strategy. Utilise analytics from the business model to forecast future opportunities and risks.
8. Conclusion
Diversification as a Dynamic Process:
Recognise that diversification is an ongoing process that requires regular review and adjustment based on market conditions, competitive landscape, and internal capabilities.
Integration of Determinants of Success:
Emphasise the importance of integrating the 10 Determinants of Success throughout the diversification process to enhance decision-making, reduce risks, and maximise the likelihood of success.
Data-Driven Decisions:
Highlight the role of data analytics and the business model in providing the necessary insights to drive diversification decisions, measure outcomes, and predict the likelihood of success.
By following this structured approach, businesses can effectively develop and implement a diversification strategy that aligns with their overall business objectives, leverages their strengths, and mitigates potential risks.
In this section
Who is ths for? :
Entrepreneurs, investors, business owners, corporate executives, and business professionals looking at developing plans for business diversification within the Business Development Process.
​​
Coaching, consultancy and training services focused on business diversification with clear organisational objectives.
​​​​​​​​​​​​
How is it delivered? :
​​
Online : Remotely
Hybrid : Remote & Onsite
On site: Seconded to client
​​​​
Engagement? :
Letter of engagement, TOR, Deliverable Milestones, Non Disclosure
​​
How much does it cost? :
Dependent on project costed hourly + expenses.
​​