Top 5 Business Diversification Strategies to Expand Your Company

It isn’t entirely uncommon for companies to diversify their business activities and manage risk or expand into new markets. Quite a few globally renowned examples come to mind, from Apple Computers shifting into Apple Inc and expanding their operations beyond the PC, to Tesla’s recent shift towards battery manufacturing. Regardless of the industry and story, the goal is to develop a plan that includes a wide variety of ways to increase the company’s bottom line and maintain or elevate current revenue.

Diversification is a bold and often risky endeavor. While large corporations with an already established dominance over a particular niche can easily experiment with diversification, companies that are only just leaving infancy behind cannot afford a failed undertaking, especially if sales are on a downward trend. But before you jump into this type of investment, there are several aspects to consider first.

What Is Diversification?

Diversification is the act of developing a new product or expanding into a new business market. More often than not, companies consider diversification as a risk management activity, one that not only mitigates the effects of economic downturns and declining sales but also provides the opportunity to experience an entirely new market. The concept revolves around expanding into a new product, activity, or niche that does not suffer the same economic impact as your current projects. The expansion brings along a new audience, a new market, and entirely new circumstances.

In the case of a diversified company, should one undertaking suffer a dip in its market, other undertakings would help offset the losses and keep the company operational. Not only is it an issue of risk management, businesses often use diversification as a growth strategy.

Diversification Strategies

There are quite a few ways to diversify a business. These differ on various levels from goal to strategy and depend on the purpose behind them as well as the company’s ability to brave new challenges. Concentric diversification is the act of expanding into a new market or creating a new product that is technologically related to the company’s current business. One of the advantages of this strategy is the ability to leverage industry knowledge, technical know-how, and workforce experience to prosper in the new market.

For example, let’s take a technology manufacturer that specializes in creating desktop computers. Regardless of how their current products measure up in the market, it’s possible to expand into laptop manufacturing. This is an easy transition into a product that can leverage the workforce’s existing skills and knowledge since the two are extremely similar.

‍Conglomerate diversification is another highly effective approach. It refers to expanding into industries that are alien or unrelated to the company’s current operations. For example, our computer company could decide to bridge the gap into the auto world, the home design world, consumer retail, and so on. It’s a highly effective risk management activity, but only if the management team is capable of effectively leading different businesses. Your current management team may have been very efficient before, but a new business requires a specific set of skills and experience, especially in regard to managing new and emerging enterprises. It’s critical to consider the differences between the two businesses and the segregation of resources in order to avoid internal competitiveness. This can influence your hiring decisions.

‍Horizontal diversification revolves around your existing client base and whether or not your company can diversify into a new product that this demographic would be interested in. Horizontal diversification is the creation of new solutions that meet your current clients’ needs. This strategy comes with the least amount of risk and pressure. Seeing as the people, the companies, and clients that you’re working with are already familiar with your team and market. As an example, a company that produces paper could take the horizontal diversification approach into printer manufacturing. The product is entirely different, and the technology that goes into it, though related to the original product, is not the same. However, this new product has the potential of attracting your existing client base.

Management Change

Make no mistake, diversification is highly complex. In essence, it’s the creation of an additional business under the same company brand. In order to do this right, companies should make sure that the management team (both existing and in consideration) should possess the required sets of skills and experience to run the business.

Depending on which diversification strategy a company opts for, employers may find themselves hiring managers with specific knowledge of the new product, its industry, and the customer demographic that may or may not be alien to the company. Recruiting capable talent would require a well-designed talent acquisition strategy and C-level leadership with a focus on digital transformation.

In order to properly effect change, employers need to focus on optimizing their recruitment strategy. This can be done through careful analysis of currently employed recruitment channels, implementing ATS platforms, and HR Tech solutions. The trick lies in maximizing the company’s potential to acquire great talent.

Emphasis on Sales Development

Once the plans for diversification are set, and the optimal strategy has been chosen, companies can begin refining their approach. This is best done by putting early emphasis on the sales aspect, as a new product would require an entirely different pitch. The goal is to work together as a team to make sure that each department is contributing well enough to overall profits. If you have a lot of salespeople in your company, it would be beneficial to track metrics and perform routine analysis to pinpoint just how efficient the new process can eventually be. Incentivizing the sales team is crucial for early-stage preparations. It’s very important that the team is ready to tackle a new product, industry, and demographic if need be.

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