Old Keywords, new meanings | Part 3: Diversification
One of the most challenging decisions a company can confront is whether to diversify: the rewards and risks can be extraordinary. — Harvard Business Review
In a period of deep market transformation and increasing digitalization, companies are facing important decisions for their future. In these times, adopting a diversification strategy means for a company to open up new business opportunities in new markets.
How to face the challenges of diversification? Which models should be adopted?
The old company business model was based on the concept of focus. This has meant, especially for small and medium enterprises, a stressed search to cover all the customers’ needs, producing a considerable waste of energy and risking serious troubles for companies.
Today we have to leave this model and ask: how can I satisfy the needs of my customers with what I have inside the company, using the know-how and my strengths?
Thinking back to the business model, how can I diversify?
Let’s try not to focus on the product but on the company’s know-how. Based on this choice, we could decide which are the best ways to satisfy the needs of the main stakeholders, reformulating more clearly the company’s value proposition that too often over the years loses “shine” and, above all, targeting specific aspects of each market.
The starting point of these strategies is the selection of priority market segments on which focus the investments and the business strategies of the company.
Let’s take an example: a company operating in the accessories and sportswear industry employs a material for a product “x” that at this time is suffering from market saturation. After an analysis between top management and business units (production, marketing, sales) the company decided to employ this material for a new product “y” which until now was not part of the traditional supply of company products.
This approach does not require a significant economic investment and allows the company to approach a new market segment similar to the core business, taking advantage of a well-positioned brand and a good corporate reputation.
In order to successfully start a diversification process, synergies between the various business units of companies will be crucial: sales, marketing and production, as well as the fundamental factor of the skills of management and top management.
Partnership, digital transformation and diversification are topical issues for all companies and essential for that substratum of Italian small and medium enterprises, extremely creative and successful in their core business, but often struggling to figure out an effective and consistent marketing strategy with the digital evolution of business.
The secret of a change is to focus all your energy not on fighting the old, but on building the new. — Socrates