Diversification is a common strategy for businesses that want to grow and expand their market share. But diversification is not a simple or straightforward process. It involves many challenges and risks, and it requires careful planning and execution. How can businesses diversify successfully and avoid the pitfalls of failed diversification?
In his book Diversification Strategy: How to Grow a Business by Diversifying Successfully, Graham Kenny provides a comprehensive guide for managers and leaders who want to diversify their organizations. Kenny is the founder of Strategic Factors, a company that specializes in strategic planning and performance measurement. He has more than 20 years of experience in consulting and research on diversification and related topics.
Kenny argues that diversification is not a one-size-fits-all strategy. Different types of diversification require different approaches and capabilities. He identifies four main types of diversification: product-market diversification, geographic diversification, vertical integration, and conglomerate diversification. He explains the advantages and disadvantages of each type, and how to choose the best type for your organization.
Kenny also outlines seven characteristics of successful diversifiers, based on his analysis of case studies from various industries and sectors. These characteristics are:
- They have a clear vision and purpose for diversifying
- They have a strong core business that provides cash flow and stability
- They have a disciplined process for evaluating and selecting diversification opportunities
- They have a balanced portfolio of businesses that complement each other
- They have effective governance and management systems that support coordination and collaboration
- They have a distinctive culture and values that foster innovation and learning
- They have a dynamic approach to managing change and uncertainty
Kenny provides practical tools and frameworks for applying these characteristics to your own organization. He also offers advice on how to avoid common mistakes and pitfalls of diversification, such as over-diversifying, under-investing, losing focus, or neglecting core competencies.
Here are the five most important things I learned from Graham Kenny's book "Diversification Strategy: How to Grow a Business by Diversifying Successfully":
- Diversification is not a plan that works the same for everyone. It relies on the organization, its goals, and what it can do. Diversification comes in many forms and degrees, such as related, unrelated, horizontal, vertical, and geographic.
- Diversification needs a clear goal, a good reason, and a methodical way to get there. It should be in line with the organization's core skills and beliefs, and it should bring value to all the stakeholders. It should also be built on a careful evaluation of the risks and benefits and a full analysis of the internal and external environments.
- Diversification means running more than one business under the same name. This needs a balance between integration and autonomy, coordination and differentiation, synergy and variety. It also needs good governance structures, performance measures, and incentive systems that make sure the different groups and stakeholders' goals are the same.
- Diversification is an ongoing process that changes over time. It needs to be constantly watched, learned, and changed to fit new situations and chances. It also takes imagination, innovation, and experimentation to find new ways to make value and get ahead of the competition.
- Diversification is not a surefire way to make money. It can also fail if it isn't done well, isn't done at the right time, or isn't explained well. It can also lead to problems like complexity, disagreement, confusion, and a lack of motivation. So, diversity should be done carefully, clearly, and with dedication.
Diversification Strategy is a valuable resource for anyone who wants to learn how to grow a business by diversifying successfully. It is based on rigorous research and real-world examples, and it offers best-practice guidance for managing diversified organizations. Whether you are in the private, public, or non-profit sector, you will benefit from understanding and applying the principles outlined in this book.
Buy this book at Amazon: https://amzn.to/3mDIaY4
New books on Strategy:
Your Next Five Moves: Master the Art of Business Strategy: https://amzn.to/3U0418c
HBR's 10 Must Reads On Strategy: https://amzn.to/40TJfto
On Strategy: A Critical Analysis of the Vietnam War: https://amzn.to/430cX1F
Modern Poker Theory: Building an unbeatable strategy based on GTO principles: https://amzn.to/3K1y1vY
The Art Of War: https://amzn.to/3zq7SCe