Business Diversification
One way to grow a business is by diversification. The company should look at ways of spreading the risk if it is experiencing or expecting a downturn, it also has to look at increasing its sales revenue and operating profit. Whatever the reasons the company intends to diversify, it has essentially have three options which are; find new products for existing customers, find new customers for existing products and find new products for new markets.
Business diversification is a risk reduction strategy that involves adding products, services, location, customers and markets to a company’s portfolio. Many small companies started as one-track, betting their entire futures on a single product, service, location or even a single customer. There is nothing wrong with this start as a narrow start enabled them to focus and concentrate on doing one thing extremely well.
But, as a company grows larger, it found opportunities to add products, services, locations, customers and markets. Diversifying in this way has helped many businesses weather tough times by providing alternate sources of revenue in the event that it is original market dry up, stops growing or hit by new competition.
It was noted that most companies that survive for long periods of time find that they have to develop new sources of revenue as tastes change and opportunities evolve. Let us take a case in JM Real, originally started as a hair salon business only. With time, the company has grown and added the various products and services with intention of spreading the risk and increasing it sales revenue and operating profit.
The added products and services are internet cafe services and games; video hiring services; sale of African carvings and paintings; interior decorations and vacation trips and safaris. Gradually, the JM Real salon has found out that an additional value is created through synergetic integration of the indicated new businesses into the original one, thereby increasing its competitive advantage.
Diversification can put the company to successes but if the strategy fails it can also burn up money. Thus it is very important to research new markets before diversifying.
The company has to study its existing business to see if the business managers can cope with a diversification strategy, or integrate the diversified business into one company or establish the new operation as a business in its own right, whether the company is strong enough to be an umbrella brand where the core values resonate across the group.
The company should consider many factors before it commits its finances and precious time. The diversification process is a necessary path in the long range growth and success of most thriving companies, for it reflects the fundamental reality of coping with change of consumer tastes and evolving business opportunity. But the act of diversifying requires adequate time and resources, making it a process that can make or break a company.
Want to find out more about growing your business, then visit Joyce Msiru’s site on how to choose the best business diversification strategy for your needs.
