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Diversification Strategy

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Diversification Strategy

How to grow a business by diversifying successfully

Kogan Page,

15 min read
10 take-aways
Audio & text

What's inside?

Despite its poor reputation, business diversification can be profitable.

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Editorial Rating

8

Qualities

  • Innovative

Recommendation

When a company fails, diversification is more likely to get the blame than concentration. Running multiple businesses is supposedly more dangerous than operating just one. But focus is overrated. With proper management, business diversity can deliver excellent investment returns. So says corporate strategy planner Graham Kenny whose book lists seven steps that “successful diversifiers” follow. Blending practical information with meaty, real-life examples, Kenny illustrates how notable conglomerates, such as General Electric, exercise the discipline that successful diversification demands. Although the book lacks some of the finer details you’d need to apply Kenny’s diversification program, getAbstract recommends this clear volume to business managers who want a research-based framework for assessing diversification opportunities.

Summary

Diversification Versus Concentration

Many business executives consider diversification risky. Concentrating on a core business has been a fashionable style of management for decades. It won many followers after the 1982 publication of In Search of Excellence, an influential, widely read book by Tom Peters and Robert Waterman, who urged companies to focus, to do only what they do best and to “stick to their knitting.” Investment analysts are more likely to cite excess diversification than excess concentration among the reasons why companies fail. But, alternatively, branching out can breathe new life into a company, and avoiding diversification can have adverse consequences. Firms that fail to diversify their business are likely to leave their shareholders feeling poorer.

However, succeeding in multiple lines of business can be difficult. The diversification process is fraught with change and challenge. Misguided diversification often stems from business acquisitions that are overpriced or poorly planned. And many diversified companies lack the managerial expertise to oversee two or more different businesses from one headquarters.

Effective business diversification...

About the Author

Graham Kenny is the managing director of Strategic Factors, an Australian firm specializing in strategic planning and performance measurement.

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