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Sunday, 9 June 2019

Preparing to Diversify? You Need to Exploit Your Strengths!

I walked into his office and immediately it seemed that the atmosphere was odd.  After the normal greetings I said to him: “What’s the matter?
Oh,” he said, “it’s nothing really but I just feel bored

Here was someone leading a very successful and profitable business and he was bored, or at least thought that he was.   It wasn’t a matter of nothing new, day after day, but rather he was not feeling that spark of excitement that used to be the norm.  

We have to accept that businesses, like those leading them, go through a range of changes and moods from sheer terror at the risk involved through a period of growth and consolidation and sometimes into a maturity where the leader can feel almost redundant.  

This is not by any means unusual and while the example above demonstrates the discomfort that some leaders feel, it is, in the end, the result of a mood swing.

My member, in fact, solved the problem by taking responsibility for a major and very expensive rebranding exercise that was not only successful but made a major impact on the market.  Incidentally it also cured his boredom problem.

My bored member instinctively recognised  that his personal issue could be ameliorated by designing a  change and then implementing it. His solution happened to be rebranding but in essence he was imposing diversification.

Many years ago I came across one of those quadrants so beloved of consultants which showed how variations in products and markets can have a salutary effect on outcomes if they are not handled properly.

This quadrant known as the Ansoff Matrix covers four basic marketing situations and offers a rationale for use in each case. Firstly define your current product range (aka existing products) and the market/s in which the business operates (aka existing markets)

If we now allocate an effort required index, then the matrix breaks down as follows:

Existing Products into Existing Markets

It is self evident that doing more business in terms of expansion in sales of the current product range allied to expanded marketing to the people we know (and who know us) must be the most cost effective route to growth. It is simple and to it we can allocate a basic effort index of 10.

New Products into Existing Markets

The advantages of this approach is that the business is starting to exploit its inherent strength, in this case its position in the market/s. We know them, they know us and we can exploit our reputation.   Even so, there is a price to be paid with an effort index of 20. Somebody in the business has to lead the charge and that takes effort.

Existing Products into New Markets

This is more difficult as we are now trying to break into a market that doesn’t know us, that we don't necessarily know in any depth and where our reputation is not relevant. The price to pay is an effort index of at least 40.

New Products into New Markets

This alternative implies starting a new business where we have no reputation and the effort index is anything up to 80. This is the soul of diversification.

Please note, all the foregoing does not imply that we should not diversify. What it does say is that we need to make a decision as to which of the four sectors you are positioning the business and analyse what information is available to encourage us to take action, basic research data, who is to lead the change, how much of his/her time will be needed and so on.

We need to make sure that the rationale for diversification is valid and should improve the existing business.

Above all be certain that there is logic in the planning and we are not merely indulging ourselves in change for the sake of change.

There is a lot of excitement in change even though there is risk and sometimes adverse reactions but if the process is properly handled then the outcome is more likely to be positive.

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