Growth Strategy #4: Diversification
The final growth strategy we will discuss is diversification, which is investing in or acquiring products/services/businesses outside an organization's core competencies or industries. Diversification strategies are used to expand an organization's operations by adding markets, products, services or stages of production to the existing business. The purpose of this strategy is to allow the organization to enter lines of business that are different from current operations.
Typically, this strategy is utilized only after all other growth strategies within current markets have been exhausted as diversification can be very risky. The first three growth strategies can normally be pursued with existing core competencies. However, diversification requires organizations to acquire new skills, technologies and facilities. The development or acquisition of new core competencies can be achieved through various methods, such as:
- Internal R&D
- Start-ups or Spinouts
- Strategic alliance or Joint venture
- Distributing or importing product or service lines produced by another firm
There are two major types of diversification: concentric and conglomerate. Concentric diversification means the new venture is strategically related to the existing lines of business, while conglomerate diversification occurs when there is no strategic fit or relationship between the new and old lines of businesses. We will dig deeper into each of these major types of diversification in our next article.
If your organization is considering diversification as a growth strategy be sure to utilize marketing research to minimize risk. Marketing research is essential because an organization needs to determine if customers in the new market(s) will potentially value and purchase the new products or services. Strategic Marketing Services would be happy to assist your organization with diversification-based marketing research needs. Please contact us for more information.