Diversification Is A Double-Edged Sword, By CARMA’s Mazen Nahawi
Accountants love the idea of diversified revenue streams which reduce risk and maximise revenue, product managers love creating new toys for their clients and HR leaders are obsessed with creating diversified teams.
I appreciate diversification and see its merit when done correctly, but I am also aware of how dangerous diversification can be if not planned and executed properly.
The most important question when thinking of diversifying your business, products or teams is this: Does this serve truly my customer? If I change my business, does it make my clients’ life better? If I add new products, does it help my client improve their reputation and their bottom line?
The wrong approach is to think that there is an opportunity which may or may not be relevant to your client and to pursue it just because ‘there is money in it’.
The second most important question is: Is a proposed diversification at the heart of our competence and our value proposition, or is it an ego-driven extension of our brand? The latter is usually a bad idea and almost always fails.
An example of diversification done right would be Apple creating accessories including air pods, iPhone case covers and iCloud storage – all of which do clearly serve the customer. While these products were new and diverse when they were introduced, they remained at the heart of Apple’s competence (the knowledge and skill to deliver) as well as reinforcing their value proposition of creating an integrated hardware and software system, which allows customers to engage with the world.
In the B2B space a successful example of diversification would be the creation of Amazon Web Services (AWS). As Amazon tried to create a better eCommerce marketplace, they realised they needed enormous computing capacity to manage transactions, store information, connect data and layer Ai to facilitate growth. They did this for themselves and then opened it up to the world and AWS is now the most powerful force in cloud computing world-wide.
Indeed, this diversification was a bit more radical than Apple introducing iPhone case covers, but it still met the threshold of being at the heart of their competence and reinforcing their value proposition.
My above outline shares the opening steps towards successful diversification, but the principles remain the same whether your diversification plans are on strategy, brand, product, technology or geographic growth.
There are of course countless examples of diversification gone bad: The introduction of Cherry Coke is a big one: while it met the threshold of meeting Coca-Cola’s competence, it did not meet the threshold of respecting their value proposition – customers simply did not want it and it ended up being a multi-billion loss for the company and classic example of brand extensions gone wrong.
Diversification does have an opposite: lack of dynamism and growth. This too can be an opportunity as it allows focus and depth (think Emirates), but on the flip slide it risks lethargy and complacency (think Blackberry).
Born and based in the UAE, I started my career in the media industry at the beginning of the internet revolution. Internet penetration at this time was below 50 per cent and after identifying a gap in the market, Based on this, I shifted my focus from traditional communications towards digital and PR media analytics. I introduce a next-generation portal to analyse and monitor all forms of media to enable stakeholders to make informative decisions which ultimately deliver on measurable and successful ROI – CARMA. I further went onto diversify my portfolio and founded SOCIALEYEZ, the region’s largest independent social media marketing business in the Middle East and also launched Interactive Ltd., a software development company focused on eGovernment services.
With more than 25 years of startup, strategic and managerial experience, I established many companies globally and am a Member Board Of Trustees at GlobCom Project and the President at News Group International.
In a booming economy, many will be tempted to consider diversification projects of all sorts – complex plans and big investments may be considered to meet the dreams of ambitious business leaders. If you know whether these will succeed, simply ask yourself these basic questions: Is this something my (not others’) customers want and am I good at creating it? If so – go for it! If not, then re-consider.