Types of Business Diversification Strategies

Product Design 2 mins read 16th Jul 2019

You may think Morgan Freeman’s character in the Dark Knight has a job title like ‘Head of Special Projects’ or ‘Innovation Director’.

In fact he is the CEO of Wayne Enterprises. In this fictional world the CEO is almost exclusively focused on diversification. Should you be too?

Attack or Defend

Although the products are incredibly hi-tech, Wayne Enterprises seem to be in the business of Defensive Diversification. They are defending their market share as a supplier to the Security industry by introducing new products to that specific market. They know their audience, and try to stay one step ahead of the competition.

By contrast, Offensive Diversification seeks to generate market share in a new market, either with related or unrelated products. This is often the domain of recognised brands looking to leverage their name. Think McCafe, UberEats and Nike’s sudden focus on golf in 1996. You might say Virgin and EasyGroup are brands defined by Offensive Diversification.

Innovation Diversification Strategy

No doubt Offensive Diversification is the more glamorous, attention-grabbing option. Defensive Diversification, on the other hand, is more akin to what we might simply term ‘innovation’.

At G2, this is our meat and drink. The catalyst for a client reaching out to us is often the realisation that growth in the core business is at risk of slowing. If your business is not in this boat you are lucky. Or, like Nokia, perhaps you’re just not paying attention.

Want to talk about diversification? Get in touch.

Want to learn more? We recommend…

This cool video from the FT explaining how Uber is a company banking on diversification. “The US ride-hailing company is yet to record an operating profit but hopes its four main branches – ride, deliveries, B2B and future – will pay off in the longer term.”

This piece of research by McKinsey featuring responses from 1,143 executives at companies with revenues above $500 million. “Most companies lack best practices to expand beyond their core business, especially when scanning, evaluating and integrating new opportunities.”

This Forbes article loaded with anecdotes of success and failure. “Remember Blockbuster? You might belong to the last generation that does.”

And this vintage Harvard Business Review article from 1979. “Recent examples of corporate diversification include the entries of Gillette into manufacture of felt-tip pens, John Deere into snowmobiles, and Texas Instruments into pocket calculators.”

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