Corporate strategies of diversification

With the imperative to keep growing, sometimes the biggest, most successful companies find that the next logical step is through a diversification strategy.

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• Avoid downturn:

Diversification can be a proactive way to avoid the fallout of an economic downturn. By offering different products and services, a company can lessen the damage of a recession, and even take advantage of other vulnerable companies.

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• Polish brand image:

A diversification strategy can be a way to boost the image of a brand. Either by leveraging positive associations with the newly acquired brand, or a perceived change in direction, diversification presents an altered face to the public.

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• Navigate industry changes:

Due to predictable or unpredictable shifts in circumstances, diversification can help companies take advantage of new technologies, avert collapse, or find increased opportunities for synergy, cost-cutting, and profit maximization.

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• Optimize resources: Diversification can be a way to optimize the resources of a company, whether putting excess cash flow to work, better use of existing infrastructure, or improvement of corporate-level decision-making.

What is Synergy?

• Synergy is a strategy where individuals or entities combine their efforts and resources to accomplish more collectively than they could individually. It eventually results in increased productivity, efficacy, and performance. Its best example is mergers and acquisitions, where the new company will provide more value than the two businesses independently.

Example

• The e-commerce retailer ABC began operations on a limited scale, targeting primarily local customers. People started placing orders in the early stages of the company, and the business grew in popularity with clients.
• Consumer reviews highlighted how they recommend the brand to their friends and family. As a result, the company launched a survey to see if people from other places would use their services. The results showed that existing consumers’ word of mouth was effective. As a result, it decided to expand and begin shipping products beyond the local area.
• However, due to the difficulty of handling the delivery, ABC partnered with the well-known logistics firm XYZ to ensure timely delivery. Thus, the two formed the best synergistic collaboration in the industry, resulting in massive profits.