Diversify or Die: In Search of Digital Businesses

All organizations, when they are born, start with a business model that evolves and gradually create different business units along the way, allowing us to gain strengths alongside the core business.

We live in a period where technologies are changing the way we operate and manage value, so it is crucial for boards of directors and executive boards to stay updated and explore how new technologies can help keep existing business units relevant.

Likewise, within the corporate strategy in the income statement, CAPEX seeks to invest in new competitive advantages and intangible assets to create new value propositions, making diversification strategy indispensable to survive in a world of rapid technological growth.

Business diversification is a strategy focused on the business environment, which involves expanding a company's activities and operations into areas or industries different from its original focus, capitalizing on new business opportunities. The main objective is to reduce dependence on a single market, product, or customer segment, and it can help the company mitigate risks and make the most of new opportunities.

To carry out this diversification, companies face various strategies that can guide their path toward transformation. These strategies are divided into different methods that determine the direction of that expansion.

The first of these strategies, related diversification, refers to expanding within the same industry or sector in which the company already operates. Horizontal diversification strategy focuses on expanding a company into products or services that have a direct relationship with its current business environment. On the other hand, vertical diversification occurs when a company decides to produce internally products or services that it typically procured from third parties, thereby becoming its own supplier. Concentric diversification strategy involves expanding into new products or services that are within the same line as the existing ones. These strategies are implemented when the company competes in an industry with slow or no growth.

On the other hand, unrelated diversification involves a company venturing into activities that have no apparent connection to its existing products or services. Nevertheless, there is a certain coherence in the choice.

Finally, conglomerate diversification involves a company entering industries or markets that are related but different from the ones it already operates in. These are applied when the company is involved in an industry and/or market with little or no growth.

Some prominent examples of companies that used these strategies include Uber, which started as a ride-sharing service and then expanded its scope by introducing UberEats, a food delivery platform. Although both services operate in the transportation industry, UberEats also extends into the food sector. Another example is Apple, as it didn't limit itself to mobile devices but diversified its product lineup to offer tablets, computers, and digital watches, maintaining a connection with technology and consumer electronics.

These strategies benefit companies in various ways. They enter new markets, significantly expanding their sales and business opportunities. They also diversify risk. Companies that invest in a single sector are more susceptible to losses in the face of any threat to their business activities. Similarly, it leads to better resource utilization, as most organizations do not fully exploit their resources in the production process. Finally, by expanding their line of business, brands will have a greater presence in the market.

With this in mind, it's important to know how companies can use and make the most of these strategies in an increasingly technological and ever-changing environment. It begins by researching and evaluating what technologies are at their disposal and available and how they can be applied to their current business. This could include implementing data analysis tools, process automation, artificial intelligence, and more. Once this is done, it's important to transfer this knowledge to the workforce to ensure efficiency when using technological tools. Having an online presence is also crucial, through websites, participation in social media, and creating relevant and valuable digital content. Lastly, perhaps the most important step is the creation of partnerships with other digital companies that offer synergies and growth opportunities.

Business diversification in a digital environment can offer exciting opportunities, but it also comes with risks. It is essential to conduct a thorough analysis and have a solid plan before embarking on digital diversification. Additionally, seeking expert advice when necessary is recommended to make the most of these opportunities.