Smart Diversification: How to Grow Your Business Without Losing Your Edge
Welcome to another issue of The Future of Strategy, where we help business leaders cut through the information overload and receive strategy-packed insights in a digestible format.
It's your roadmap to navigate the chaos, lead with purpose, and achieve ambitious goals.
As the title suggests we'll focus this newsletter on the impact of diversification on business growth and stability.
Let's begin with an old story...
When Amazon started selling books online in 1994, few could have predicted its evolution into a global e-commerce giant. Today, Amazon Web Services, their cloud computing division, alone generates over $80 billion in annual revenue, demonstrating how strategic diversification can amplify success, according to Amazon's latest annual report.
This growth isn't random, each new venture throughout the company's history was built upon its core strengths in digital retail, logistics, and customer service.
In fact, businesses focusing on their core strengths while diversifying achieved 2.3x higher returns in comparison to those attempting unrelated diversification, according to a Harvard Business Review study titled "Diversification as a Learning Process".
Similarly, a Deloitte Global Capability Center survey shows that companies that clearly understood and leveraged their core competencies showed 31% higher productivity and 23% better market performance.
This data underscores a crucial lesson: growth should enhance your existing capabilities, not dilute them.
What not to do
"The essence of strategy is choosing what not to do," a famous and accurate quote by Peter Drucker, the father of modern management.
And to figure that out, we need to identify your core competencies by examining three key frameworks:
What Nike's Story Can Teach Us
Nike's journey offers a masterclass in complementary growth. They started with running shoes, then expanded into athletic wear, training apps, and coaching services, all of which are based on their core expertise in sports performance.
Even more their digital fitness community, Nike Training Club, now boasts over 50 million members globally. This last one is a well-known game-changer!
A Boston Consulting Group report found that companies pursuing complementary diversification achieved 12% higher shareholder returns compared to those attempting unrelated diversification.
Here are three strategies the sports giant implemented over the years:
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Building a Focused Growth Strategy
Here are three keys to maintaining focus while expanding and diversifying your business:
1- Evaluate opportunities against core competencies
2- Assess resource requirements and potential returns
3- Consider timing and market readiness
1- Implement robust quality control across your new ventures
2- Ensure consistent customer experience
3- Monitor customer feedback across all offerings
1- Train teams in new but related skills
2- Develop systems that scale effectively
3- Foster innovation within defined parameters
Finally, we leave you with these interesting findings by global research firm Gartner,
By 2025, organizations that maintain strategic focus while diversifying will outperform their peers by 30% in terms of revenue growth.
The same survey also found that 57% of boards have increased their focus on business model evolution and transformation , recognizing the importance of strategic growth.
Successful diversification isn't about being everywhere, it's about being exactly where your strengths can create the most value.
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