Diversification: A Warning

A diversification strategy for growth often arises from subjective motives. This sort of mindset is also associated with failure.

On the 4th of September 476 AD, 16-year-old Emperor Romulus Augustulus surrendered to the Germanic leader Odoacer.

An event that marked the end of the 1,480-year-old Roman Empire.

The demise leading to this event started long before when the Romans began to lose territories to different Barbarian tribes.

The Franks and the Burgundians began to replace the Romans in most of Western Europe and Northern Africa.

Other Barbarian tribes – such as the Visigoths, Vandals and the Huns – also reclaimed Roman territories.

The Roman Empire had grown rapidly – a regime that always strived for power and domination.

But within the lands it had conquered it had developed fierce enemies.

And like all foreign occupations, failure is almost a given. One way or another.

Generally, economic, environmental, social and cultural factors contribute to such a demise.

Factors which are usually connected in some way.

The Barbarian attacks on Rome came from a migration caused by the Huns’ invasion of Europe in the 4th century.

By this point, the Roman Empire was receding fast.

When the Huns rampaged through Northern Europe, they drove Germanic tribes to the borders of the Roman Empire.

Christianity had turned Roman citizens into pacifists – so the population failed to defend themselves and their territories.

The Empire had also spread itself too thin, with its armies engaged in battles across its falling territories, stopping it from being able to defend its homeland.

The Empire had diversified to a point where there was no going forward nor back.

It didn’t have the resources.

A weakened capital was left wide open to take.

Striving for development or growth, on the other hand, is completely necessary for an empire or organisation.

It needs to do so to thrive.

The Ansoff Matrix is a framework to help marketers devise strategies for growth.

It consists of four strategies: Market penetration, market development, product development and diversification.

A market penetration strategy consists of the organisation trying to grow using its existing offering in existing markets.

A market development strategy consists of the organisation trying to expand into new markets using its existing offering.

A product development strategy consists of the organisation trying to create new offerings targeted at its existing markets.

A diversification strategy, however, is a little different.

It consists of the organisation growing its market share by introducing new offerings in new markets.

It requires both product and market development.

New skills, knowledge, people, processes and facilities.

And it’s risky because you’re not utilising your specialisms and what made you great in the first place.

Environmental and economic factors are always against you.

(If technology affects your organisation – which it probably does in some way – then the playing field is shifting all the time, alongside these natural factors.)

Making development on two fronts hugely difficult.

But what often goes unforeseen, is that the development tasks are given to the people of the organisation.

Cultural and social (and then, political) factors – internally and externally – are then at play.

If objectives and attitudes aren’t aligned throughout the organisation, it can fall apart during a diversification strategy.

Internal divisions, squabbling and struggles for power can kill even the most powerful empires.

This is on top of the natural stress such a strategy will place on an organisation that leads decision-makers to make bad decisions.

The Roman Empire was just too diverse – it went ruthlessly in too many directions.

Each territory it acquired had its own set factors – its own set of challenges.

Each needing varying and increasing resources to maintain.

Unknown territories or markets brings with it such uncertainty.

It happened with the Persian Empire and Nazi Germany.

XciteLogic, SwissAir and Enron are examples in the business world worth reviewing who adopted similar growth strategies and failed.

Of course, Apple, Walt Disney and Virgin are some of the few success stories.

But they are few and far between.

(Dive into the success case studies and you’ll soon realise that the driver for growth wasn’t power and domination.)

Which is why 2/3 of all the fastest-growing organisations fail.

Because they fail to understand the implications of diversification.

And why a diversification strategy is adopted in the first place.

Marketers and Product Managers need to always remain impartial and objective.

Not subjective.

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