A related diversification strategy involves building the company around businesses

What is diversification?

Diversification is a business strategy where a company develops new products and services or enters new markets.

Diversification strategy can kick-start a struggling business. It can also extend the success of already profitable companies.

Why is diversification important in business?

There are four key reasons why businesses adopt a diversification strategy:

1. The company wants more revenue
2. The company wants less economic risk
3. The company’s core business is in decline
4. The company wants to exploit potential synergies

Learn more about diversification strategy in our in-depth blog.

Let's look at some the best examples of business diversification strategy in action.

Apple

One of the most famous companies in the world, Apple Inc. is one of the greatest examples of a “related diversification” model.

Related diversification means there are commonalities between existing products/services and new ones in development.

Once upon a time (1984), Apple launched the Macintosh personal computer. They had released products before this, like the Apple I motherboard, but the Macintosh defined Apple’s early success.

A period of decline hit the company during the mid-1990s. Microsoft had been delivering a cheaper and simpler (albeit less powerful) PC alternative. Towards the end of the 1990s, Apple was approaching bankruptcy.

Then it all changed.

In 2001, Apple launched the iPod and iTunes software (2003). This was a success. Apple would hit the diversification jackpot a few years later with the iPhone in 2007.

It’s easy to forget that computers and mobile phones bore next to no similarities from a consumer perspective before the smartphone.

Operational synergies let Apple share resources and capabilities between the two product groups. The iPhone used many of the same resources and design principles as Apple's computers.

Apple didn’t stop there, though. The company has since diversified into tablets, watches, smart-audio, and even electric vehicles.

Diversification strategy saved Apple from failure, and helped them grow into one of the world's biggest corporations.

Amazon

Amazon is one of the world’s largest and most well-known companies. They generated a mouth-watering $386 billion in 2020.

Amazon was originally an online bookseller, and it was a very successful one after its launch in 1995. Books were easy to source and distribute but Jeff Bezos planned to diversify.

Amazon began selling video games and other multimedia in 1998. Before long, the company sold consumer electronics, software, homeware, toys and more.

The goal of Amazon was always to diversify from an ecommerce website to a fully loaded tech giant.

Amazon later launched AWS (Amazon Web Services). AWS delivers on-demand cloud computing platforms and APIs. They were now a long way away from just selling books.

Amazon diversified further as they launched the Kindle e-reader and later the Amazon Echo smart speaker system. This is a very similar trajectory to what Apple had followed before. They also entered the digital music industry with Amazon Music.

Skip ahead to the present day, and Amazon has its own airline (Amazon Air), cloud storage platform, movie studio, and much more.

The diversification of Amazon is as impressive as it is worrying for competitors. It is the highest profile example of strategic relatedness in business diversification.

When Diversification goes wrong

Diversification is not a sure-fire way to ensure success. In fact, diversification brings greater risk than market development or increased market penetration.

This means it sometimes goes wrong.

Harley Davidson’s “Legendary Eau de Toilette”

Harley Davidson, famous for its iconic motorcycles, diversified into fragrances in the 1990s.

A notable example of over-extending a brand, this perfume angered the Harley Davidson fanbase. The failed launch prompted more careful diversification strategy from the company thereafter.

The lesson: Be careful of brand clashes when diversifying.

Virgin Cola

Virgin, which began selling records, is another example of long-term diversification strategy. Virgin Media, Virgin Holidays and Virgin Money have all seen considerable success.

But even the best occasionally gets it wrong. That is exactly what happened when Virgin decided to take on Coca Cola and Pepsi with Virgin Cola. Virgin Cola only managed a market share of 3% in the UK.

Because of the size of the Virgin Group, they were able to survive and move on from this failure. Smaller corporations may not have done.

The lesson: Be realistic about your product’s appeal alongside the competition.

Google Glass

Google is a behemoth of a corporation, with near limitless budget, resources, and know-how. Even they can get diversification wrong. This is exactly what happened with their 2013 foray into wearable hardware, called Google Glass.

Google heralded the device as a wearable, user friendly, non-intrusive alternative to a smart-phone. But the product was discontinued after just 2 years. The release was hit by complaints about poor battery, privacy concerns, bugs and even a ban from use in public spaces.

The lesson: Make sure your product is fit for purpose and has legitimate appeal.

How to get Diversification strategy right

Diversification is a high-risk business development strategy. When entering new markets with new products, preparation and planning is essential.

The “Three Tests of Diversification value” is a great place to start. We recommend asking yourself the following questions when thinking about diversification strategy.

• Is it better to be specialised in your core business, or diversified?
• Would diversification create or diminish value?
• Is there an optimal degree of diversification?
• What types of diversification are most likely to create value?

The Genus team at shorts recently took part in a special event with Lucidity, where we presented the dos and don’ts of diversification, and in-depth advice that can be applied to any company, not just the Silicon Valley tech giants!

You can watch the full video below – if you would like to discuss your diversification objectives with the Genus team,

Free Diversification Toolkit

Are you considering diversifying your business? If so, you can download our free, interactive Diversification Toolkit today. The toolkit gives you all the tools you need to decide if diversification is right for your business, and how to plan and effectively execute your diversification strategy.

Download the free Diversification Toolkit here

What is a related diversification strategy?

What companies use related diversification strategy?

What are the 3 types of diversification strategies?

What makes related diversification an attractive strategy is?