BY DR. TANAI CHARINSARN

DECEMBER 18, 2016

“Until you cross the bridge of your insecurities, you can’t begin to explore your possibilities.”—Tim Fargo

The term "Diversify" can be applied at both the organizational and personal levels, but it is mostly used in the context of diversifying business and investment risks. In this article, diversification doesn't only refer to risk diversification but also expanding into new directions and choosing new paths for organizational growth.

Many businesses that have been thriving often exhibit "Concentric growth," which means they grow by offering variations of existing products and services to their existing customer base. For example, a company might offer the same product to the same group of customers but with changes like different flavors or packaging. This approach is chosen by many organizations because it is relatively easy and carries less risk. It's often referred to as staying within their "comfort zone" where they have an advantage and experience.

Simultaneously, rapid technological advancements and changing consumer behaviors have led to increased competition in both existing and new markets. Product lifecycles are getting shorter, and sticking with the same old products and services might lead to risks. Therefore, diversification, or expanding into new markets or products, becomes essential.

Diversification involves addressing the following three key questions:

1. Choosing the Industry: Before expanding the portfolio into a particular industry, you need to consider external factors. These factors may include future trends, profitability in that industry, and past growth rates.

2. Mode of Entry: Deciding how to enter the industry is essential. This can involve various strategies, including importing and exporting, making contractual agreements (e.g., franchising and licensing), or investing through joint ventures or starting a new business. In most cases, organizations tend to expand their portfolio through multiple entry strategies.

3. Competitive Advantage: To succeed in a new industry, it's crucial to have a competitive advantage. This can be achieved in three main ways: a. Differentiation: Creating a unique product or service that stands out from competitors. b. Low-Cost Advantage: Offering products or services at the lowest price in the market. c. System Lock-In: Becoming a market leader, setting industry standards, and making it difficult for competitors to replace you.

Diversification can also apply at the personal level. Individuals need to plan their careers and futures, just as organizations do. You have to consider which industry you want to enter, whether you should start your own venture or work for an existing organization, and how to gain a competitive edge in your field. Gaining certifications, licenses, or additional qualifications can set you apart from others.

In summary, diversification is a strategy that organizations and individuals use to reduce risk and explore new opportunities in various industries. The key is to make informed decisions about which industry to enter, how to enter, and how to gain a competitive advantage.