Without doubt one of the most difficult challenges a business faces is
diversification. Very often a company is faced with the dilemma of diminishing
revenue returns and a tired business model which is either irrelevant or
obsolete.
Diversification is seen as the solution to this dilemma. However, the
mechanism for achieving this objective can be particularly difficult.
The first step is examining why the current business model is not
working. This requires an honest appraisal from the Management in respect of
their performance.
Then the areas of diversification have to be closely considered, very
often people plunge into businesses in which they have little knowledge or
experience and the results pretty quickly show up these deficiencies.
Thirdly one should always respect geography it may be very tempting to
consider that there are opportunities just waiting to be picked up but to
underestimate the advantage of local knowledge and conditions can again prove costly.
In essence diversification can provide the answer to a company’s need for
increased revenue but without a clearly defined strategy it can equally provide
another drain on an already vulnerable balance sheet.
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