Balancing Diversification and Specialization

Part intuition, part analysis, the decision to diversity or specialize stands at the intersection of a number of dichotomies. In this constantly changing, contradictory environment, business decision-makers need to strike a balance to find the innovation sweet spot – where core competencies meet market opportunities.

Balance Brand and Product

There are ultimately two kinds of love a consumer has for a company – a love for brand, and a love for product. Brand love is the stuff of customer loyalty, and can ultimately transcend product love. It is transferable and can be leveraged to enter new territory. This is the idea behind the master branding currently embraced by the consumer packaged goods industry. Anyone who has seen the Procter & Gamble Mother’s Day commercial leading up to the London Olympics has experienced the power of the master brand – where conglomerates attempt to build brand equity for more than just a product. There’s hardly any recognizable product placement in the ad, save for the deluge of Tide, Pampers and Duracell logos at the very end. Procter & Gamble hope that the love consumers have for one product will extend to others within the corporate portfolio. Those brands who aspire to branch out should take a brand- building cue from the packaged goods industry – developing deeper consumer connections with brand to replicate the love a consumer has for one product into love for an entire set of products.

Balance Core and Periphery

Diversification should also incorporate some of what you already know while moving you towards where you’d like to be. In 2006, Nike and Apple released Nike+iPod, a fitness tracking application built into iPod Touch and iPhone. By collaborating with a technology company in its first foray into software, Nike was able to share the risk and reward of its groundbreaking innovation, gaining tech expertise in the process. Next came its fitness tracker FuelBand, a natural progression into consumer electronics, followed by an accelerator program fostering the development of applications based on the Nike+ platform. Nike’s evolution demonstrates the importance of adjacent moves, where business expansion is based on core competency with the introduction of one unfamiliar aspect, whether that is new customers, new products for existing customers, or new geographies. It’s easy to look at a company like Nike and tout its dramatic shift from running shoes to gadgetry. But a closer look at Nike’s product development over time reveals a more gradual transition.

Balance Risk and Reward

Essentially, your product offering is like a portfolio, where products hedge the economic and obsolescence risks of one another. The more diverse your product range, the safer you are in maintaining your returns. However, spreading yourself too thin can limit profit potential and organizational focus. By 2012, Kraft Foods had amassed dozens of brands, encompassing everything from cheese to gum to chocolate, a brand collection so broad that it actually hindered profit potential and investor interest. Mature North American grocery brands like Jell-O and Philadelphia hampered the shareholder value derived from the company’s high- growth global snacking division, comprising brands such as Cadbury and Nabisco. The result was a Kraft spin-off of its global snack brands in October 2012 with the intention of boosting investor interest and increasing Kraft and Mondelez’s focus on the unique needs of North American grocery and global snacking respectively. The lesson to be learned here is that while diversification will manage some risks, it also introduces organizational complexity that may inhibit a unified corporate strategic vision and overall success.

Balance Imitation and Trailblazing

Not every product release is going to be a game-changer, and that’s okay. Not everyone has
the brand power, the cultural wherewithal, or the cash to equip them for the risky and expensive task of trailblazing. Samsung,
for example, carefully determines where it innovates and where it imitates. While it conspicuously imitates the fundamental designs of other tech giants, it invests strategically in innovation, by working to improve on what others have built. Its Galaxy Note smart- phone provides the same basic functionality of both an iPhone and an iPad, but differentiates from its competitors with the incorporation of a stylus. This acts as a particularly appealing feature for the complex characters used in Asian markets. What the Samsung case reveals is that you don’t have to innovate every- where, you just have to innovate where it counts.

Innovation involves tipping the balance that is the status quo. But it also requires balancing capabilities. Knowing where to tip the balance and where to strike it is key, and will make all the difference.

the author

Nicole Korb