Diversification success stories

Source: Exec Digital USA

Date :9/9/2008 12:25:28 PM

Having fingers in many pies is one way of pushing forward your business. Here diversification expert David Stern gives his verdict on how spreading out has meant moving forward for six major firms

Written by Sam Wright

When times get tough, strategy can be the first thing to go out of the window. And as the global economy dips, many could be forgiven for keeping their thinking strictly short term.

We all know, however, that it isn’t a viable option and, as markets contract, the sensible among us will be looking to spread their interests to dilute exposure or find new revenue streams.

With this in mind, together with David Stern of international strategy consultants Roland Berger, publishers of The Fall and Rise of Diversification, we take a look at how six major firms have shown that a refusal to stand still should be the driving force behind any successful business.

Hallmark Cards

When Joyce Hall started producing Christmas cards in 1915 after a fire destroyed his fledging postcard business, few could have predicted that his company would grow into the largest manufacturer of its type in the US.

It’s possible that this early bout of misfortune, combined with the seasonal nature of its product, gave Hall the urge to spread his business interests. Either way, in the intervening years, Hallmark has worked hard to extend its product lines.

As early as 1928, the company was dominating the US greeting card market and had invented gift wrap, introducing it when they ran out of their traditional colored tissue wrapping paper.

In 1936, the company produced the case display for their cards, while the first greeting card store followed in 1950. A year later came the Hallmark Hall of Fame television production.

Today, Hallmark is a fully diversified international company that counts the Hallmark Channel, Crayola and Hallmark Music among its subsidiaries.

With year-round trade stronger than ever, the company’s motto of “We’re with you at holidays and any-days” is a fitting reminder that diversification can take a niche firm and turn it in to a major player.

Virgin Media

Originally Virgin Mobile prior to its 2005 merger with Telewest, Virgin Media’s modern reputation is for fighting on four fronts. Broadband, landlines, mobiles and TV all are part of the portfolio that has seen it climb to its current position as of one of the UK’s leading communications and media providers.

This approach may have had its ups and downs – the company took a writedown of US$670.5 million on its mobile phone business last month – but Virgin’s lack of reliance on advertising has left it in a much better position than many of its competitors to weather the declining economy.

Virgin Media has also looked to exploit its cross-platform reach, recently announcing that it will broadcast US made-for web drama Prom Queen across its TV channels, websites and mobile portal.

And while competitors such as ITV suffer from declining viewing figures and ad revenues, this willingness to branch out and explore new models – it is also the country’s biggest supplier of video on demand (VOD) – may just see it stay ahead of the curve when the upturn begins.

Canon

Few companies sum up the principles of successful diversification as well as Canon. Founded in 1930, the Japanese multinational began its life as Canon Camera Company, a manufacturer of 35mm cameras.

But, by the 1960s, the company had begun to spread its experience in imaging technologies into business machines such as printers and calculators. At the same, it began to also spread geographically, opening offices in Europe and the Americas.

A consistent focus on product development (even today Canon is one of the top three firms receiving patents in the US) saw the company rapidly overtake market leader Xerox in the lucrative copying market and, in 1969, it cemented its wide-ranging focus with a change of name to Canon Inc.

Since then, Canon has grown to become one of the world’s largest electronics manufacturers and, while the firm’s camera products continue to enjoy a high profile, the lion’s share of its US$39.3 billion net income comes from its office products division.

EasyGroup

Sir Stelios Haji-Ioannou (pictured), or Stelios as he prefers to be known, might have enjoyed somewhat mixed results with some of his ventures, yet the easyGroup deserves a special mention here for its absolute commitment to diversification and his favoured yield management model.

The practice of charging varying prices over various times has been proven to work best with products such as airline seats, and so far the easyJet founder has enjoyed his greatest successes when sticking to the travel industry.

Companies such as easyCar, easyBus, easyCruise and easyHotel have all taken his no-frills philosophy into markets worldwide, but the ‘right price at the right time’ approach had limited success in other areas.

But although easyPizza, easyCinema, and male toiletries firm easy4Men have so far failed to set the world alight, with 17 different companies and counting, the easyGroup is proof that taking risks is a fundamental part of a successful growth strategy. For that reason, expect the company to carry looking for new markets, no matter how bad the economic downturn.

Apple Inc

Much the same as Canon, the symbolic trimming of Apple Computers’ name down to Apple Inc in January 2007 said much about the company’s spreading of focus.

With the success of the iPod and iTunes, the move will have come as no surprise to some, but what the company may not have expected is accusations among many – including some in its loyal fanbase – that it was attempting to tackle too much at once.

The phenomenal sales of the iPhone may have proved them wrong for now, but with question marks hanging over the global economy, Apple’s latest offering may give even more credence to its decision.

The iPhone Nano, rumoured for launch this October, is set to offer the majority of its bigger brother’s functions at a fraction of the price. If it takes off as expected, then Apple’s already high profile could go stratospheric.

Walt Disney

There has been a lot said about the Walt Disney Company in the past and, whatever your opinion of Mickey Mouse and friends, there’s no doubting its success as a brand.

A pioneer of animated movies, over the years Disney has made the move into merchandising, theme parks and vacation properties and the difficult jump into Europe and Asia.

But last year, Disney took a surprising step into social networking, buying children’s virtual word Club Penguin for a figure that could rise to a potential US$700 million.

This price might seem steep for a company with an annual revenue of US$40 million, but its more likely that the subscriber database of more than 12 million (and rising) under 14’s made Disney prick up its ears.

Social networking might be high risk – Microsoft is still yet to see any significant return for its US$246 million Facebook investment – but as the market downturn hits the box office, it might just be one that’s well worth taking.