Between the Colorado, Utah and Idaho edition and the Arizona, Nevada, and New Mexico last issues, I interviewed 9 machine shops for company profiles/articles over the past 2 months. Companies interested in increasing their visibility through articles are typically performing well, and they want to share their expertise with a wider clientele. In my interviews, there was a resonating message in these successful companies -- diversification.

There are a number of sound reasons for diversification, not least by extending your range of goods or services you can either sell more products to your existing customers or reach out to new markets. And perhaps the biggest reason for doing it is to extend your reputation into other markets, with the knowledge that one ‘winner’ could be the drop of snow that starts the avalanche, making your business bigger than you ever imagined.

A note of caution though. History tells us it’s not advisable to consider diversification until your core business is stable and profitable. If you’re still struggling to win orders and build a sales time for the core product, there is a real danger that diversification will only make it harder to satisfy your current customers.
The catalyst is often the realization that growth in the core business is either slowing or set to slow, often because the market for a particular product is becoming saturated (or in today’s case, the economy is resulting in an overall slowdown).

Why Diversification? The two principal objectives of diversification are improving core process execution, and/or enhancing a business unit’s structural position. Diversification typically takes one of three forms:
• Vertical integration – along your value chain

• Horizontal diversification – moving into a new industry

• Geographical diversification – opening up new markets


Any core competence that meets the following three requirements provides a viable basis for your corporation to create or strengthen a new strategic business unit:

• The core competence must translate into a meaningful competitive advantage.

• The new business unit must have enough similarity to existing businesses to benefit from your corporation’s core competencies.

• The bundle of competencies should be difficult for competition to imitate.

Until next issue, I wish you all well, and God Bless Our Troops!