Corporations have pursued diversification strategies for decades as a means by which to create long-term value and achieve sustained growth. Historically, companies such as General Electric diversified via inorganic acquisitions, in addition to investing heavily in R&D programs.
We characterize these traditional diversification investment models as “Acquire” and “Invent.”
However, the evolution of the industrial landscape into one of increasing “convergence” and uncertainty has given rise to new, existentially driven investment models for corporate diversification. We characterize the most relevant models in the new “Era of Convergence” as “Scout” and “Harvest.”
If corporations do not remain cognizant of these threats and opportunities, they imperil long-term shareholder value. New competitors converging into their sectors will erode their core business and outward-expansion opportunities will not be realized.
Shielding against future existential threats and taking advantage of opportunities require a robust diversification strategy that considers competitive context, acquired capabilities and the acceptance of a degree of exposure to emerging technologies and the trends of industry convergence.
This article provides a novel perspective to analyze investment strategies for revenue diversification relevant to today’s dynamic and constantly evolving business landscape.
Authors: Adnan Merhaba, Henry Bradley, Jaap Kalkman, Thomas Kuruvilla
Source: Arthur D. Little