Diversification is a strategy, which companies use in an attempt to increase their profitability. They do this by increasing the volume of sales through the creation of new products or identifying new markets. Diversification can either be in the form of expanding into a new segment within an industry, or starting a different line of production from the existing one. Many companies have embraced diversification with an aim of increasing their profit levels, of to reduce their risk levels. Not all attempts by these companies end up successful. Some companies fail whereas others succeed. In this paper, we will analyze one company that embraced diversification and got successful results, and another one, which failed (Kenny, 2009).
The virgin group is a good example of how a company can embrace diversification and how successful it can be. This one company ventured into diversification of its operations and successfully realized its result is the Virgin group. While most companies usually opt for venturing into related lines of production, the virgin group diversified into a very different line of production. In fact, diversification for the virgin group has become what people refer to as a brand value. This company has diversified its production line into very different areas from their original production line. There are instances where they have faced challenges, but generally, the result has been positive. However, one unique feature of the diversification strategy of the virgin group is that, despite staring product lines in very different areas, all their branches usually bear their trademark. For example, Virgin Retail Limited is one of the diversification products of the virgin group. This company is the owner and overseer of many retail stores in the United States, which bear the trademark of the virgin group. Presently, there are more than 150 stores bearing the virgin group trademark, selling products such as Clothing, stationery, computer games and beverages (Markides, 1995).
Secondly, the virgin group has also diversified into the selling of beverages. This has been successful through the help of the virgin cola company. The company entered into the beverage company through the production of a soft drink product known as virgin cola.
The virgin group also ventured into the airline industry, in its attempt to embrace diversification. The virgin Atlantic airway, which is a product of the virgin group, is an established provider of the airlines transport services across the world. Presently, one can acknowledge that Virgin Atlantic is almost the best airline service provider among the current airline providers. In addition, individuals, who use the virgin Atlantic, usually benefit from several products of the virgin group.
The group has also ventured into the business of limousines. The company offers limousine services to passengers living in the state of California. These are just some of the areas in which the virgin group has diversified its production lines (Markides, 1995).
Reasons for Its Success
There are reasons that led to the success of the diversification strategy of the virgin group. The first one is the creativity of the management of the company. Branson, the founder of the virgin group, is a man who was never satisfied with one field of operation. Any time he felt like he needed to venture into something new, he never hesitated. However, he usually ensured that he did adequate research in the target field to ascertain the feasibility of the business before joining.
Another reason for the success of the virgin group in its diversification process is its ability to identify fields with adequate demand. For example, by the time the virgin group entered the airline business, there was a lot of demand for air services (Rudolf Grünig, 2008).
An Unsuccessful Diversification Attempt
One company that has tried to embrace diversification but failed is the Blue circle industries. It is a cement manufacturing industry. The company merged with another French company called Lafarge. The initial objective of the two companies merging was to reduce the level of competition from other companies in the industry and exclude imports. This attempt failed because of some reasons. For instance, most of the small companies refused to cooperate with the agreement, while three of the strong companies defected in the last stages of the agreement. The strength of the company was its possession of patents for the use of rotary kilns. However, without its knowledge, the competitor companies were already installing rotary kilns. Because of this and some other reasons, the company lacked enough resources to fund the project. By the year 1912, the company had established several branches in other countries all over the world. However, the energy crisis of 1970 was so strong that the capacity of the company in the UK fell to half its original level. Many workers lost their jobs through the retrenchment, with a number of the company’s investments sold out. Later attempts by the company to diversify its production lines failed, reducing the confidence of investors in the company (Texier, 2000).
Reasons for Failure
From the above analysis, three reasons for the failed attempts to diversify come out clearly.
First, the lack of cooperation among the various cement companies in the region contributed largely to the diversification attempts.
Secondly, the rigidity of the production capacity of the Blue circle industries could not allow for quick and successful diversification.
Lastly, since the company had already lost confidence among its customers, it was going to be extremely hard to convince them to accept the new product lines of the company.
One of the ways through which the blue circle industries could have succeeded in diversifying their services is through first winning the confidence of its original customers back. They could do this through the streamlining their current cement production line, before venturing into other business lines.
Secondly, the company did not carefully examine the opportunities available to them for venture. The company was in a hurry to solve the crisis that was facing them, instead of coming up with a well thought business idea for venture.