A Diversification Strategy can take a company into new markets with new products or services. It can be successfully implemented in any size business in any type of market. There are varied situations by which a Diversification Strategy makes sense.
A company that has existing capabilities and resources may decide to diversify in order to attract new business from other market segments. This strategy is especially effective when an organization has under-utilized resources or capabilities with significant investments made.
A company may also find that a diversification strategy to spread financial risk over different products and markets. This strategy is an effective way to reduce risk so that the company is not completely reliant on one product or one market as these conditions tend to shift and change over time.
A company with strong and proven success in managerial skills may wish to transfer those skills into other markets to create or strengthen the existing footprint of the brand.
In smaller businesses, it has been my observation that many business owners and subject matter experts in their fields have failed to realize that their once thriving business has since become a commodity and quite possibly a diversification strategy would have kept their business up to date, diversified and thriving.
It is important to recognize that there can be risks in diversifying too much or departing from core competencies. When companies neglect their core capabilities and become too diversified, where too many different products supplied to different markets in turn this may have a negative effect on the products, the brand and the services offered.