When to Focus and When to Diversify
If there’s one thing leaders know about success, it’s that you have to focus on doing the one thing that you do best. If there’s a secondthing leaders know about success, it’s that you shouldn’t put all your eggs in one basket.
Reconciling these truths is a challenge for every organization, regardless of industry or size. In fact, several major companies are struggling with diversification right now, with mixed results:
Google is famous for investing in its “Other Bets”—everything from Glass and Nest to drones and self-driving cars—but the fact remains that advertising makes up 89% of Alphabet’s revenue. As one former executive told Bloomberg, “No one wants to face the reality that this is an advertising company with a bunch of hobbies.”
Amazon is making more revenue than ever and reinvesting it rather than making a profit. The latest addition to its portfolio was last week’s announcement of Amazon Go, a grocery store without checkout lines.
Starbucks’ CEO Howard Schultz stepped down from Starbucks so he can focus on expanding the Reserve and Roastery lines. These premium brands are crucial to the company’s continued growth, as the middle-class market that goes to regular Starbucks is shrinking.
Coca-Cola’s CEO Muhtar Kent also announced plans to step down; the company’s sales have continued to shrink in the US as consumers stop consuming sugary water. Coca-Cola is struggling to diversify into healthier (or at least less bad) options—a strategy that Pepsi’s CEO Indra Nooyi figured out almost 10 years ago.
Two things are clear:
Diversification can help you survive in a rapidly evolving marketplace.
It’s really, really hard to make money on new endeavors.
So if even some of the most powerful companies have a hard time managing diversification, how can your team be expected to do better?
Don’t expect your team to do better. Diversification is a process, and your team might not be the right team at the moment. Different teams should be dedicated to different stages of diversification, so that each can excel at a specific task. One way to approach this is dividing the organization into Explore, Optimize, and Scale Teams, which will help prevent those “other bets” and innovative projects from falling through the cracks.
Figure out what your team or organization is good at. Everyone wants to be “innovative,” but is that really what you’re best at? Maybe your organization excels at incremental change, for instance, but only incorporates new technology as a stunt, rather than a long-term strategy. Review the difference between optimization, innovation, and disruption, and see how it lines up with your organization’s long-term strategy.
Decide when to give up. It’s hard to commit to a new product or strategy that will cannibalize your existing sales. But if you don’t keep developing new solutions, the market will leave you behind. Identify metrics or parameters in advance that will tell your team when it’s time to move on.