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 acquisitions1, in;addition to investing heavily in R&D programs. We characterize these traditional diversification investment models as “Acquire” and “Invent”:
- “Acquire”: Moving into related or unrelated industries by buying minority or majority stakes in already-well-established players
- “Invent”: Engaging in R&D programs with long-term horizons for value creationand realization of returns
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”.
- “Scout”: Gaining exposure to emerging technologies in the pursuit of innovation excellence to “future-proof” the relevance and competitiveness of core offerings in the mid- to long term
- “Harvest”: Moving into adjacent business areas by exploiting existing internal capabilities and assets to counter converging industries that threaten to erode and displace core revenues
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. In a subsequent study, we will delve into key strategies and considerations for adaptive portfolio management.