Reconsider Diversification

We all try to focus, to streamline our businesses, to be as precise as a laser beam. We have de-cluttered our product portfolios and have sold, spun off or terminated everything that does not represent the core of the business. It was the dogma of the ’80s and ’90s that was carried into this millennium and demanded purity and simplification. This development — call it a movement — was backed by economic observations finding that products with small market share or with slow or stagnating growth were chewing up relatively more company assets compared with the strong company heroes named “cash cows” and “stars” that promised a high return on investment. The movement was also driven by consumers (which we all are) who were overwhelmed by the multitude of goods and services available that made it harder and harder to decide what to choose — like kids in a candy shop, not knowing where to look first.

The economists stated that cutting back diversity is the way forward. It’s a simple message with a simple solution — simple to understand but hard to follow. What is my core competency? Which product is the star? Which one is the sleeper? Which one is the old dog? Managers started cleaning up their companies. They cleaned and polished and streamlined until their organizations became perfectly trimmed. They then perfectly matched customer needs — or at least what those needs were thought to be. What had happened to the breweries, where all beers taste the same, or the automobile industry, where all cars look the same, had happened to many organizations. The character was lost.

Yes, we can find strong brands that stand for values and history, but the companies behind these brands are replaceable, which is constantly proven by ongoing acquisitions and mergers. Now, there is a new conclusion: Simplifying the product portfolio makes a company more efficient but possibly also replaceable. The question now is not “What is my core business or product?” but, rather, “Who are we?” and “What do we stand for?”

Interestingly, those companies that seem quite stable toward acquisitions and buyouts have a very diverse product portfolio in a wide range of markets. A stable company like this could have feed mills, seed production, a trade department, real estate and a bank with all departments linked to each other. Yes, it could spin off the capital-intense production and focus on fi nance, but would it be the same company? Would it be a wealthy company with a safe and prosperous future?

Over the last two years, we have learned that what was the absolute truth one day could turn into the biggest mistake the next day, and simply because grain prices went up, projects were stopped, investors went broke, politicians stayed home and a complete, highly specialized industry — which the agriculture industry is indeed — was turned upside-down. So, what happened to the core competency of these organizations?

The agriculture industry in total has its core competency in its diversity. That’s what makes it stable. That’s what gives it character. That’s what makes it interesting.

Read on Feedstuffs Magazine August-25-08