A 360-Degree Look at the Importance of Diversification in Business
By Doron Gerstel, CEO of Perion
We all recognize now that biodiversity is essential to a healthy planet and a thriving ecosystem. Variation creates resilience and improved survival, whether on land or at sea. In farming, growing a single crop – called a monoculture – reduces biodiversity and creates an environment more vulnerable to pests.
These principles extend to business in some important and valuable ways. In fact, diversification is more important today than ever, because we live in a world of dramatic unpredictability. Black Swans, as they are called, are becoming routine. With those x-factors firmly in mind, I’ve identified five diversity frameworks that apply the principles from our natural world to our commercial activities:
1. Diversification of people
The criticality of a diverse workplace doesn’t need elaboration, as a consensus has been reached. This 2019 paper from the World Economic Forum – titled “The Business Case for Diversity in the Workplace is Now Overwhelming” – does a marvelous job of pulling together all the threads in support of this powerful, inarguable thesis.
In fact, a diverse workplace will enable and accelerate all the subsequent pillars that I describe below, which work together to create meaningful and enduring business success.
2. Diversification of products
It doesn’t matter if you are a CPG company in the snack category, or a B2B company selling enterprise software, you are going to need strategic diversity in your offerings. That doesn’t mean you should abandon focus and ricochet all over the place. But it does mean that you can’t rely on a single product, because things are changing around you.
Just consider what might happen if your #2 competitor – or your #3 competitor, because they’re more likely to take a risk – launches a superior alternative positioned directly at your only product. It happens every day, especially in industries where the moats around products are more marketing-driven than innovation driven.
The best way to prepare for this reality is to surround your core product with flankers that are poised to pick up the slack should your hero product come under blitz attack. It can be differentiated by target, by price, by ingredient – if you’re the snack food example – or by target. You don’t have to race into this product diversity; you can launch with a low profile, or even have it ready on standby should circumstances demand that you expand your product set. Remember that diversity creates a healthy ecosystem, whether in the rainforest or in your specific market.
3. Diversification of innovation
Innovation is the lifeblood of a successful business, and diversity accelerates it. What’s more, there are many levels of diversity at work in a successful innovation program. First – getting back to my earlier point – diversity of human capital is key.
What’s also important to successful R&D diversification is a healthy variety of inputs. This has been described as “Open Innovation” - as opposed to the “unhealthy” belief that all good ideas have to come from inside. I am consistently encouraging my teams to pursue a collaborative approach to R&D, and I urge you to do the same.
Diversity of innovation is especially important as the business world continues evolve, forcing companies to quickly adapt to change. For instance, in the adtech space, third-party cookies have been central and essential to the growth of digital marketing efficiency for years. Today, with a cookie-less world looming in the near future, marketers must expand into emerging post-cookie technologies. The companies will forward-looking innovation will have the strategic breadth to win.
4. Diversification of supply chain and distribution
It doesn’t matter what business or category you are in, you need a diversified mix of options to assure that you have the materials you need to produce your products, and to get them to market.
The stress that the pandemic put on the global supply chain demonstrated its fragility and lack of redundancy. All business leaders need to focus with heightened attention on their supply chains to assure that there is sufficient diversification both geographically and by manufacturing partners to cope with the risk of the next “Black Swan” event.
This need for diversification extends to the so-called “last mile” as well. It’s an innovation cluster that includes, of course, direct-to-consumer businesses and ecommerce, but also extends to order fulfillment. And to prepare for an elegantly integrated diversification of last-mile alternatives requires sophisticated data science resources, using AI, to enable the most cost-efficient options to be employed to manage literally thousands of scenarios.
5. Diversification of acquisitions
I’ve put this last, but it is certainly not least, and in fact is a critical component of a 360-degree diversification model. In a world where we look at M&A through a variety of lenses, what is often overlooked is how a diverse range of acquisitions can protect and insulate a company from unexpected twists and turns in its market segments.
I know from my experience that acquisitions which fit – and fill – a strategic “diversification matrix” are invaluable in giving a company the ability to pivot to the fastest-growing segments of its TAM (“total addressable market.”)
We have a lot to learn from nature, especially since businesses – and markets – are living organisms. Diversity creates resiliency and healthier ecosystems, wherever we look.
Doron Gerstel, CEO of Perion, a global ad tech company that operates across the three main pillars of digital advertising – ad search, social media, and display/video/CTV.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.