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Opinion : Diversification essential to survival in VUCA economy

2021-10-11  Staff Reporter

Opinion : Diversification essential to survival in VUCA economy

Josef Kefas Sheehama

Coping with the complexity of today’s business environment is not about predicting the future or reducing risk. It’s about building the capability of people and the organisation; to adapt continuously and learn speedily; to maximise the chances of seizing fleeting opportunities. 

Surviving in a hostile environment seems to be a very big challenge. A clear-cut vision and fact-based knowledge of the situation helps create a pathway.

With many businesses in Namibia experiencing considerable financial difficulties, some have taken swift action to adapt their businesses to meet the needs of the market. So, in these challenging times, how might your business adapt for the now to avoid insolvency and diversify for the future? In volatile situations, the knowledge of facts and opinions is important, as whil separating facts and opinion, precise and objective communication is the key. 

By diversifying, you are giving yourself a fall-back position, just in case. Diversification is not a new concept in business. Most businesses diversify as they start to grow and expand. Diversification allows a business to explore new avenues for the business in terms of being able to offer new products and services. It also allows a business to explore new markets as well since you are not limited to your old market when you diversify. You can diversify your products and services into related markets. This way, there won’t be a lot of changes in terms of operations because you will be offering related products and services. You can also diversify into completely new markets. However, this may require more work, and the cost can be a bit more expensive if compared to diversifying in related markets.
When considering a diversification strategy, business should aim to de-risk as far as possible. That means that as a business owner, you have to constantly adjust to cope with any changes in the market. The economy can be unstable at times, and business always has to be prepared for any sudden drop in the economy. A sudden drop in the economy can potentially kill your business if the business has no contingencies in place for such situations. On top of that, the competition for market dominance never stops. When diversifying your services or products, you are bound to do good research, which will result in introducing more variety and options of products in hand to capture the new market. With more services and product varieties, you capture more consumers, and your products receive a tremendous boost as the company rises. Thus, having more diversification is good for your business. 

One good aspect of diversification is that it allows you to explore new markets. This could give you an insight into new potential markets, where you might have little or no competition. Another benefit of diversifying your products and services is that you have more to offer, and therefore you will be able to tap a wider market for your business. Also, by having more products and services, you are no longer limited to a single market segment. This can be very helpful if a drop in the buying trend in your old market takes place because your business will not be as badly affected since you have other products and services aimed at other markets. This way, your business doesn’t have to take a very bad hit from the drop in the buying trend. 

Don’t fear to diversify, but don’t diversify out of fear. 

Your priority before any diversification should be to make your core business stable in terms of both capital and resources. Your core business is what would fund the diversification for some time. If it is losing its steam and becoming unviable, then your priority should be to shore it up rather than looking for other options. 

Remember, even a well-established business can suffer if resources are spread too thin. So, management teams must not only have the responsibility, but must also be empowered to move things forward.

Diversification can provide your business with an effective fall-back position, and can be a lifesaver during economic slumps. However, diversification is almost the same as expansion. The difference is that instead of expanding to increase production of a similar product or service intended for the same market, you are expanding to provide new products and services to a wider and more varied market.

Understandably, there are risks involved and you need to invest as well, so you must think it through carefully before you decide to diversify. As business owner, understand macroeconomics, which may influence your business such as VUCA (Volatility, Uncertainty, Complexity and Ambiguity) and PESTLE (Political, Economic, Socio-cultural/social, Technological, Legal and Ecological/environmental) factors. Business owners should undertake a comprehensive and clinical review of their present fiscal standing and future prospects before expanding a business into a new area.

Therefore, the bottom line is that the recipe for success lies in identifying your strengths and competencies, and working with them. 

VUCA forces will present businesses with the need to move from opportunities that are necessary for survival and sustainability. To survive in a VUCA world, your business needs to be agile. The lessons that can be learned from a company’s diversification moves can be significant. At the same time, there are important questions a business needs to answer before deciding on the strategy to get the hoped for results.


2021-10-11  Staff Reporter

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