In the world of continuous challenges companies are faced making decisions, which effect their core business, culture and values. In this study, I aim to answer three learning objectives relating to mission, vision and strategy:
LO1: What are the risks and sacrifices of diversifying a company?
LO2: What drives a company to innovate?
LO3: How can a company keep their core values while adapting to a changing market?
What are the risks and sacrifices of diversifying a company?
According to J. Xaxx, the four main risks of diversifying a business are overextension, lack of expertise, cost and reduction in innovation. Overextension is when a company diversifies, but does not have the resources for instance manpower or capital to maintain its infrastructure and operations. Due to mismanagement, quick expansion plans or simply greed, diversifying too rapidly can harm the new business as well as your core business dramatically. When companies expand into sectors which are not related to their core business, for example if a technology company acquires a food company. In these types of acquisitions, the acquiring company should proceed with caution, since they are unfamiliar with the food business and for example if the head of the food business quits, it could result in a disaster due to the lack of knowledge and expertise. When businesses diversify to new fields investments into infrastructure, training and marketing could become so high that the profits made by the acquired business does not cover costs. Therefore, businesses must beforehand calculate precisely if the merge is profitable. The safest option for a company to diversify is when they expand in their current operating field, since they already have the pre-existing expertise and infrastructure available. A large percentage of small businesses tend to have high innovation because they have few goals and a clear direction. When a company diversifies, they tend to lose focus and are unable to respond to changes in the market quickly. (Xaxx).
Ebay acquiring Skype
In september 2005, eBay acquired Skype for 2.6 billion USD. The reason for acquiring Skype was to improve communication technology between the buyers and sellers. The outcome of the merge was a waste of investment because there was no demand for such a service. EBay tried to force sell the idea for four years by changing the management yearly without success. In 2009 eBay sold 65% of Skype for 1.9 billion USD. (CBInsight 2018).
Google acquiring Nest
In january 2014 Google acquired Nest Labs, aiming to penetrate into the smart homes business. Google acquired Nest Labs because while they were excellent in building softwares, they were lacking in product innovation. When purchasing Nest Labs, Google acquired the business, but the most valuable asset that came along with the deal was the founder Tony Fadell and his partner. After the acquisition, innovation started to slow down due to internal fighting and politics, which lead to both of the partners leaving Google. (CBInsight 2018).
What drives a company to innovate?
In an article Four Reasons why you need to focus on innovation by G. Tredgold, he believes the four most important results of innovating are growth, competitive advantage, meeting customers needs as well as attracting the best talent. According to The Deloitte Innovation Survey 2015, 66% stated that innovation is important for growth (Deloitte 2015, in Tredgold 2018). Successful businesses innovate and therefore are able to scale up and hire more employees, which enables them to take more customers and grow their market share. Innovation can help you gain competitive advantage from your competitors, by creating a better product for the customers. Even the most basic and already developed ideas can be further improved and created into a household name. One thing that is constantly changing are customer needs and the only way businesses are able to keep up with customer’s demands is through innovation. Businesses are able to predict future customer needs/ trends and through innovation they are able to offer customers products and keep them hooked and customers for a long period of time. Finally, the fourth main reasons why businesses innovate are because they want to attract innovative people to work for them. Employees want to work for companies that support their values, for example if a company is well known for being innovative, it attracts employees who are full of energy and bright ideas. (Tredgold 2018)
According to Boston Consulting Group, Alphabet/ Google is now the most innovative company in the world (Boston Consulting Group, in Columbus 2019). Google is the most innovative company in the world for its use and development of artificial intelligence (IA) in applications and platforms. The second most innovative company is Amazons and third place takes Apple. (Columbus 2019).
How can a company keep their core values while adapting to a changing market?
Amazon is the third most innovative company in the world and aims “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online” (Mission Statement Academy 2019). Amazon has always been going in the right direction in terms of achieving their vision of being the online ultimate megastore. Amazon has created missions that compliment the vision and put them towards the right direction. In Seattle Amazon created Amazon Go, a physical grocery store with no check out lines. The customer chooses the location, picks the products and heads out the door – all done with the smartphone “Just Walk Out” technology. Amazon is also offering delivery services with almost no wait at all, introducing Amazon Prime Now. The service is currently offered in limited areas and products. The service delivers the product to you within 2 hours for free or if you’re in a hurry, in an hour for 7.99 USD. Amazon has also come up with dash buttons, which can be bought for 5 USD each. The dash buttons can be found for most major brands and are a one-click ordering system. When you want to place a reorder, just click and the order is placed. (Connelly).
Figure 1: Amazon dash buttons
References
CBInsight 2018. Fools Rush In: 37 Of The Worst Corporate M&A Flops. URL: https://www.cbinsights.com/research/merger-acquisition-corporate-fails/. Accessed: 08 Feb 2020.
Columbus, L. 2019. The Most Innovative Companies of 2019 According to BCG. URL: https://www.forbes.com/sites/louiscolumbus/2019/03/24/the-most-innovative-companies-of-2019-according-to-bcg/#48701613486d. Accessed: 08 Feb 2020.
Connelly, S. 8 Ways Amazon Changed The World. URL: https://thinkmonsters.com/speakinghuman/media/amazon-game-changing-innovations/. Accessed: 08 Feb 2020.
Tredgold, G. 2018. Four Reasons why you need to focus on innovation. URL: https://www.inc.com/gordon-tredgold/4-reasons-why-you-need-to-focus-on-innovation.html. Accessed: 08 Feb 2020.
Xaxx, J. The Disadvantages of Diversified Business. URL: https://smallbusiness.chron.com/disadvantages-diversified-business-22155.html. Accessed: 08 Feb 2020.
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