Mergers & Acquisitions – Six Diversification Questions

The Point: A standout amongst the most difficult decision an organization can face is whether to expand/diversify – rewards and dangers can be exceptional. There have been examples of success stories, and more similarly, numerous stories of infamous and exorbitant failures. What makes expansion such an erratic, high-stakes amusement-like game? A typical reason is that organizations, for the most part, confront the decision in an atmosphere that is not helpful for clear decision-making. The truth is that diversifying shouldn’t be such a roll of the dice. There is an abundance of literature about how to approach it! So in this post we’ll discuss Mergers & Acquisitions along six diversification questions that must be asked… Enjoy!

Mergers & Acquisitions - Six Diversification Questions

Six Questions Leaders Must Ask/Answer When Considering Diversification

If managers consider the following six questions, they can push their reasoning somewhat further to lessen the bet of diversifying. Note that the inquiries won’t prompt a simple Go/No-Go decision. However, the activity can enable administrators to survey the probability of successful achievement.

Question #1: What Can Your Company Do Better Than Other Competitors?

This question will help you decide on the nature of strengths accessible – which are, by and large, vital resources. When confronted with the choice for diversification, managers need to ponder on not only what their organization does, but also about what it does better than its rivals. Pinpointing vital resources is a market-driven way to deal with business definition and identify unique selling propositions.

Question #2: What Strategic Assets Are Needed To Succeed In The New Market?

The late 1970s diversification misfortunes of various oil companies highlighted that it is unsafe to go up against a royal flush when the total of what you have is a couple of jacks.

Just like the game of poker, the lesson for organizations considering to diversify is the same – You need to know when to hold them and when to overlay (fold) them. If an organization is holding just a couple of key resources in an industry where most players have a superior hand, there’s no reason for putting cash on the table.

Question #3: Can We Catch Up To OR Leapfrog Competitors With What They Do?

If a company is considering diversification without all the required strategic assets in hand, specific assets must be obtained by possible means. If this is not done, moving forward into new markets may backfire.

Question #4: Will Diversification Break-Up Strategic Assets?

This is where managers need to ask whether the strategic resources they plan to export are transportable to the new industry. Many organizations erroneously expect that they can separate bunches of capabilities or abilities that, only work because they are together, strengthening each other in a specific competitive setting.

Question #5: Will We Be Simply A Player OR Emerge A Winner In The New Market?

To accomplish a sustainable favorable position, diversifying organizations need to come up with something unique. An organization’s upper hand will be short-lived if rivals in the new market can emulate the organization’s moves more rapidly and cheaply.

Question #6: What Lesson Can Our Company Learn By Diversifying, and Are We Well Organized For It?

Managers who are forward thinkers, will not only be worried about accomplishment but just as similar to great chess players, they will also be thinking about few moves ahead. They will ask themselves about this last question while considering diversifying further.

SUMMARY

In this post we’ve explored the topic of Mergers & Acquisitions – Six Diversification Questions. Diversification is not an easy task, it is therefore important that managers examine their cards painstakingly. It takes shrewd players to know when it’s best to raise their wagers and when it’s best to fold.

 

Sam Palazzolo

PS – If you or your organization are challenged as a result of M&A activity, please don’t hesitate to drop me a line and request future post titles! Here are a few of the other M&A titles previously published/in the works:

Will Your M&A be a Success of Failure?

The Importance of a M&A Strategic Plan – 3 Tips!

– How to Successfully Survive Mergers & Acquisitions

– M&A: Creating Shareholder Value

– M&A: Should You Go For Stock or Cash?

 

About Sam Palazzolo, Managing Director

Sam Palazzolo is Managing Director at Tip of the Spear Ventures, an agile Venture Capital and Business Advisory Services firm specializing in Mergers & Acquisition, Sales / Business Development & Turnaround Management.