May 28, 2024
In Synergy
The normal way of performing things has changed. Think about going to the movies – you can book tickets from your home now. Think about listening to music – you pay money to avoid ads. Booking flights, and service appointments – everything has become dynamic and can be done from the comfort of your home.
From a neutral standpoint, organizations and technology providers have come a long way. These changes have spurred new strategies that can help businesses to grow.
Diversification and convergence are the two strategies organizations can focus on.
- Diversification focuses on the expansion of a business by investing in multiple areas, industries, or products. This creates a mix of offerings and helps minimize risk while maximizing the chance of growth.
- Convergence refers to the tendency of different systems or technologies to evolve towards performing similar tasks or integrating into a single, multifunctional system.
This article will explore these two strategies and how organizations adapt one of these strategies to achieve their digital transformation goals.
New era, the same process but accomplished by going digital
Digitalization has helped us in many ways. Even on busy days, technology helps us find time for family and wellness. Go back to the time when the banks were crowded with customers coming in and off to make transactions, opening accounts, and more. These facilities became easier and quicker by unifying technology and the process.
We can now literally do banking from home or anywhere. The control is in our hands and with maximum security, we can ensure safe banking.
Let’s consider another example to understand the concept of diversification and convergence strategy.
Imagine a healthcare organization entering the insurance industry. The chances of success are huge as they have the information and the right strategy to provide people with more personalized plans. This convergence would benefit both sides in providing and finding the best insurance coverage plan.
Convergence refers to the tendency of different technologies or systems to evolve towards performing similar tasks or integrating into a single, multifunctional system.
On the other hand, divergence allows an organization or brand to enter into another industry with growth potential. Instead of just focusing on the prominent industry, they find their they find opportunities to use their products or services in another industry.
Apple Inc. is a good example of diversification. They started with iPhones and Mac computers but later they became competitive in Apple Music and Apple TV+. The company spread its investment across two new platforms that entertain people. Over time, they gradually built their reputation and impressed the crowd.
Amazon has followed a similar diversification strategy. They started by selling books online, later becoming the biggest online shopping giant. They have also recognized opportunities in a cloud platform – AWS, a scalable cloud web hosting platform, and Kindle, an electronic device focusing on e-readers. Thus, diversification allows companies to offer a range of products across different industry segments or expand into new markets, reducing their dependence on a single source of revenue.
What strategy is right for my business?
Diversification and convergence strategies are well-known in the business world. However, adapting a strategy for digital transformation requires proper analysis before finalizing the best fit. So, to answer the question of what strategy suits my business, it’s essential to consider several factors.
These factors play a pivotal role in developing a successful digital transformation strategy. Let’s see these factors and see how they influence decision-making.
Factors of consideration
Market conditions:
- Demand Trends: Analyze the demand for new products or services or identify opportunities to converge the existing systems to better meet customer demands.
- Competition: Understand the market competition and the potential to decide whether to diversify into other areas or converge and strengthen the current position.
Company Resources:
- Financial Resources: Evaluate the company’s financial situation to determine the ability to invest in something new opportunities or streamline operations through convergence.
- Technical Expertise: Assess the expertise available within the company or through technology partners. This will help decide whether to leverage the existing knowledge to explore new areas or create synergies through convergence.
Risk Management:
- Risk Tolerance: Understand the risk level acceptance rate and plan to spread it or focus on what’s available now.
- Business Sustainability: Consider the business lifecycle and experience of the company, the more years it sustains, the more it leans towards diversification, while a growing company converges to consolidate gains.
Innovation to Future:
- Technological Advancements: Consider technological trends to see if they favor diversification into new tech areas or the convergence of technologies to create new solutions.
- Disruption Potential: Evaluate the potential for industry disruption and decide if diversification can provide a hedge against it or if convergence can create an offering itself.
Customer Intention:
- Customer Segmentation: Learn the customer segments and their desire to determine if they love to see a brand in multiple areas or if they upgrade the existing products/services for reinforcement.
- Customer Feedback: Make use of feedback to choose a strategy, meeting their direct demands.
In addition to these considerations, companies must also comply with regulations and legal norms. This is especially important if the technology fundamentally changes how customers interact with your business. When a new initiative becomes popular and widely adopted, regulatory questions often arise. Whether you’re diversifying or converging, your operations must adhere to established rules.
How organizations can implement diversification and convergence strategies?
For organizations and brands pursuing digital transformation, the concepts of diversification and convergence have significant implications:
A diversification strategy in digital transformation involves expanding the range of services or products an organization offers. Consider a solar panel manufacturer who decides to expand their product line to include smart solar panels with IoT sensors following digital transformation. The company also plans to provide mobile applications for customers and field service agents.
In this case, digital transformation based on a diversification strategy would be ideal. This new expansion strategy, planned by considering all the factors, aims to improve customer experience and streamline field service management.
By diversifying into digital services, the manufacturer can attract new customers, offer more value to the existing customer base, and establish a stronger presence in the smart energy market. Diversification can thus support these companies to invest in new markets and customer segments, driving growth and innovation.
On the other hand, the convergence strategy for digital transformation focuses on the integration of technology stack and processes to develop more cohesive and efficient systems.
For instance, a company providing identification products or user interface solutions could leverage a convergence strategy to develop more solutions-focused products customized to manufacturing requirements. Integrating various digital tools could their commitment to customers and their technical knowledge in handling custom projects. This can help the company evolve into an expertise solutions provider, generating new leads, improved customer experiences, and increased operational efficiency.
In essence, for companies seeking digital transformation:
- Diversification is about expanding their digital capabilities and offerings to explore new opportunities and markets.
- Convergence is about integrating digital processes and technologies to enhance efficiency and create a seamless experience for both employees and customers.
Both strategies are crucial for staying competitive in a rapidly evolving digital landscape. Companies with a balance in diversification with convergence can expect to see improved performance, greater customer satisfaction, and a stronger position in the digital economy. A digital transformation partner can help you acknowledge all these factors and find a strategy based on the business needs.
A digital transformation company can achieve diversification by continuously innovating and incorporating emerging technologies into its portfolio and addressing a broader range of customer needs. To realize convergence, the company can focus on integrating its various digital services and platforms to provide a seamless and efficient user experience across all touchpoints.