According to the results of my observation: 1. The success factor of single (focused) operation or diversified operation is specialization; 2. The development trend of an enterprise must be from single (focused) operation to diversified operation. Chemical management.
Basics of specialization
Those who hold a single (focused) management view mainly believe that an enterprise's financial, material and energy resources are always limited, and diversification will inevitably disperse limited resources. , thus making yourself unprofessional. It is not difficult to see that monolithic operators fully support the belief that specialization is the inevitable basis for success. If there are two similar enterprises, one has been operating in a single way and the other has been operating in a diversified way. Enterprises with diversified operations will eventually be surpassed by enterprises with single operations because they disperse their resources. But no two companies are absolutely the same, and each has different advantages. In the process of diversified operations of an enterprise, if every element of the project is professional and done steadily, it will definitely succeed in the end.
Single (focused) operation
To explain that diversification is the inevitable direction, we must start with single operation.
The most extreme form of single operation is that the brand owner/factory only produces one product, and the retailer only sells one product. 1. For example, a tofu-selling workshop only produces and sells tofu. For very small enterprises (such as workshops), they can only produce one product due to limited capacity. 2. If the market demand for the product you produce is huge, then your production scale will be huge, or you can only produce one product. For example, Ford Motor Co., Ltd. only produced black Model T sedans at first and became the largest automobile manufacturer in the United States.
Only produce one product and sell only one product. What a simple way to survive. It's not that companies don't want to adopt this way of survival, but that they can't adopt this way of survival. The initial idea of ??diversification was very simple:
Most products have a life cycle, and a company must transcend the life cycle of its products in order to become a sustainable company. Therefore, companies must develop new products within their capabilities. The losses caused by a product entering a period of decline are made up by the sales of another product in a period of growth.
Ford's black Model T sedan mentioned above initially adapted to people's desire to drive a car because of its low price, and became the number one automaker in the United States. But as time went by, people became richer and had diversified needs, but Ford still insisted on producing only one black Model T sedan. At this time, General Motors responded to people's needs and provided diversified products, thus surpassing Ford and becoming the number one automobile manufacturer in the United States.
The difference between single operation and diversified operation is not white and black. In fact, there are several transitional forms in between.
Related diversification and irrelevant diversification
This little topic is easy to understand. There is a certain correlation between various diversification elements, which is called related diversification; If there is no relationship at all between them, it is called irrelevant diversification. Irrelevant diversification usually involves investments in other industries, such as producing plastic flowers, then developing real estate projects, then producing electric lights, and then developing 3G mobile phones (don’t laugh, I’m talking about Li Ka-shing).
Related diversification
When a company that produces a single product adds new products to the original base, it can be considered to be related diversification to a certain extent. For example, a waterproof jacket is available in 5 sizes for people of different heights and 3 colors for people with different color preferences. This is just a difference in model and color, which is basically a relatively small diversification. Next, we can also provide clothing with different body types for men and women, and clothing with different functions for different sports. As time goes by, people's aesthetics change. Although the functions remain the same, the styles and colors continue to change. As technology advances, product functions will further change. The change of color, style and function of the same product can be considered the most relevant diversified operation.
Next, the diversification of single-category products will develop towards the diversification of cross-category products. This can develop in two directions: diversification oriented to factory capacity and diversification oriented to consumer demand.
Diversification based on factory capacity means producing whatever the factory can produce. For example, a bag factory may produce small casual bags for women, large backpacks for hiking, and backpacks for students.
This production method is very beneficial to the factory, because the technology, equipment, and workers required for production can be fully utilized, so that orders can be obtained to the greatest extent and profits can be made. If the factory is also the sales headquarters, then generally products for different target groups should use different trademarks, otherwise it will cause confusion among consumers. For example, if Aifen Food produces chocolate, cat food, and dog food, if they all use one trademark: "Baolu". So when you eat chocolate, you will wonder: Is this chocolate for dogs? In order to avoid this, Aifen Food trademarks "Dove" for chocolate, "Weijia" for cat food, and "Baolu" for dog food, thereby strictly distinguishing target consumers. But for products with higher value, people are more cautious when consuming them, so they trust famous brands more. For example, electronic equipment from Samsung and Sony are relatively expensive and generally use the same trademark instead of using separate trademarks.
Similar to factory production capacity, for a store, the biggest resource is the store area. Therefore, the purchase and sale of diversified products should be limited to the store area. If the store area is particularly large and has several floors, stores can be divided into stores by brand (mall model) or areas by category (supermarket model). If the store area is not large enough, sales can only be divided into regions according to categories.
Consumer demand-oriented diversification means that brands will produce whatever target consumers demand. For example, current sports and outdoor sports brands do this. Athletes need clothing, shoes, and equipment. Outdoor sports (the outdoor sports mentioned here actually refer to outdoor activities such as mountain climbing and camping) require clothing, backpacks, tents, sleeping bags, shoes... Brands will purchase products from different manufacturers, then put their own brands on them and sell them to consumers. . Other industries also have such consumer-oriented diversification operations. For example, Haier began to produce refrigerators, and later focused on household appliances, producing washing machines, televisions, air conditioners, water heaters, and even kitchen equipment.
"Should medium-sized outdoor stores stick to the outdoors, or get involved in peripheral industries? 》In this article, as a consumer-oriented diversified store, to what extent should a medium-sized outdoor store be diversified? We say that medium-sized outdoor stores are already diversified stores because their categories are already diversified, but they are completely focused on mountaineering and camping consumers. And "getting involved in peripheral industries" means adding new target consumer groups to increase store sales. No one can succeed casually. Success is conditional.
In fact, before setting up an outdoor store, you should think about whether the local outdoor market can accept this outdoor store; how this outdoor store should compete with other outdoor stores; how this store should compete with other outdoor stores. Dislocation operation; whether the area and product categories of this store are too much or too little for the local market.
Why did this store want to get involved in peripheral industries after operating for a period of time? Is it because the outdoor store is operating so well that it has reached a bottleneck and needs to expand its business scope? Or is it that the outdoor store is operating too poorly and expanding its business scope is just to attract more consumers. If it is the first situation, it means that the outdoor store management is already very professional. This outdoor store has established a firm footing and taken the second step into surrounding industries. The surrounding industries it has chosen can be managed well as long as it finds the right talents and a little care. If there is not enough space in the store, you can open another store to operate it, so that both stores appear to be professional. If there is enough space in the store, the partitions should be clear, making it easy for customers from both sides to find things. If the outdoor store is not well managed and has to expand its business scope to attract customers, the possibility of failure will be greater. If there are problems in the operation of outdoor stores, it may be that they did not think clearly when building the store, or it may be due to chaotic management during the operation process. If you didn't think clearly when building the store, then what you need to consider now is not to get involved in the surrounding industries, but to close the outdoor store and open another store. If management is chaotic during the business process and then getting involved in surrounding industries, it will add even greater chaos. Moreover, in general, outdoor stores are short of funds due to poor management, and they do not have sufficient funds to hire real experts to handle new business when they get involved in surrounding industries. So the original store owner gave random orders, and consumers would not repeat purchases because the store's equipment and personnel were unprofessional, so the store died again.
In fact, outdoor stores do not necessarily have to get involved in surrounding industries to achieve great development. There are two ways of horizontal integration and vertical integration.
Horizontal integration means acquiring or merging similar companies to develop. For example, outdoor stores acquire or merge other outdoor stores in the same city or in other places to expand their scale.
If acquisitions or mergers are not possible, we will use our own money to open new stores. If the products of an outdoor store are scarce enough to attract outdoor consumers from all over the city to spend money in this store, there is no need to open a second store in the same city. In this case, it is better to open a store in another place. If the products of the outdoor store are relatively casual and are produced by various brands, then they can open stores in various communities in the same city to attract ordinary local consumers.
Vertical integration means developing to other positions in the industrial chain. Outdoor stores are already at the end of the industry chain. They can only develop to the upper end, such as wholesalers and brand merchants. Many outdoor stores have obtained local agency rights because of their larger scale or better communication with brand owners, and can wholesale products of a certain brand to other local outdoor stores. Wholesale requires greater financial support, better inventory-to-sales ratio calculation capabilities, and more flexible services to be profitable. When the wholesale business gradually develops and can cross provinces, wholesalers may have the urge to create their own brand. Wholesalers can become a good buyer with their years of experience, and they can find good samples to customize their products from factories and register their own trademarks. Of course, making a brand successful cannot be explained clearly in one or two sentences. But as long as you work hard and find professional people, you can still succeed. When brand owners reach a certain level, they will also have the idea to open factories out of the need for cost control or technical control. As a result, an enterprise that spans the entire industry chain was born.
When a company develops to a certain extent in one industry, it will have ideas to invest in other industries.
Irrelevant diversification
Some companies engage in irrelevant diversification out of hot-headedness and blind investment. However, some companies engage in unrelated diversification after careful consideration and for good reasons. 1. Industry decline. For example, Li Ka-shing gave up the plastic flower business because people's living standards improved at that time and real flowers began to be widely used, and the demand for plastic flowers dropped. 2. Industry opportunities. For example, some people have a keen eye or have achieved academic success. They find that many domestic fields are very different from those abroad, so they dabble in various fields. 3. The cunning rabbit has three burrows. For example, around 1920, the anti-smoking wave in the United States grew stronger and stronger. Tobacco companies were afraid that the tobacco industry would suddenly decline, so they invested in other industries. Philip Morris, the parent company of the famous Marlboro cigarettes, invested in Kraft Foods. The Maxwell coffee and Fruity products that everyone drinks, and the Lezhi and Quduoduo biscuits that everyone eats are now products of this company. However, a few years ago, Philip Morris felt that Kraft was not very profitable, so it sold its shares in Kraft. 4. Financial balance. The CEOs (Chief Executive Officers) of many large companies are changed from CFOs (Chief Financial Officers). Because large companies require more sound, sound and stable finances, they will be more conservative in their financial background and will not cause big troubles. Some industries will experience fluctuations in certain periods, while other industries will experience fluctuations in other periods. If a company has projects in several industries at the same time, it can avoid most market fluctuations. Of course, these industries must be able to cooperate with each other financially and timely. Although a leader's time and energy are limited, leaders can hire experts to work in various industries. A shopping mall is like a battlefield. The army commander will not directly command the soldiers to fight. Instead, the army commander will command the division commander, the division commander will command the brigade commander... and the platoon commander will command the soldiers.
Strength is unpredictable and water is unpredictable. The diversification operations of many successful companies are rational decisions based on complex market reasons. Whether to focus or diversify, and to what extent diversify, is a decision that can only be made after becoming an expert. Without becoming an expert, focused management will also fail. If you become an expert, your diversified business will be successful.