How diversification has become synonymous with embracing tech

Nathan Birch
Diversified businesses are now chasing the same brand characteristics and DNA that have been instrumental in the phenomenal growth of the tech giants and startups over the past 15 years.

The vast majority of businesses today are in some way diversified. Classic diversified businesses, such as GE and 3M, have been joined by companies like Apple, Google, Samsung, and Citi, all of which are diversified in some way.

Since the 1960s, businesses have held diversification as the key model for optimizing growth strategy—commonly repositioning brands that have lost relevance with existing customers, consolidating brands competing for the same customers, shelving brands that offer little future growth in declining segments, or just capitalizing on newly identified opportunities. There are two ways businesses diversify: through launching new brands or acquiring a growth brand to fit under the umbrella of the masterbrand. However, the question of which approach a company should take does not always have a clear answer.

Traditionally, diversified businesses have had the capabilities, resources, and time to stretch portfolio brands—or they acquire new brands. Currently, in the hyper competitive, digitally–disrupted market, many traditional diversified companies have been sidestepped by the agility of the largest technology firms and startups.

While many existing traditional diversified businesses recognize the need to stretch into a space that their current brands do not allow, the time and expenses of that process do not make it an economically sensible option. But for many diversified organizations, building a portfolio around a leading global brand is becoming increasingly complex, especially when the introduction of new brands or acquisitions is designed to reposition the incumbent masterbrand. A good example is 3M: once seen as the most innovative of a group of diversified companies that included GE, Siemens, and Philips, it has now arguably been well and truly stripped of that mantle by the large tech giants and startups.

Most multinational corporations also want to shower themselves with a coating of innovation and technologically-forward thinking — and acquisitions are the easiest way to shroud themselves in startup DNA. But many of the acquisitions that are investment-ready don’t want to be constrained by the masterbrand. In fact, in some cases, the masterbrand is dilutive to the acquired brand:  they have become a successful brand in part because they are not the incumbent brand. But there comes a point when the masterbrand needs the brand equity exchange to reposition itself, which can drag an incumbent brand into an unwanted new position.

Consider the recent situation of a large, previously state-owned telco wanting to reposition itself as a technology company to capitalize on opportunities in the IT space. It has the capabilities and products to enjoy growth in these new areas, but the legacy brand inhibits growth. By acquiring a suite of agile, tech-focused startups that are disrupting in this new space, it starts the transition. Its intention is for the new acquisitions to act as a catalyst to reposition the masterbrand to a more innovative, forward-thinking IT business. However, like a tugboat pulling and coaxing a cruise ship out of a harbor, this will take time.

But the risk the telco runs is that, by trying to stretch the brand into new places, it is running the risk of losing credibility, authority, and/or distinction in the minds of its customers. The irony is that the acquired companies also have no intention of being associated with their new owners — in fact many acquisitions are successful because they have been able to capitalize on the brand positioning of agility, customer centricity, and responsiveness; the incumbent brand is toxic to their continued growth. At what stage does a masterbrand start the brand value exchange without damaging the existing equity in both masterbrand and acquired brand?

The factors that need to be considered include the following:

  • The presence of the masterbrand. Has the masterbrand been successful in developing a global brand, or does it have a history of decentralized localized brands? For a firm such as Samsung or Siemens, the adoption of a global corporate brand that emphasizes quality and innovation will have different considerations than it would for the likes of Unilever or P&G, where local product and brand managers have substantial autonomy and are likely to have a substantial number of local brands.

 

  • Product-led or corporate-led brand strategy. Firms that have expanded predominantly by extending their strong domestic hero brands into international markets primarily use product-level brand strategies. P&G, for instance, has rolled out Pampers into several international markets where customer needs and product attributes are similar worldwide. Contrast that to the plans of GE or Apple, where acquisitions place considerable emphasis on corporate identity. With GE, “Imagination at work” is associated with a corporate reputation dedicated to turning innovative ideas into leading products and services that help alleviate some of the world’s toughest problems.

 

  • The clarity and correlation of the brands existing in the portfolio. Firms that are involved in closely related product lines or businesses that share a common technology or rely on similar core competencies often emphasize corporate brands. 3M, for example, is involved in a wide array of product businesses worldwide, ranging from displays and optics to health care products to cleaners to abrasives and adhesives. All rely heavily on engineering skills and have a reputation of being cutting-edge. The use of the 3M brand provides reassurance and reinforces the firm’s reputation for competency and reliable products worldwide.

In conclusion, the decision over whether to diversify through acquisition or through launching a new brand must stem from careful consideration of a brand’s specific strengths – both of the masterbrand and potential acquisitions. When a company leverages the various strengths of their brand, they will be able to clearly move in directions that will reinforce the brand and ultimately fuel growth.

Chief Executive Officer, Australia and New Zealand