Cross your heart and diversify

In the latest issue of Tees Business you can read about how Teesside company Mandale successfully diversified from making snooker tables to building houses. Personally I can see the inherent problem with the snooker tables – they last for decades and never need updating.

Imagine if Apple or some other tech giant had invented snooker. It would be quite different then, wouldn’t it? You’d have to throw your old snooker table out every three years and replace it with the latest snooker table or risk having your mates come round and start pointing at it, sniggering and asking funny questions like, “Does it run on coal, then, eh?”

I should say that when it comes to mobile phone technology I have resolutely stuck with a 30 quid Nokia 216. This causes much mirth amongst people my own age, but I have noticed that it gains me great respect amongst the young folk.

When I mentioned this to my daughter, she laughed and said, “That’s because those button-phones are the ones drug dealers use.”

And there was me thinking those spotty youths in hoodies simply respected me as a man taking a dignified stand against technological-update oppression. And no, I can’t sort you for whizz.

In case you think I’m straying off topic a bit there I should add that Nokia, like Mandale, are a great example of diversification because the Finnish telecom giants began life back in Victorian times manufacturing paper.

Since people used Nokia’s paper for writing letters and printing magazines and newspapers, you could say the firm were part of the communications industry even then.

Tenuous, I agree, but business people will tell you that there are two types of diversification: related and unrelated.

Unrelated diversification, which takes a company away from its core competencies, inevitably carries greater risk. Just as when a Premier League footballer decides to become a professional boxer (hello, Rio Ferdinand), a women’s magazine publisher that decides to launch a range of yoghurt (as Cosmopolitan did in the 1990s) is likely to end up coming a cropper.

That’s why businesses sometimes justify diversification in ways that sound a little, well, desperate.

Take Blue Circle Cement, for example. Back in the 1980s they stretched from making products for the building industry to manufacturing baths, ovens and finally lawnmowers.

Asked how the latter fitted into their area of expertise, one executive replied, ‘Well, we make things for houses – and a lawn is next to a house.” Which is a bit like somebody who runs donkey rides on Redcar beach deciding to build fishing boats as well.

Even when companies stick close to what they know, it doesn’t always work out. US beer giant Coors has made the clear Rocky Mountains water they use to brew their lager a cornerstone of their marketing. Then, 20 years back, some bright spark raised the fateful question, “If the water’s so good, why bother turning it into beer? Why not just bottle it and sell it?”

So they gave it a go.

Sadly, it turns out people don’t want to buy mineral water from a brewery.

The same happened with Coca-Cola when they decided that they could use their soft drink expertise to make wine as well.

And yet, weirdly, in the UK when I was a kid nobody thought twice about buying their ice cream from Wall’s – a company that also made sausages.

Being a child of the Space Age, my favourite example of diversification involves lingerie firm Playtex, makers of the Cross Your Heart bra. Back in the mid-‘60s they shifted part of their production facilities over to making space suits. And they did it so successfully that theirs were the ones the Apollo astronauts wore when they walked on the moon.

If only the old Meridian knickers factory in South Bank had cottoned on to that idea, we might have had a Teessider on Mars by now.

 

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