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Diworsification

Feb 27, 2020 4:08:02 PM / by Tim McCarthy

 

I first noticed this term in Peter Lynch’s book “One Up on Wall Street” (1989). He used it to describe companies investing in areas widely different from their main businesses.

Why is it that success causes us to stray from our main strengths? Boredom? Arrogance?

Eight years after he published “Good to Great”, Jim Collins noticed several of his featured 11 companies (anyone remember Circuit City?) were faltering. That’s when he wrote “How the Mighty Fall”. In this study, Collins names five stages of how great companies lose their greatness. The first two: Hubris born of success and the undisciplined pursuit of more.

“Diworsification.”

Every successful organization must fight it. We all realize we shouldn’t have all our eggs in one basket but how many other baskets can your organization manage?

As my first company was ebbing with the introduction and success of our “WorkPlace” database marketing product, I could not resist the inventor’s temptation and so I created and marketed product extensions named SchoolPlace, ChurchPlace and TravelPlace.

Good products all of them, but those products didn’t make money. This was mostly because the resources we used to create, operate and market the product extensions were taken away from our flagship brand.

We are fortunate to be involved with the company I admire most for focus: Raising Cane’s Chicken Fingers. Todd Graves, almost 25 years into creating this billion-dollar restaurant chain is still being urged daily to add menu items, open for breakfast and deliver.

Todd’s answer? We have, and always will have only one love: chicken fingers. His reward for keeping things so focused and simple (counter intuitively) isx that the average Cane’s restaurant does more annual volume than anyone else in their category except for Chick-Fil-A. With only one product.

As the last exercise in every CEO/Owner meeting I do for Vistage, I ask each member to list all their products and services by revenue and profit. Borrowing from Boston Consulting Group’s famous BCG matrix, members are surprised into realizing that they are putting time, money and energy into things that aren’t giving them much in return. This is just as true for non-profit leaders as for-profits.

Many will face resistance to dropping time and money sucking projects “because it’s our loss leader”; “our competitors have that product/service”; “it is an important new category”, and so on. Too bad.

Can you make a list of your organization’s most and least productive initiatives? Is each diversion really necessary?

Or, out of boredom, organizational arrogance or just plain “we’ve always done it” are you diworsifying?

Simple is hard. But it can be very rewarding.

Ask Todd Graves.

Peace,

Tim McCarthy

 

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Tim McCarthy

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