In recent years, during discussions with local manufacturers, the subject of marketing, sales and the danger of relying on just a few customers would surface. Our suggestions that local leaders consider diversifying their markets, products and customers were met with polite nonchalance.
It’s hard not to blame these companies for being complacent. After all, when orders are literally rolling off the fax machine (strange as that may sound), it’s difficult to see changes that may be ahead. This recession and abrupt slowdown in our local manufacturing sector was, however, a real wake-up call for many area firms.
The gravity of the situation was evident with the attendance of 200-plus representatives from area manufacturers at a recent Wind Power Supply Chain conference hosted by IMEC with the Illinois State University Center for Sustainability. As manufacturers cope with production slowdowns and increasing customer requirements, interest in diversification strategies has elevated.
Recently, Pekin’s Excel Foundry and Machine was the focus of a network news story that featured the actions taken by the company in the early 1990s to develop new market and product strategies. Excel was highlighted because it has bucked a national trend to furlough or layoff workers, instead maintaining its base employment and profitability during the recession. But the stark reality is that too many company leaders remain content to gamble that economic recovery will come fast and furious, and that business from core customers will return to prior levels.
So how do successful companies diversify? First, it is important to understand that diversification involves three principal actions:
- Bringing new products and services for the markets you currently serve
- Taking current products and services to brand-new markets
- Bringing new products and services to new markets.
Each diversification strategy has its own set of challenges and rewards. It is critical to assess your existing capabilities to identify which strategy (or strategies) your company can take that will yield the most success. Regardless of the approach, consider the following best practices.
- Know why you’re in the markets you’re in…and why you make what you make. Simple words, but a mantra to take seriously. Those companies who are successful today made diversification part of their strategic plans. They were proactive and thoughtful, and considered the development of new products and the pursuit of new markets to be long-term investments. If you view diversification as a short-term fix to the problem of sagging sales, you won’t be better off in five or 10 years.
- Partner with, designate or develop a leader. It takes time and focus. Someone with enough authority to make meaningful decisions must lead your diversification initiative. To successfully diversify requires oversight of a process and the coordination of many resources and decision points.
- Assess options quickly, but thoroughly. Diversification requires analysis of many factors, done in tandem. Once you’ve identified opportunities within attractive industries or markets, it’s critical to determine your ability to manufacture, meet customer and regulatory requirements, offer a competitive advantage, prepare your company and your people for change, and be profitable. It takes a coordinated research effort, both internally and externally, to support a wise decision.
- Know when to stop or change course. A clear decision process is critical here. Without it—and with the absence of the right players during the process—your strategy can get lost or dropped, or worse yet, become a drag on time and resources that would be better allocated elsewhere. Develop your process, identify your players and don’t leave a discussion without action items, timelines and responsibilities.
IMEC and our Manufacturing Extension Partnership (MEP) network have developed tools and processes to support the diversification initiative. To learn more about diversification strategies, contact IMEC today at (888) 806-4632 or email [email protected] iBi