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Diversification – Is it for you?

diversification by MDS

“The Dairy Business” Case Study Part I: Diversification

Introduction: I did training and consulting work with a dairy company some time back who originally brought me in to help develop their management team. An essential part of this development process was a strategic plan. During the strategic planning stage, the company came up with several major goals and objectives.
In Part One of this Two-Part Case Study, I will address one of those major goals.
Goals & Objective #1: “The Dairy Company” will diversify its dairy processing and distributing business, by adding a retail ice cream and restaurant chain.

Have you ever had an idea that seemed like a no-brainer only to learn that you should have put more objective brain power behind it? It happens all the time. Restaurants open, struggle, and close. Clothing stores, gift shops, the same. It’s only after struggling along hoping things will change, and enduring the cash drain as long as feasible that the owners and investors throw in the towel and admit defeat. Could the loss of time, money and energy be avoided? Absolutely!

Let’s take a look at what “The Dairy Company” did . . .
The concept of a dairy business opening ice cream & restaurant stores was not new. Braum’s had been successfully doing it for years. But “The Milk Company” did not want to jump into something that hurt their core business without due diligence. So, along with their goal and objective, they established measurable action steps and assigned a team to carry out those steps. In the case of opening retail stores, their action steps included a well-planned year-long research project.

Among other things, they were to determine:

  • If a retail business model would enhance or detract from the overall goals of ‘The Milk Company.”
  • If so, how many stores should be established to be profitable? What geographic area should they target? What time frame for the investments and openings?  What workforce would be necessary? What menu would be successful?

After the year-long research project was complete, the committee recommended not to diversify into this area because they could not justify the ROI . Their conclusion was the cost was too high, the disadvantages outweighed the advantages and most importantly, following this goal could derail their core business of providing the freshest, quality milk to their network of distributors.

I was extremely proud of this management team because many were heavily invested in this idea of opening retail outlets. As an alternative to “No, this won’t work for us,” they could have said, “Let’s try one store and see how it does.” If they had tried that approach, not only would it have cost them money but it would have diverted time and energy away from their highly profitable dairy business.

diversificationWho can put a dollar figure on this type of planning?

The company management team spent time working on this research, but the expense was insignificant compared to what they could have lost. Many successful companies have suffered because of an ill-conceived plan to diversify without properly researching all the components necessary.  A vague business plan without research to back up the concept is a blueprint for disaster.

Part Two of this case study explores another goal: Develop each Department into a Profit Center for “The Milk Company.” This blog will be published the week of January 19, 2015.

Bruce Mazzare is a sought after business consultant, coach and trainer with over 40 years of experience working with both profit and non-profit organizations.

To contact Bruce about MDS services for your team email bmazzare@assessmentsolutions.com or call 254-776-6306 or visit our web site www.assessmentsolutions.com 

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