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Every business needs a core – an area where it leads. Every business must therefore specialize. But every business must also try to obtain the most from its specialization. It must diversify.
The balance between these two determines the scope of a business.
Parents Magazine Enterprises had for thirty-five years been a successful publisher of magazines and books on and for children. In the autumn of 1963 it acquired F.A.O. Schwarz, the best-known American toy retail chain. This did not change its specialization at all. But it diversified the fields in which the company’s specialization is utilized.
Unilever also exemplifies balance between specialization and diversification. With five hundred companies operating in more than sixty countries, Unilever is so complicated that few outsiders understand its structure. Its activities range from growing oil-bearing seeds and catching fish to selling all kinds of goods to the ultimate consumer. Yet it is at the same time a highly specialized business with a major concentration in marketing grocery products, from fish and processed foods to soaps and toiletries. Any business within Unilever, whether it is a chain of grocery stores or a fleet of fishing vessels, can be understood in terms of the highly specialized knowledge and competence of a grocery-products business.
By contrast, specialization and diversification in isolation from each other are seldom productive. The business that is only a specialty is rarely much more than the practice of an individual professional or designer. It cannot grow as a rule and is likely to die with the one man. The business that is diversified without specialization or specific excellence becomes unmanageable and eventually unmanaged.
A business needs a central resource. It needs to integrate its activities into one knowledge or one market. It needs one area in terms of which business decisions can be meaningfully made. Unless there is such a core, people in the business soon cease to speak a common language. Management itself loses its touch, does not know what is relevant and cannot make the proper decisions. On the other hand, a business needs diversification of result areas to give it the flexibility needed in a world of rapidly changing markets and technologies.
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