What is "Diversification" meaning?

Diversification refers to the practice of a business expanding its operations into new products, services, or markets to spread risk and capitalize on new growth opportunities.

This strategy helps mitigate the impact of market fluctuations by reducing dependency on a single revenue stream or business area.

Example

"By pursuing diversification, the tech company expanded from software development into hardware manufacturing, providing more stable revenue streams and reducing vulnerability to market shifts."

How is "Diversification" used in business?

In business, diversification is used to reduce risk by spreading investments across various sectors or products. Companies can diversify horizontally (by adding related products) or vertically (by expanding into supply chain operations).

This strategy helps businesses remain competitive by tapping into new market opportunities and minimizing the effects of market downturns.

Pro Tip

Diversification should be pursued thoughtfully. Businesses should conduct thorough market research before entering new areas to ensure the new products or markets align with their core competencies and overall business strategy.