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Write a report on Diversification of a Pharmaceutical firm into Coffee Shop Business.
Solution
Diversification of a Pharmaceutical firm into Coffee Shop Business
Diversification is that corporate strategies that a firm uses to enter a new market or industry, which is not a part of it recently. While diversifying, a firm also needs to create new products for the new markets. Many small companies tend to rule the markets by betting their entire resource and future on a single product or service, but as the company grows and flourishes, it finds opportunities to add myriads of new products, services, locations and customers. So, it can be easily deduced that diversification helps a firm to strive through the tough times and even have a strong alternate sources of revenue in times when the original market dries up. Growth through diversification also helps a firm to have a great list of options in place when they are needed (Prymon, 2006).
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The following essay has been precisely written in order to write a Diversification plan for a leading US-based Pharmaceutical firm, Pfizer. This firm is an American global pharmaceutical corporation with its headquarters in New York City. It is considered as one of the leading pharmaceutical company of the world and is known to produce medicines and vaccines for myriads of medical disciplines. The company was established in the year 1849 and has been undertaking a single line of production (Entrepreneur Media, 2016). Although the firm is performing a great job in this field, but it has a capability to expand its business in other areas too. For such a purpose the concepts of diversification are implemented in a firm which wants to invest in other potential markets and customers to avoid monotonous operations and similar rates of profits per annum. In the following essay, the selected pharmaceutical firm will expand its business to coffee shops in order to deal with an entire new set of customers and even have a backup plan for the company to avoid inevitable economic turmoil in the coming future. The essay will also discuss the potential risks that the firm might face in the process of diversification and even there will be recommendations and a set of suggestions that could minimize the risks.
Companies have numerous reasons for diversification (Biggadike, 1979). The most considered reason is that diversification could act as a survival strategy for a rapidly growing company. The pharmaceutical firms often have a regular revenue stream throughout the year, but this expansion cum diversification will allow the firm to deal with new customers and gain another level of experience. As the firm has been able to gain a good loyal customer base, hence it can sell its new products easily to its existing customers. It is advisable for the firms to not expand and diversify its business until and unless its core business is stable and profitable. The stable core business often gives a chance to a company to direct its unused resources in other profitable businesses that not only gives a chance to the company to make profit from other resources but also evaluate the minds of the other potential customers in the markets (Kannan & Sarvanan, 2012). Pfizer has succeeded in establishing a great brand identity in front of its customers and is constantly increasing its customer base in almost all the potential markets in the world. This strength of the brand identity could be used by the company to explore new markets and establish strong grounds there.
The concept of diversification can be used by the considered company for both offensive and defensive purposes. In the former case, the firm could use to increase the profit rates by entering and exploring the untapped markets and in the latter case the firm could disseminate its assets in order to avoid useless crisis in the coming future. The greatest advantage for the company, after expanding into the coffee shop business would be a rapid expansion in the revenues. The diversification of trying in Coffee Business will lead the company to try their business proficiency and assess their effective marketing strategies in a market where the firm has never planned to invest in the past. The company may also provide a better quality of risk control activities by being no longer dependent on a single market for its profits and revenues.
Capital Preservation is yet another benefit of this pharmaceutical firm as it plans to expand its business in coffee shops. This process allows a firm to protect the capital that it possesses rather than focusing the skills and resources on the rate of return for the investments. By allocating money into different investments, the firm will be able to preserve its capitals in times of economic turmoil. Investments in myriads of assets tend to minimize risks and allow a firm to concentrate over other potential issues in the firm. The Diversification strategies, also have the effect of maximizing portfolio returns (Team, 2016). This is due to a basic reason that due to diversification risks are limited as there is a minimal exposure of the company’s assets to major losses in the markets. The portfolio is likely to make more money under the diversification process and even maximizes returns as the new and innovative investors are exposed to high- return growth industries (Oju, 2009).
The most appropriate expansion cum diversification option for the selected company is the Brand Extension. Through this approach the firm could expand via an unconnected range of products and markets. But, this approach may have a set of the inevitable risks associated with it. When the firm uses the same brand name to market different products in the different markets, then there are chances that problems in one business could affect the sales of another. However, if the company plans to trade under a different name than one business could easily be separated from the other. Even the firm would be able to maintain its reputation in front of its present and potential customers. Most importantly, if the selected pharmaceutical company expands into other business under a different name, then the finances of the parent company are also secured for a long duration. If one business fails, then it can easily cope up with time without affecting the profits and operations of other businesses of the company (Wang, et al., 2011).
The expansion of Pharmaceutical business into a Coffee Shop business consists of a number of risks. These risks probably are linked to the Coffee business rather than to diversification. The positive aspects of diversification often overcome the ambiguity which is associated with the process. But the internal risks of the coffee business may bring a lot of complication to the expansion process. For instance, the coffee business is prone to a number of accidents due to appliances malfunctioning and even due to manual errors. In such a case, if the problem is dealt at an initial level, then the future ill effects are minimized to a great level, but if this doesn’t happen then the business may get ruined easily and at a rapid pace. To resolve and minimize this risk, the parent firm could arrange for myriads of insurance covers to its acquired coffee shops including property and health insurance (Inc., 2016). Also, during the accidents if the employer or the customers get injured, the medical expenses and lost wages can account for thousands of dollars. In such a case, the parent company could arrange various sorts of compensation for the injured employers and customers. This will not only retain the human resource of the company for a longer duration, but will also improve the company’s image in front of the customers and automatically will increase the customer base. As the company is deciding to shift its focus of talent and resource towards an entirely new sector, hence it will have to recruit new employees for this purpose (Kenny, 2009). The firm has been able to gain the loyalty of its employees through its pharmaceutical business because it has operated in this sector for more than 150 years. As there will be a giant shift in the business, then in this case it might become impossible to gain such a level of loyalty from the employees of the new business. In such situation, the expanding business might face risks associated with the employee frauds. At the coffee shops, generally the customers pay through cash and it is the responsibility of the senior executives to regularly strip the collected money from the cash drawers and place them safely to the banks and other lockers in the corporate offices. But, as the employees are not strongly connected to the firm, then they have an equal tendency to commit fraud. In such a case, the firm could mitigate this risk by applying for Employee Dishonesty Insurance. This cover will allow the company to cope up from huge losses if the crime is committed at a very high level (Carroll, 2016).
The expansion to the Coffee Shop business would also make the parent company executives to always look for more and more money. This is because the plan is very innovative and requires a lot of resources and time to grow and get settled in the market. The firm may also require strong financial sources to keep the business afloat. In time of money shortages and economic turmoil, the coffee shop business may face unimaginable problems which are to be dealt immediately. In such a case, the Diversifying Firms are asked to have strong contingency plans for emergency funding. At the initial level, the managers could be asked to develop perfect budgets for the coffee shops. The coffee shop executives could also ask the other leaders in the markets to review their marketing plans and suggest effective strategies for proper growth in the market. The company has been operating for ages in the markets with its own policies and ethical thoughts (Petryni, 2016). It would be a tedious task to communicate the new employees the traditional working strategies of the firm and ask them to follow the same. The newly recruited employees and even the new target markets may fail to evaluate the company’s existing needs, rights, way of working and the existing laws and policies of the firm. In such a case, the majority of the resources and skills of the company would be employed in dealing with the issues concerned with these matters. The Diversifying companies are often suggested to handle such situations in a more practical manner. They could create a different image of the brand in front of its customers long before launching the actual product and services in the markets. This will help the customers and even the aspiring employees get well versed with the operational strategies of the company. As the company is operating from a very long time, hence the customers and employees may find its ways of working a bit obsolete and out of time. The rewards and management policies and rules need to be reformed and portrayed in an entirely new manner to the people so that they consider this firm at the same level as that of the other coffee shop competitors in the markets (Riddix, 2011).
The researchers all over the world, learning and evaluating the process of Diversification, have suggested the most potential risk in the process. They admit that the Diversification process is a Time- consuming task and it may take a lot of time to understand the basics of a new business and then expand in it by utilizing the available resources. There are times when the Diversifying firms fail to understand that all the business and industries differ in the way of workings and there is no surety of success in the new business based on the success history of the core business. The expansion of a Pharmaceutical firm in this new business of Coffee shops may require the company’s executives to work overtime and this may eventually affect the quality of services they deliver to their customers (The Startups Team, 2007). To mitigate this risk, the executives of the firm could work collaboratively as a team and even divide the tasks among one another. Also, the firm could temporarily hire experts who have a great knowledge and experience in the Business Diversification field. The employees could readily approach these experts in times of confusions and advice. There is another related risk to the previous issue. When a firm plans to enter an entirely new market and new business then it becomes hard for the company managers to convince the firm members over this decision. This is because the expansion may lead to a number of losses in the coming future by which the company may respond by reducing the wages of the employees or even expelling them from their current positions in the company. In such a case, it becomes a pivotal responsibility of the company to communicate the change process in an effective manner to all the participants of the company (Smith, 2013). For this purpose, meetings and discussions could be called on a regular basis and the benefits of the expansion could be communicated to the firm members in a most enhanced manner. Moreover, to increase the participation of the employees the executives could ask for feedbacks and suggestions from the employees over the crucial future decisions of the firm. In this manner, the employees will feel more connected to the firm and would consider this Diversification decision as a bane for the company as well as for them (development, 2005).
It has already been mentioned in the previous discussions that the company has worked in the markets for a very long period and has managed to gain ample of loyal employees in this field. As the firm is now planning to expand its business in other directions, then it may also plan to appoint the loyal employees of the core companies at the crucial positions in the new business. The old employees are well versed with the working strategies of the company and its traditional and ethical values too (Coffeeshop Startups, 2016). Although they have managed to gain a lot of proficiency in the pharmaceutical business, but it is not sure that whether they might be able to deal with the changing perceptions of the customers and innovative ideas in the Food and Beverage Industry. The company is left with no other option than to employee an entirely new set of employees to the leading positions or offer higher positions to the young and dynamic staff working at lower positions in the core company. In such a case, the firm could mitigate the potential risks by applying the second option. In this case, at least the loyalty factor would pertain in the employees. The old and experienced employees from the core company could be assigned a job to regularly evaluate the performance of the newly upgraded employees and even give them recommendations and advices wherever needed (Peter, 2016).
The risks may also arise over the customers’ part as they have a different image and perception about the firm. Pfizer has played a leading role in introducing medicines which can quickly cure myriad disorder in patients till now but the current manufactured medicines has started causing this issues in medicines (Forneris, 2016). For instance, Coffee is mostly consumed by people to avoid sleep and drowsiness, but at the same time excess consumption of coffee may stimulate the nervous systems of the consumers in a quite abnormal manner. So, it may take a lot of time to amend the consumers’ perception about the brand and get them adapted to this new way of doing business. To mitigate this risk, the company could explore the new markets and business opportunities under a different sub-brand name that appears to be more appealing to the new as well as the loyal customers of the firm. The new brand name will create a new image of the products in the minds of the customers and the products offered by the company will tend to attract a huge customer base irrespective of the fact what the core brand is selling to its customers.
From all sorts of discussions above, it has been made clear that although there are myriads of risks associated with the process of diversification of the selected Pharmaceutical firm in the business of Coffee Shops, great the suggested mitigation ideas may help the firm to expand positively in this direction. Pfizer has managed to collect ample of loyal employees and customers and this will definitely help the company to try its luck in a different direction too. The only requirement is that the diversifying company should work according to a plan that has myriads of contingency methods in case of failure and inevitable risk exposures. The Diversification process, if planned well, ultimately gives a good source of revenue and experience to the firm members.
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