Organizational Strength through Diversification

by Virgil Carter

This is the time of year when many of us look back at the past year to see what we can learn and apply to the new year’s challenges.   This may be the time for CEOs, staff and volunteer leaders to do a quick check on the strength of their organizations.  2012 is likely to be as challenging a year as past years.  Is your organization economically strong?  Do you have the protection and advantage of economic diversification?  Or all of your eggs in one large basket?

A recent Strategy+Business article, “A Continuous Quest for Economic Balance”, by Richard Shediac, Chadi N. Moujaes and Mazen Ramsay Najjar, focuses on the important economic diversification of countries.  Much of what they write has equal application to the strength and well-being of many of our non-profit organizations.

For example, the authors write “Countries can be over-concentrated in any number of ways—for example, relying too heavily on large companies, exports, or foreign investment—and even countries that appear extremely diversified may still be vulnerable to unexpected events.”  How applicable is this to your organization?

A quick check of your annual budget will reveal the sources of your revenues.  If your major source of revenue accounts for more than about 35% of total revenues, you may question whether or not there is sufficient diversification (and protection) for your organization’s well-being.  If a single source of revenue counts for the majority of your revenue flow (over 50%) your organization may be at severe risk in the event of some disruption to the source of revenue.  Risk may be reduced and economic strength will be gained through economic diversification.

How to achieve strength through improved economic balance?  Certainly, continuing to support the elements that are at the center of an organization’s financial strength is obvious.  The answer for successful diversification is not simple.  And it is not achieved in a single step.  Diversification is a continuous, never-ending journey.  Perhaps the most successful journey is one that looks to increase the return of other key existing revenue sources, while also looking for new opportunities that are consistent with the mission of the organization.  Innovation and entrepreneurial efforts are a key in this regard.

For many non-profit organizations, economic strength through diversification is not easy.  No organization can be successful, however, without economic strength.  And if a conscious effort for needed diversification isn’t made, economic strength may never be achieved.   Is your economic balance where you’d like it to be?

For the full Strategy+Business article:  http://www.strategy-business.com/article/00064?pg=0