Diversifying risk Featured

10:23am EDT March 1, 2011
Fred Koury, President and CEO, Smart Business Fred Koury, President and CEO, Smart Business

You may have never heard of Parker Hannifin, but there’s something you can learn from the $10 billion manufacturer of motion and control technologies and systems.

Its broad product line has allowed the Cleveland-based company to deliver results quarter after quarter and year after year, all with little fanfare.

It makes everything from parts that go on aircraft braking systems to nitrogen generators for wineries to hydraulic parts for hybrid refuse and delivery vehicles. If it’s a machine in motion, Parker probably either makes part of the machine or the entire system.

It touches on so many different industries, that a down cycle in any one of them doesn’t destroy the plans or goals of the entire company. With locations in 46 countries, the company has also created some insulation from local economic setbacks. If times are tough domestically, there may be better business to be found in an emerging market somewhere across the globe.

Diversification is one of the reasons the company has been able to pay its shareholders an increased dividend each of the past 54 years. Its overall risk is spread through industries and plants located all over the world.

There’s a lesson to be learned from Parker and other companies like it — you need to diversify your products and services to leverage the maximum potential from your brand’s reputation.

You can create new products in-house, you can form partnerships, you can add innovations to existing products or you can make acquisitions.

How many of these are you doing? Parker Hannifin has a track record of doing all of them. While you may not have the resources of a $10 billion company, the lesson can be applied at any level. Imagine if Parker only made automotive related parts? How would it have survived the challenges of that industry if that’s all it offered?

So where do you start? Focus on what you know best. What are your customers looking for? If you are only providing one piece of the puzzle, is there a way you can provide other pieces, as well?

Being smart about your diversification effort is just as important as the effort itself.

There’s a reason Parker Hannifin doesn’t own wineries. It sells parts and systems related to wine-making because its expertise is in motion control. A Parker-owned winery might be efficient and profitable, but it would take away the company’s focus from its core.

Take a look at what your own core is and figure out a way to make the most of it. If you don’t, you risk being squeezed out of the market by bigger players with better product diversity.

Fred Koury is president and CEO of Smart Business. Contact him at fkoury@sbnonline.com.