Mitigating Risks in Pharmaceutical Firm's Diversification into Coffee Shops

Pfizer, a pharmaceutical company, is planning to diversify into the food and beverage industry by opening coffee shops. This decision poses risks for both the employees and customers of the company. The employees may not be able to adapt to the new business, and the customers may have different perceptions about the company's products. To mitigate these risks, the company could consider offering higher positions to young and dynamic staff or hiring new employees with relevant experience. Additionally, the company could explore new markets under a different brand name to amend customer perception. Overall, while diversification poses risks, it can also provide opportunities for revenue growth and experience.

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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).
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.
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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. Diversification of trying a hand in Coffee Business will make the company to try its
business expertise and effective marketing strategies in such markets where the firm has never
thought to invest before. 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.
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Capital Preservation is yet another benefit for 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).
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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 overpower the loopholes 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 for 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
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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 this plan is off the ground and an entirely
new one which needs a lot of resources and even time to grow and get matured. 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
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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 to which the company may
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respond by cutting the wages of the employees or even debarring 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
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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. Till now Pfizer has played a dominant role in introducing medicines that quickly
cured myriads of ailments in patients, but from now onwards it will be dealing with such a
product which can itself cause serious ailments in the consumers (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.
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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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