Profit from the Core


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Profit from the Core

  1. 2. Profit From The Core Growth Strategy in an Era of Turbulence AUTHOR: Chris Zook with James Allen PUBLISHER: Harvard Business School Press DATE OF PUBLICATION: 2001 NUMBER OF PAGES: 186 pages Book pic
  2. 3. <ul><li>Based on numerous pieces of empirical analysis, 200 case studies, interviews with 100 senior executives, a database of 1,854 public companies in seven countries followed over 10 years, the records of private equity firms, and years of strategy consulting in Bain & Company, the authors present substantial proof that refocusing on your core business will bring long-term growth and profit. </li></ul>THE BIG IDEA
  3. 4. Desperately Seeking Growth <ul><li>The foundation of sustained, profitable growth is a clear definition of a company’s core business. </li></ul><ul><li>The three basic issues management must face in seeking the profit from the core are: </li></ul><ul><ul><li>Build market power and influence in the core business or in a segment of that business. </li></ul></ul><ul><ul><li>Expand into logical and reinforcing adjacencies around the core. </li></ul></ul><ul><ul><li>Shift or redefine the core in response to industry turbulence. </li></ul></ul>Focusing on the core transcends business.
  4. 5. The Paradox of Growth <ul><li>The better performing of your business units are likely to be those operating the furthest below their full potential. </li></ul><ul><li>The stronger your core business, the more opportunities you have both to move into profitable adjacencies and to lose focus. </li></ul><ul><li>Management teams that have been most successful in building a strong core business and that have benefited from adjacency expansion are also the most vulnerable to industry turbulence </li></ul><ul><li>. </li></ul><ul><li>All organizations inhibit growth. </li></ul><ul><li>From focus comes growth. </li></ul>
  5. 6. The Profitable Core <ul><li>Companies with highly focused, core businesses account for most of the sustained growth companies. </li></ul><ul><li>Spin-offs usually create both focus and value. </li></ul><ul><li>Your core business is that set of products, customer segments, and technologies with which you can build the greatest competitive advantage. </li></ul><ul><li>Companies develop market power through customer loyalty, channel dominance, superior product development and capturing capital </li></ul>
  6. 7. The 3 Steps to Develop, Refine and Reexamine a Company’s Growth Strategy <ul><li>Define the business boundaries and your own core business. </li></ul><ul><li>Identify and verify the sources of differentiation that will continue to create market power and influence over your customers, competitors, and industry profit pool </li></ul><ul><li>Comb through the core and assess whether it is operating at its full economic potential. </li></ul>
  7. 8. The Alexander Problem <ul><li>Adjacency expansion . </li></ul><ul><li>Three basic types of adjacency expansion: </li></ul><ul><ul><li>A direct move into an immediate opportunity </li></ul></ul><ul><ul><li>An option purchased in a business related to a core </li></ul></ul><ul><ul><li>A series of sequential moves that expand the boundaries and capabilities of the core business. </li></ul></ul>Create a long-term strategy and consolidate short-term gains to create an empire with lasting value.
  8. 9. Adjacency Expansion <ul><li>Expanding toward an entrenched position. </li></ul><ul><li>Overestimating the profit pool. </li></ul><ul><li>False bundling. </li></ul><ul><li>Invaders from unexpected fronts. </li></ul><ul><li>Failing to consider all adjacencies. </li></ul><ul><li>Missing a new segment. </li></ul><ul><li>Single-mindedly pursuing high-end adjacencies. </li></ul>The 7 Primary Pitfalls of Adjacency Expansion.
  9. 10. The Redefinition Dilemma <ul><li>Some causes of turbulence: </li></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Government deregulation </li></ul></ul><ul><ul><li>Change in customer demand and need </li></ul></ul><ul><li>Only 5%-10% of the profitable growing companies have transformed or redefined their core businesses over the last decade. </li></ul><ul><li>Corporations now have a shorter life span. </li></ul><ul><li>Redefinition is about speed. </li></ul>To survive in a new environment, a species needs to learn to adapt.
  10. 11. Warning Signs of Industry Transformation <ul><li>Erosion of low-end product segments. </li></ul><ul><li>Erosion of customer segments. </li></ul><ul><li>Erosion of microsegments. </li></ul><ul><li>Erosion of traditional business boundaries. </li></ul><ul><li>New intermediaries and new control points. </li></ul><ul><li>Internet-induced turbulence. </li></ul>
  11. 12. How to Prepare Your Organization for Redefinition <ul><li>Develop different pricing strategies. </li></ul><ul><li>Staffing needs for a difficult start-up require excellent managers, but the core business requires the very best managers. </li></ul><ul><li>Redefine your reward structure. </li></ul><ul><li>Change your channels of distribution. </li></ul><ul><li>Plan how to manage the new model when it does become successful and begins to gain market share. </li></ul>
  12. 13. Final Words <ul><li>Building unique strength in a core business, no matter how small or narrowly focused, is the key to subsequent growth. </li></ul><ul><li>Most management teams underestimate the growth potential of their core and fail to mine all the hidden value growth. </li></ul><ul><li>Industry turbulence often demands that the leader redefine his or her company’s core business at a time when it appears at the height of its power. </li></ul><ul><li>Achieving growth is hard because most organizations protect the status quo and are resistant to change. </li></ul>
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