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
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.
THE BIG IDEA
Desperately Seeking Growth
The foundation of sustained, profitable growth is a clear definition of a company’s core business.
The three basic issues management must face in seeking the profit from the core are:
Build market power and influence in the core business or in a segment of that business.
Expand into logical and reinforcing adjacencies around the core.
Shift or redefine the core in response to industry turbulence.
Focusing on the core transcends business.
The Paradox of Growth
The better performing of your business units are likely to be those operating the furthest below their full potential.
The stronger your core business, the more opportunities you have both to move into profitable adjacencies and to lose focus.
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
All organizations inhibit growth.
From focus comes growth.
The Profitable Core
Companies with highly focused, core businesses account for most of the sustained growth companies.
Spin-offs usually create both focus and value.
Your core business is that set of products, customer segments, and technologies with which you can build the greatest competitive advantage.
Companies develop market power through customer loyalty, channel dominance, superior product development and capturing capital
The 3 Steps to Develop, Refine and Reexamine a Company’s Growth Strategy
Define the business boundaries and your own core business.
Identify and verify the sources of differentiation that will continue to create market power and influence over your customers, competitors, and industry profit pool
Comb through the core and assess whether it is operating at its full economic potential.
The Alexander Problem
Adjacency expansion .
Three basic types of adjacency expansion:
A direct move into an immediate opportunity
An option purchased in a business related to a core
A series of sequential moves that expand the boundaries and capabilities of the core business.
Create a long-term strategy and consolidate short-term gains to create an empire with lasting value.
Expanding toward an entrenched position.
Overestimating the profit pool.
Invaders from unexpected fronts.
Failing to consider all adjacencies.
Missing a new segment.
Single-mindedly pursuing high-end adjacencies.
The 7 Primary Pitfalls of Adjacency Expansion.
The Redefinition Dilemma
Some causes of turbulence:
Change in customer demand and need
Only 5%-10% of the profitable growing companies have transformed or redefined their core businesses over the last decade.
Corporations now have a shorter life span.
Redefinition is about speed.
To survive in a new environment, a species needs to learn to adapt.
Warning Signs of Industry Transformation
Erosion of low-end product segments.
Erosion of customer segments.
Erosion of microsegments.
Erosion of traditional business boundaries.
New intermediaries and new control points.
How to Prepare Your Organization for Redefinition
Develop different pricing strategies.
Staffing needs for a difficult start-up require excellent managers, but the core business requires the very best managers.
Redefine your reward structure.
Change your channels of distribution.
Plan how to manage the new model when it does become successful and begins to gain market share.
Building unique strength in a core business, no matter how small or narrowly focused, is the key to subsequent growth.
Most management teams underestimate the growth potential of their core and fail to mine all the hidden value growth.
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.
Achieving growth is hard because most organizations protect the status quo and are resistant to change.
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