Understanding the Financial Crisis

Finding the Next Core Business by Chris Zook

It's hard to know when your core business must change. Some companies cling too long to their cores, even in the face of crushing competition. Others, lured by hot new markets, abandon their core prematurely-with devastating results.

There Is a smarter approach, says Zook. First, recognize when it's truly time to find a new core. For example, perhaps your growth formula no longer works because your target market is saturated. Then, examine your company's hidden assets-neglected businesses, unexplored customer insights, latent capabilities. Ask how they can help you define a new core that will propel fresh growth. For instance, American Express transformed its ailing core charge-card business after discovering neglected data showing how different customer segments used the cards and what other products might interest them.

By redefining your core at the right time And in the right way, you boost the odds of profiting from change-before rivals do.

Assess the Need for Change

Periodically ask whether your current strategy is exhausted. It may be if:

• Your company is targeting a shrinking profit pool. For example, Apple wisely moved toward digital music as the PC profit pool contracted.
• A new rival has entered the field unburdened by your cost structure. Compaq, for instance, suffered from Dell's superior economics.
• Your growth formula isn't sustainable. For example, a mining firm loses its natural advantage as its mines become depleted.

Recognize the Makings of a New Core

If your business Is losing potency, remake your core gradually.

Example:
Dometic had long sold absorption refrigerators, which have no moving parts and no need for electricity, to boat and recreational vehicle owners. When revenues stalled, it decided to expand its core to hotel minibars. It also began developing additional products for its RV customers-including air-conditioning and water-purification systems. Dometic now commands 75% of the world market share for RV interior systems.

Harness Your Hidden Assets

Hidden assets can spur fresh growth from your new core if they provide clear, measurable differentiation from competitors; tangible added value for customers; and a robust profit pool. Hidden assets can be:

• Undervalued businesses. General Electric identified an underutilized internal business unit: GE Capital. Fueled by new investment, the division made more than 220 acquisitions over 15 years. Today, GE Capital accounts for 32% of GE's profits.
• Untapped customer insights. Harman International, which makes high-end audio equipment, realized people were spending more time in their cars and many drivers were music lovers accustomed to high-end equipment at home. Harman acquired a firm with expertise in designing audio systems for high-end cars. Today, its market value is 40 times greater than in 1993.
• Underexploited capabilities. A company's existing capabilities can often be better utilized to spur growth-especially when combined with new capabilities.

Example:
Apple capitalized on its strengths in design, brand management, user interface, and easy-to-use software to create the iPod. But it needed to acquire expertise in the music business and digital rights management. Once it had, Apple gained access to content by signing up the top four music companies before rivals did-creating the successful iTunes Music Store.

Getting Ahead of the Game-Changing Trends

Consumer products executives are confronting a bitter truth: conventional recipes traditionally used by multinationals for profitable growth no longer are enough. As the marketplace undergoes a rapid transformation, it's forcing leading brands to rethink everything—from where and how they compete to what capabilities they will need to thrive in this new world order.

For companies in developed markets, shifting market dynamics primarily raise the question of how to build sustainable, profitable growth models. Consumer goods executives know that in a demand-constrained market, they won't have a choice but to reduce costs continuously. But they will also have to identify new formulas to grow premium products and brands in a world where more and more consumers seem to have split personalities when it comes to spending. Consumers sometimes splurge on premium items in certain categories but also trade down in other areas. That is forcing companies to rethink how to innovate to give consumers added value, how to price and promote and how to "compete" effectively against retailers that are more aggressively managing shelf space—all without wrecking the entire profit pool.

Companies competing in emerging markets face different challenges. They must establish themselves as profitable market leaders as they go up against increasingly competitive local players—with higher brand recognition, lower costs, more flexible and responsive organizations and an impressive ability to learn, replicate and gain scale quickly. To ensure that their products are affordable, consumer products players have to adapt their product range, price point and innovation strategies while trying to grow their premium and super-premium market share as well. They must also determine how to overcome the often prohibitive cost of reaching consumers in hard-to-reach rural areas with poor product distribution infrastructures. And they must overcome a serious talent shortage and develop a sustainable talent pipeline that matches their needs.

Top Ten Capabilities

1. Design repeatable growth models to accelerate learning and execution, in particular when expanding into developing markets;

2. Artfully manage brand portfolios—defining optimal portfolio roles, winning strategies, investment levels and profit expectations;

3. Develop 360-degree consumer and shopper engagement through multiple media and touch points;

4. Accelerate brand growth, even in slow categories and developed markets;

5. Become a true partner for retailers, adding value through sophisticated collaboration programs built on shopper insights, integrated supply chains, systems and data sharing;

6. Align, measure and incentivize the frontline for perfect execution;

7. Build a culture of continuous cost improvement, ensuring the organization measures and tracks true cost to serve in order to drive it down relentlessly over time;

8. Master mergers and acquisitions to gain a competitive advantage at target selection, valuation and integration—building additional scale and the resulting economic efficiencies;

9. Simplify, speed up and slim down operating models to maximize organizational effectiveness and efficiency;

10. Create a talent pipeline to deliver growth expectations.

Five winning behaviors

Most people will agree that faithfully adhering to these capabilities is challenging in a complex global and multi-category landscape. These capabilities are grounded in simple organizational behaviors that will increasingly distinguish the best from the rest:

1. Repeatability and Consistency
2. Simplicity and Alignment
3. Speed
4. External Focus
5. Selectivity

Repeatability and consistency

We are astounded by how often organizations successfully identify best practices but then struggle to win broad and consistent adoption across their organizations. Also surprising is how infrequently they develop models for repeatability and consistency in all elements of their businesses. Organizations should choose three or four things that they need to be great at to spur growth and gain a competitive advantage—for example, mastering point-of-sales execution, developing successful innovations or swiftly integrating acquired companies. They need to measure and create incentives around these value drivers and continuously improve them until feedback indicates that these levers are no longer giving them an edge.

Simplicity and alignment

The entire organization must wage war on complexity. Too much complexity can undermine even the best initiatives. And the evidence of complexity is everywhere—from overly complex consumer segmentations that are never understood by frontline employees to analytic measurement models that are so complex no one uses them to decision-making models that are so complicated that decisions aren't made. In such a competitive marketplace, it's critical that the frontline is aligned and engaged, the strategy gets executed—and time and effort are not wasted.

Speed

To outcompete and win, organizations simply have to get faster. They need to speed up their metabolisms-whether it's swifter decision making, getting new products to market quicker or creating a more responsive supply chain.

External focus

A large number of organizations remain internally focused. In contrast, winners gain an edge by heavily focusing on factors outside the company that influence performance such as consumer, shopper and customer insights, competitor intelligence or supply chain evolutions. By relentlessly focusing on external forces, they ensure faster growth.

Selectivity

Often, organizations are too democratic in allocating resources, making decisions, managing talent and investing. Leading companies are much more selective: they know their "must win" battles, "must buy" acquisitions and "must develop" talent.

Source: Bain and Company Industry Brief

Executing an Innovative Strategy

All strategies are designed to improve performance, which means you are going to do something different than what you are doing. Whenever you establish a new strategy, you are establishing a desire to change something. Whether it is incremental or innovative, managing strategy execution is managing change.

As the diagram shows even incremental strategy has a slope to it, meaning that some change management is going to be called for. To increase performance over time, either path requires changes in how the organization operates. Yet clearly, the change management process for an innovative strategy will be much more significant than for an incremental strategy.

For many companies, strategic plans are incremental in nature and very close to operating plans. These are mostly plans to improve operating effectiveness and extend the current business model. But when you are setting a strategic direction that is innovative, trying to manage the strategy execution the same way will be devastating and unlikely to succeed.

What determines an innovation strategy is the degree by which you are making changes to the basic business model. This model is the norms, rules, metrics and processes of how the organization produces its results.

Innovation strategy requires a different focus that addresses the forces within your organization that are operating mostly under the surface at the unconscious level. Mostly we pay attention to what we do and how we do it, what we can observe and measure. The forces associated with the activity we perform.

And there are other forces operating within our organization that we also need to pay attention to. There are relationship patterns that are unconsciously affecting results. For example somehow everyone knows to go to Bob for any of the key issues around fulfillment. But there is no identified process that says, “go to Bob”.

The same is true for other forces, forces that unconsciously define how we interact with the customer, how we choose projects to bid on, how we collectively respond when the boss is upset, and the many unstated yet felt rules and values of the organization. Nothing is specifically defined yet everyone behaves consistent with these energy patterns.

The fact that much of our organization behavior has become unconscious is mostly a good thing; it has been incorporated in the semi-autonomic nervous system of the corporate body. It’s a lot like learning to ride a bike. Eventually we become proficient because most of the rules for riding and balancing have become part of our unconscious, part of our semi-autonomic nervous system. This is what allows an organization to operate with a high degree of efficiency. It is also what makes changing the basic rules for how we operate so difficult and why we have to make those rules conscious once again.

What we call resistance to change is really nothing more than energy that has formed very strong flow patterns. Our organization only appears to be resistant to change because these energy patterns usually remain under the surface of what we pay attention to.

To manage the execution of your innovation strategy, we must first identify the existing patterns of energy flow. Like the processes of activity that we normally think of changing, we can also change these energy flows. Often slight changes in the patterns of relationship energy and context energy, the energy that defines our meaning and purpose, can create significant changes in results.

It is during the innovative shifts in strategy that the Context and Relationship Fields have the most impact. If you remain unconscious to them, they could very well work against you. However if you include specific strategic initiatives to reframe them, they will carry you on a wave of success.

Younger Generation and Work Ethics

There has been a lot of criticism of the younger generations in the workforce, saying that they want to get out of work, that they have no work ethic. That’s not true. They’re simply not willing to work for work’s sake. They want meaningful work, as illustrated so eloquently in this video of Viktor Frankl, survivor of the Holocaust and author of Man’s Search for Meaning.

Brandverbing

“Google it.” “Did you Xerox the report?” “Please FedEx it.”

Once upon a time, using a brand name as a verb was verboten. It was behavior that would drive a trademark lawyer crazy.

But more and more marketers are deciding that the grand slam of branding is to become part of the language – in effect, having your trademark substitute in everyday usage for the type of action or service that your mark identifies. Could there be, they argue, any clearer expression of a brand’s leadership?

“Skype me when you get to Lisbon.”

“Did you TiVo the awards show?”

“Dad’s outside, Simonizing the car.”

In other words, just verb it!

International Trademark Association, for instance, advises never using a trademark as a verb: “Trademarks are products or services, never actions.” The internet generation, though, is increasingly casual about naming protocols. Who other than a trademark attorney would say, “Let’s look it up on the Google brand search engine,” or “Let’s go in-line skating with Rollerblade in-line skates.”

Once upon a time, Xerox ran advertisements in magazines targeted to journalists and editors. “There are two R’s in Xerox,” said one famous headline, referring to the trademark “R” and reminding journalists not to use Xerox as a lower-case noun or verb.

Allow the use of your brand name generically, barristers would warn, and you lose – over time – your trademark rights. Common words such as “aspirin” or “escalator” were once registered trademarks.

But in today’s hyperactive world, marketers are more concerned about getting known now, today, immediately – more so than weakening their naming rights later on.

Marketing author Seth Godin likes to say, “Nouns just sit there, inanimate lumps. Verbs are about wants and desires and wishes.”

Which is why so many marketers encourage the verbifying of their precious brand names – and why so many consumers are so comfortable using them as everyday words.

Scope Creep in Project Management

Where project management is concerned, a scope creep is a regular problem and finding ways to deal with it can be difficult for the team leader, and everyone else involved. What is refers to is when the projects scope, or vision, is impaired by uncontrollable changes.

Often, this happens when a project is not properly organized. It needs to be controlled, documented and defined to lead to as smooth a process as possible. Generally, it is a negative thing that needs to be avoided, but often this is easier said than done. Often, businesses work in tandem with their contract management supplier to help them create a thorough plan.

Things that tend to lead to a scope creep include: poor change adaptability, poor management, lack of communication and weak objectives.

Steps to Take to Avoid Scope Creeping

Scope creeping is often an unavoidable part of development and you need to know why they happen and how to deal with them. When a new project is handled poorly you have to ensure that you don't fall victim to this and have bad results.

Take a look at these seven easy steps to avoiding scope creeping:

- Have a vision - and understand it. Meet with your associates to discuss, comment on and review the project as a whole before starting the process.

- Prioritize - Once your project is understood then you should make sure that each part of the list is ordered in priority. Once you've done this then you can schedule decisions better.

- Define - Make sure you know what your deliverables are and how they function in tandem with your project.

- Figure out the requirements - Detail the deliverables on a spreadsheet and always check a project span to ensure you have the right time and documentation at your fingertips.

- Break down the project - As with everything, you have to split it down into bit by bit improvements to reach the project goal. Try to keep each milestone a month and hand out work on top of what is necessary to keep ahead of schedule.

- Assign things correctly - Creating, assigning and determining a schedule is also important, and making sure that you have a path for the project course gives you a backbone and a better structure to stick to.

- Plan for scope creep - The chances of a scope creep is pretty high so the experts say plan for it. Make sure that all members of the team know your upcoming plans and processes, and schedule how it will come to fruition over the coming months.