In my all-time favourite film, Hannah And Her Sisters, Michael Cain plays a husband who has an affair with his sister-in-law only to see the error of his ways before returning to his wife. Similarly, despite a wealth of evidence that focused businesses outperform diversified businesses, too many executives cannot resist the temptation of pursuing new sources of growth that are outside their organisation’s core capabilities.
In the film Cain returns to his wife, Mia Farrow, before too much damage is done to his marriage. However, many companies can lose their original source of competitive advantage before they realise their mistake. For example, as Chris Zook recently related in the Harvard Business Review, in the late 19990’s Bausch & Lomb attempted to grow from its core business of contact lenses into other categories, such as dental and skincare. It has now divested these failures but has paid the price by losing its leadership in contact lenses to Johnson & Johnson.
Underpinning the desire for new, non-core sources of growth is a fear of failure, which, in turn, is driven by one or more of these three fears:
- Fear of missing-out on growth. The dot.com bubble drove many sane executives to spend ludicrous amounts of money on new opportunities they didn’t understand. It took a strong and determined manager to resist the temptation of the astronomical profit figures being talked about by other business leaders.
- Fear of making choices. Focus requires choice, but choices and trade-offs are never easy. Rather than saying “no” to new opportunities most executives can be talked into developing the idea a bit further, or ‘just’ testing it in a small market. However, pursuing too many new ideas can lead to resources being stretched too far and the core of the business being shifted unnecessarily.
- Fear of being distinctive. Like a grazing zebra on the African savannah, many companies fail to stand out in a crowd. Even worse, they continually seek more ways to be like their competitors. However, the zebra has a purpose for not being distinctive – she doesn’t want to be eaten! By blending in with your competitors your customers and potential customers will simply fail to notice you.
So how do you overcome these fears and maintain the discipline to remain both focused and successful? Before committing to any new growth opportunity and even before undertaking financial appraisals, competitive assessments, market testing or further R&D you should ensure that it passes these two simple tests:
- Fit with your strategic intent. A crisp, outcome-focused strategic intent can act as a superb filter for potential growth initiatives. As Herb Kelleher from Southwest Airlines used to say to interesting but irrelevant ideas for growth, “And how will this help us be the low fare airline?”
- Fit with your capabilities. You must already have or can profitably acquire the capabilities to deliver the new opportunity. In its development of the iPhone Apple had many of the capabilities it required: physical design; web browser; operating system development; digital music and entertainment. However, it recognised that its touch screen capabilities were not leading edge, and so acquired a small Delaware software company that had developed intuitive touch screens that enabled users to move, enlarge and reduce items on the screen.
The bottom line
The temptations for non-core growth for your business will be just as strong as Michael Cain’s character’s doomed attraction to his sister-in-law. Yet remaining focused on your core business is more likely to deliver long-term growth. And not a lot people know that!
To find out more contact Stuart by clicking here or call +44-(0)1636-526111.