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Profit from the Core

 
3/5/2001
Lots of companies try too hard to adapt to the latest rules of strategy, according to Chris Zook, a Bain & Company director, and James Allen, CEO of venture capital firm eVolution Global Partners. What companies should be doing, instead, is charting a course based on an honest assessment of their core business. In this excerpt from their new book, Profit from the Core: Growth Strategy in an Era of Turbulence (HBS Press), they offer tips on how to do exactly that.

Profit from the Core

A key issue for senior executives wrestling with growth problems or frustrations is determining whether the company's strategy is wrong or whether the organization is not able to execute it. Sometimes these problems can coexist and are difficult to separate. A strategy built for an organization that cannot execute it is not a good strategy, by definition. Conversely, a superb organization can shape and adapt even a mediocre strategy into a winner.

In high-growth markets, the most common organization-versus-strategy problem is inadequate management capacity for growth and rapid decision making combined with a lack of central direction, allowing many marginal and defocusing growth initiatives to sap resources. Jim Vincent, CEO of Biogen, a classic "profit from the core" success story, has argued convincingly in interviews that this capacity issue is the number-one CEO growth constraint, in his experience. The solution involves focusing more tightly around a strategy and, frequently, introducing management capabilities to deal with a larger, more complex, faster-moving company. The history of management in both the computer industry and Internet start-ups shows this pattern over and over.

In lower-growth markets, the most common problem is excessive mining of the core combined with a failure to see the emerging new landscape and possibilities. Often the historic management team has done a superb job of building and tending the core but along the way has acquired biases and habits that make it difficult to see the need for and commit serious resources to a strategic shift. The solution often requires the injection of new management talent along with a strategic redirection.

we remain struck by the contemporary relevance of this observation from Sun-Tzu's The Art of War: 'The more opportunities that I seize, the more opportunities that multiply before me.'

Ten Key Questions for Management
We close with ten questions that we believe management teams should periodically ask themselves about their companies and should include at the start of every review of their basic growth strategy. Certainly, companies find themselves in an almost infinite variety of strategic situations. However, we believe that these questions have universal applicability for companies ranging from dominant product businesses trying to decide how to deal with the Internet to distribution companies wrestling with the sudden unbundling of their value chain to online companies trying to look beyond the "profitless prosperity" dream of today toward the requirements for sustained, profitable growth.

1. What is the most tightly defined profitable core of our business, and is it gaining or losing strength?

2. What defines the boundaries of the business that we are competing for, and where are those boundaries going to shift in the future?

3. Are there new competitors currently at the fringe of our business that pose potential longer-term threats to the core?

4. Are we certain that we are achieving the full strategic and operating potential of our core business, the "hidden value" of the core?

5. What is the full set of potential adjacencies to our core business and possible adjacency moves (single or multiple moves)? Are we looking at these in a planned, logical sequence or piecemeal?

6. What is our point of view on the future of the industry? As a team, do we have consensus? How is this point of view shaping our adjacency strategy and point of arrival?

7. Should major new growth initiatives be pursued inside, next to, or outside the core? How should we decide?

8. Is industry turbulence changing the fundamental source of future competitive advantage? How? Through new models? New segments? New competitors? And what are we monitoring on a regular basis?

9. Are organizational enablers and inhibitors to growth in the right balance for the needed change?

10. What are the guiding strategic principles that should apply consistently to all of our major strategic and operating decisions?

Although military analogies to strategy are currently out of favor, we remain struck by the contemporary relevance of this observation from Sun-Tzu's Art of War: "The more opportunities that I seize, the more opportunities that multiply before me." 1 This phenomenon is at the heart of growth strategy and embodies the fundamental tension between protecting the core and driving into more and more adjacencies, propelled by greater and greater success. However, we hope that the guiding principles and lessons learned from success and failure can help improve the odds for business managers battling in a world of greater uncertainty, more options, less time, bigger rewards and penalties, and higher complexity than ever before.

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Excerpted from Profit from the Core: Growth Strategy in an Era of Turbulence HBS Press, 2001.

1. Sun-Tzu, The Art of War (London: Oxford University Press, 1984).

Go to Profit From The Core web site.

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