How Do You Decide Which Businesses (or Products) Are Core?

How Do You Decide Which Businesses (or Products) Are Core?

I’m always reading a business book whether I’m traveling or not. It’s been out for a few years now, but I’m enjoying Essentialism – The Disciplined Pursuit of Less by Greg McKeown. It sets out a strong case for believing “Less is More”. I’m not reviewing the book here, but it did bring me back to a regular passion of mine. Simplicity. I’ve always believed leadership starts with simplifying the key essentials of what is required of your team. For example, the CEO’s role? Three things are required of high-performing CEOs. Get the strategy right, attract and retain great talent and make money.

In this post I’m focusing on some guiding thoughts on how to curate your strategy to ensure you maximize the potential of your venture. As Greg notes, “We can try to avoid the reality of trade-offs, but we can’t escape them.”

I believe there comes a point where you realize some products and businesses are just not going to scale. You can’t be world-class at everything. Strategy is what you leave out. Think about the early days of Google’s home page compared with Yahoo.

So, coming back to the question of the post. How do you decide if anything should be left out? How can you decide where to invest your precious management time and resources? Here is a checklist to guide you through the thought process. We would recommend this form part of a strategic review process to help you make the right decision. By building answers to these checklists, management will have access to key information to help them make the tough decisions.

Core Business Checklist – Apply to each Business or Product Family

Discovery Phase

  1. Articulate your customer’s world. What are the essential ingredients for their success?
  2. Why are some customers winning and some losing?
  3. What changes are coming that might change the direction of your customer’s market?
  4. How do you improve the performance of your customers?
  5. Is your product essential to the success of your customer in satisfying their strategic objectives?
  6. What’s your secret sauce that no one else can claim?
  7. What’s your competitive value proposition and where do you stand against the competition?
  8. Where do sit on a competitive ROI% graph against the competitors across various realistic volume scenarios?
  9. Are you gaining market share or losing it?
  10. What do the competitors do better than you?
  11. Why do you lose and win deals to your competitors?
  12. What are analysts current estimates for Compound Annual Growth Rates in your market?
  13. How has your growth compared with the market’s growth over the last 5 years?
  14. What level of market share would equate to an attractive Return on Sales and Return on Capital compared with your best performing division?
  15. Where are your products on the product lifecycle, from new entrants to cash cows?
  16. Build a comparison table of all divisions across all key financial metrics.

Diagnostic Phase

Once the team have reviewed the answers to the Discovery Phase it’s time to create meaningful knowledge from the data. Build your knowledge using this checklist. The key here is to be able to compare the best division’s performance with the rest. You need a standard. There are always one or two activities where companies could be the best in the world, if they just focused in that area? At least you have to believe that. It may take 30 years. It may be possible to emerge as the product of choice in an embryonic sector in 10 years. It’s not about first to market, its about being first in positioning.
“IBM didn’t invent the computer. Sperry-Rand did. But IBM was the first company to build a computer position in the mind of the prospect.” Al Ries & Jack Trout -Positioning 1981.

  1. Quantify the investment required to transform your competitive value proposition. People, equipment, facilities, cost model etc.
  2. How closely aligned is this division’s story to your group strategy. Does it fit or are you stretching credibility in the eyes of your customers?
  3. What new products do you need to launch to satisfy your customer’s requirements?
  4. What operational actions are required to transform the performance of this division?
  5. What people gaps in this division are hurting your ability to make the customer happy?
  6. Assuming you set yourself an internal sales target over the next 5 years for each division to become a $1 billion business.  Can this division ever hit that level? (Feel free to set that lower, at say $50m or $100m)
  7. What synergies exist between this division and other divisions in the group? Do you service common customers or is each division’s customer base siloed?
  8. What is the core DNA of your group? What are you truly remarkable at? Does this division possess that DNA?
  9. Benchmark the level of risk from external factors affecting all divisions. Do some divisions look more vulnerable than others?
  10. Could you change the positioning of this division to give it a clear separation in a prospect’s mind? e.g become an automative specialist, become a software specialist recruitment business, attack niche markets in security cloud orchestration rather than general networks.

These checklists should help leadership teams get their thoughts in order but we highly recommend a formal strategic review process involving a more comprehensive analysis of all the issues and an off-site discussion of the consequences.

Actions

Deciding whether to keep investing and competing in many markets is tough. Ultimately it comes down to being honest about your current performance and what it would it would take to move that performance to an acceptable level. By building a complete picture of each division relative to the competition, relative to the market and relative to your customer’s needs, leadership teams can have an honest dialogue, leading to insightful decisions.

(For a great summary of actions to groom non-core subsidiaries for sale see here.)

Performing Strategic Reviews to generate strategic options is a core service of The Portfolio Partnership.

 

 

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