Petrochemical giant, Reliance Industries was essentially a B2B business until it decided to plunge into retail in 2006 and then telecom in the form of Jio in 2007. Many management gurus considered these moves to be a large deviation from the company’s core strength of running an enterprise-focused business; they predicted poor outcomes. However, Jio has been a big success to have emerged as a platform and one of the largest operators in the world.
A similar success story is for Amazon having diversified into cloud services and established itself as a global leader in the field. The story of Apple having diversified from desktops and laptops to phones, tablets and watches is legendary. We have many examples of failures as well; the research by Chris Zook, author of Beyond the Core shows that the success rate of such growth initiatives is only 25%. Considering such poor results, one wonders if companies should go beyond their core.
The moot point is the ambition to create an impact and expand it continually. Sometimes the top leaders are either tired or complacent; sometimes, they are a bit short-sighted or do not have hope for a bright future. They shy away from exploring new opportunities. They see several obstacles and challenges such as saturated markets, overcrowded with a myriad of competitors, low margins, regulatory restrictions and the like. They rationalise their decision to maintain the status quo.
The ambitious are driven by the desire to expand and hence, see opportunities in terms of new geographies, new segments, new products or services, new distribution channels, deepening the penetration and sometimes, opportunities outside their core competency. The ambitious believe that growth is life and hence, they explore new vistas of life.
Chris Zook in his book has outlined six strategies of growth. In each of these formulae, there is a common theme – getting out of the comfort zone and discovering new opportunities. One might expand into new territories, bring up new product ideas and inject new ideas into the work processes to generate greater value for the business. In each of these, one could discover new profit pools either by the addition of new customers or introduction of new product lines or transformation in the ways of working. How do companies choose one strategy? Do they go after new territories or new channels or new products or new processes?
It is easy for an automobile company to go into electric mobility because of the global trend in favour of green energy. However, how does a petrochemical company decide to get into retail?
Ambitious people and organisations actively engage in spotting possibilities and evaluating them. They keep thinking about their core competencies and compare them with the other players in the market. They ask their customers, employees and suppliers to identify their distinct strength. They have to achieve an alignment between the distinct strengths identified by their stakeholder and the beliefs of the core team.
Keeping the core competencies in mind, the top team has to evaluate if the new possibilities and opportunities are worthwhile to pursue. There could be situations where the opportunity is lucrative and the organisation sees a huge gap between their current strengths and the desired strengths. In such cases, they need to evaluate if they can acquire the talent needed for successful execution. Companies like Dell would have thought about it deeply when they decided to add new channels of selling computers; also when they decided to diversify into IT services.
Diversified groups like Tata, Reliance, Aditya Birla, Murugappa, Adani, M&M, ITC and the like have well-established processes to identify opportunities, evaluate them, delineate the competencies needed to succeed in them, assess the risks and rewards for each of those opportunities and put their bets on one or two of those.
It is hard work of strategic thinking, meticulous planning and needless to say, rigorous execution in every step right from the stage of identifying core competencies and spotting opportunities. It is no surprise that only 25% of the growth initiatives succeed.
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