Can businesses add value by adopting newer strategies
Businesses find achieving growth much harder today than it was a few years ago. With the traditional revenue growth sources such as product enhancements, market share expansion, acquisitions, etc., becoming pass, finding new sources of revenue has become increasingly complex.
Also, with the market needs being fully met, the modern day businesses are faced with a serious growth crisis. Chris Zook of the Boston-based consulting giant, Bain & Co., reveals that even during the 1990s boom, as few as 13 percent of companies across the world had achieved a modest level of sustained growth. Further, he predicts that a far lesser number of companies would be able to sustain that growth levels in the coming years.
Fortunately, consultants have offered varied solutions make money to produce growth, through demand innovation, adjacency moves and other strategies.
Demand innovation
Adrian Slywotzky, a leading management guru and managing director at Mercer Management Consulting Inc., is his latest book How to Grow When Markets Dont calls upon companies to engage in demand innovation. This strategy emphasizes that instead of focusing on product improvements, companies could produce growth and enhance value by attending to various issues that relate to their products. IBM, for example, successfully employed this strategy in the 1990s by shifting from a low margin PC and server maker to a one-stop shop for high margin Information Technology services. Slywotzky points out that growth doesnt come just by providing make money customers with improved products and services, but by providing them with better economics.
Adjacency moves
Chris Zook, in his new book Beyond the Core explains how businesses could expand into new growth markets. He calls upon companies to combine high growth and low risk opportunities by venturing into adjacent product markets, service markets, geographies or customer segments that are related to their companys core business.
Here are a few real life examples of companies that have successfully employed variants of the strategies promoted by Slywotzky and Zook.
UPS Exploiting adjacencies
United Parcel Service (UPS) is a perfect example of a company that has strengthened its core business by exploiting adjacencies. Between 1981 and 1991, the Atlanta based company had achieved nearly over a three-fold increase in revenue from USD 4.9 billion to USD 15 billion. This was in view of its strong brand building, overseas expansion and acquisition of potential competitors. However, by the mid 1990s, the company was faced with a slack annual revenue growth of less than five percent.
Therefore, in 1995 the company introduced UPS Supply Chain Solutions. Following a string of acquisitions, the company built an adjacent business, related to its existing shipping network. Today, UPS Supply Chain Solutions offers a wide range of logistic services. It has nearly 750 distribution centres in 120 countries, managing inventory, order preparation and goods delivery.
In 1998, the company launched UPS Capital, a financial services company. UPS Capital handled all company transactions relating to goods, information and funds flow. By adding this new capability, the company could complete the circle of transaction settlement. In view of these additional capabilities, the company had enough time to concentrate on its core business, while outsourcing the rest.
The result: UPSs new business units generated nearly USD 2.9 billion in revenues for the year 2003. This accounted for nearly more than half of the companys new growth between 1998 and 2003.
Acquisition strategy
Cardinal Health, a health care products and services provider, has gradually grown in size following a string of acquisitions. Faced with pricing pressure and slow growth, the company had decided to explore new opportunities. Therefore, in 1998, it moved into contract manufacturing. It acquired RP Scherer, a drug manufacturer make money that held a patent for gel-cap pills manufacture. This newly acquired unit handles manufacturing, packaging and distribution of drugs across pharmacies and hospitals. It generates around USD 2 billion in annual revenues, contributing to nearly 15 percent of the companys operating incomes.
In 1996, the company moved into manufacture of medical and surgical equipments by acquiring Pyxis Corp. After the acquisition is completed, Cardinal broadened the Pyxis business line by automating its functions within hospitals and pharmacies. This brought about enhanced efficiency and improved patient care.
The outcome: In view of its acquisition strategy, Cardinal could emerge as one of the fastest growing companies in the world. Ever since it started to diversify, its revenues have raised from just about USD 2 billion to around USD 50 billion and more at present. And its operating revenues have grown from USD 60 million to USD 2.5 billion.
The risks
However, growth doesnt come without risk. There is an associated risk in every move the business makes. Whether it is achieving growth through adjacency moves, or demand innovation or by adopting any other business strategy, theres sufficient amount of risk involved. For example, in 1998, Ford Motor Co.s attempt to reinvent the sales wheel by launching a website, to enable customers compare the used and off-lease Ford vehicles infuriated the dealers. However, it didnt stop there. Soon, the Texas Department of Transportation sued Ford for violating a law that prohibited automakers from directly selling vehicles to the public. Ford lost the case and was forced to shut down the service. This only caused further damage to its relationship with dealers.
Xerox is another example. Its attempt to move from the declining copier business to document management business resulted in a further slide in revenues. Between 1996 and 2000, the companys revenues grew by a mere two percent and have only declined ever since.
The lesson
The above examples reveal that going for new growth is not enough. The companies should ensure that their core business is not affected by their moves to achieve higher growth. Richard Wise of Mercer Management Consulting Inc. opines that Xerox failed in its new venture because it lacked the right mix of skills to play in that space.
Similarly, Adrian Slywotzky emphasises that businesses should not consider creating new growth make money unless they achieve considerable success in their core business. In short, new sources of growth should not be simply added to an existing weak business.
A wage garnishment is any lawful
or unbiased..
J.C. Penny’s is a retail giant that has stood the test of time..
If you want to travel to Las Vegas on a budget, its more than possible..
Sitemap