Change Implementation Techniques for Creating a Sense of Urgency

Technique 2.8 Evaluate Your Core Businesses/ Activities

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Introduction

There are 5 general questions that can help to determine if it is time to redefine your organisation's core businesses/activities. For most organisations, the answer to these questions can be determined by considering the prompts listed under each question.

If the answers reveal large shifts are about to occur in 2 or more of these 5 areas, your organisation is heading into turbulence. Thus you need to re-examine the fundamentals of your core business/activities and associated strategies.

1. What is the state of your core customers?

(Need to evaluate profitability, market share, retention rate, measure of customer loyalty and advocacy, and share of wallet, etc)

2. What is the state of your core differentiation?

(Need to evaluate definition and metrics of differentiation, relative cost position, business models of emerging competitors, increasing or decreasing differentiation, etc)

3. What is the state of the industry's profit pools?

(Need to evaluate size, growth and stability; share of profit pools captured; boundaries; shifts and projections; high costs and prices, etc)

4. What is the state of your core capabilities?

(Need to evaluate inventory of key capabilities; relative importance; gaps vis-a-vis competitors and the future core needs, etc)

5. What is the state of your culture and organisation?

(Need to evaluate loyalty and undesired attrition; capacity and stress points; alignment and agreement with objectives; energy and motivation; bottlenecks to growth, etc)

Furthermore, rather than chase an acquisition, it may be better to look within your organsiation first for hidden opportunities. For example, answering the 3 questions should help identify where your future lies

i) Are there any under-valued business platforms?

undeveloped/overlooked/under-ulitised/undervalued activities/products/services.

- parts of the organisation that support the core

- non-core activities

- orphan products/services

Two examples

a) GE Capital was a neglected business activity of GE that now accounts for 35% of GE's profit (2005);

b) Nestle discovered that it had a number of food & drink products designed to be consumed outside the home

ii) Are there any untapped insights into, and relationship with, customers?

- unrecognised segments

- privileged access or trust

- underutilised data and information

Even though most organisations collect much information about their customers, they still do not know or understand their core customers

"...a company may discover that one neglected customer segment holds the key to unprecedented growth. It may find that it is in a position of influence over its customers, perhaps because of the trust and the reputation it enjoys, and that it has not fully developed this position. Or it may find that it has proprietary data that can be used to alter, deepen, or broaden its customer relationships. All these can stimulate growth around a new core..."

Chris Zook, 2007

Two examples:

a) American Express changed its credit-card business to exploit the previously underutilized knowledge of how customer segments used their cards and what other products might appeal to them

b) De Beers had a monopolistic control of the diamond industry. Recently it redefined its core around customer and customer relationships so that its focus changed from the business just controlling the supply of rough diamonds to serving consumers and customers with diamond products/jewellery, etc. It liquidated around 80 percent of its rough diamond inventory; built its brand by advertising; developed new products with its distributors and jewellers; sponsored advertising campaigns to market the new products. As a result, there has been a tenfold increase in its diamond business.

iii) Are there any under-exploited capabilities?

- hidden corporate capabilities

- non-core capabilities in different divisions

- under-leveraged core capabilities in different divisions

"...hidden business platforms and hidden customer insights are assets that companies already possess; in theory, all that remains is for management to uncover them and put them to work. Capabilities - the ability to perform specific tasks over and over again - are different. Any capability is potentially available to any company. What matters is how individual companies combine multiple capabilities into "activity systems",......meaning combinations of business processes that create hard-to-replicate competitive advantage......a strong and unique set of linked capabilities......to produce something distinctly new and better......the highest form of capability development is to create a unique set of capabilities - no longer hidden - that can build one growth platform after another, repeatedly giving a competitive advantage in multiple markets..."

Chris Zook, 2007

An example is Apple who capitalised on its strengths in design, brand management, user interface and elegant, easy-to-use software in creating the iPod. Furthermore, it needed expertise in the music industry (signed up 4 top recording companies) and digital rights management (Fairplay software)

In summary

You need to look into your organisation and identify assets that are candidates for a new core. Once identified, these assets must be assessed, ie

- Do they offer the potential of clear, measurable differentiation from your competition?

- Can they provide tangible added value for your customers?

- Is there a robust profit pool?

- Can you acquire the additional capabilities you may need to implement the redefinition?

A negative answer to any of the above 4 questions has the potential to torpedo the entire effort!!!!!!!!

(source: Chris Zook, 2007)

 

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