The tension between a business strategy that emphasizes specialization and one that emphasizes generalization has existed for as long as companies have existed. Generalization can make a company more diverse, and often more nimble in their response to a changing market and increased competition. But specializing can make your company more efficient and have higher quality offerings because you’re focusing on doing what you do best—which can position you as a leader in the marketplace.
So what should a company do? Stick with the core? Or expand? How can you know when your core needs to change in some fundamental way? How do you decide what your new core should be?
At Indian River Advisors, we work with our clients to maximize enterprise value – and part of that work includes recommending when to focus on core business growth and when to expand with new offerings or acquisitions or mergers. Different companies approach this in different ways. For example, Samsung and Google work to become “essential ingredients that enable others’ products to operate,” while H&M and Amazon focus on speed and value so they deliver what their customers want well ahead of their peers. Agile, focused innovation is crucial for success.
Sometimes the very thing that will strengthen your company is hiding in plain sight. In an article in the Harvard Business Review, “Finding Your Next Core Business,” Chris Zook argues that many management teams fail to exploit—or even perceive—the full potential of their basic business. “Company after company prematurely abandons its core in the pursuit of some hot market or sexy new idea, only to see the error of its ways—often when it’s too late to reverse course,” Zook writes in the Harvard Business Review. He points to Bausch & Lomb as a classic example: its eagerness to move beyond contact lenses took it into dental products, skin care, and even hearing aids in the 1990s. “Today B&L has divested itself of all those businesses at a loss, and is scrambling in the category it once dominated (where Johnson & Johnson now leads),” Zook points out. But Zook notes that “no core endures forever,” and “sticking with an eroding core for too long, as Polaroid did, can be just as devastating.”
Zook writes, “The importance of a company’s overlooked, undervalued, or underutilized assets to its strategic regeneration cannot be overstated.” The research his team did on 25 companies showed that in 21 of those 25 companies “a hidden asset was the centerpiece of the new strategy.” He points to Apple to make his point—as everyone knows, their user-friendly product design and imaginative marketing strategies have now been applied to much more than just computers.
Sometimes to dominate the competition, businesses need to expand into new markets rapidly. Google is a great example of a company that does this well. What if it had decided to be just a search engine company, Adam Hartung asks in Forbes: Then it would be called Ask Jeeves (remember them?). What if it were just an ad placement company? Then it would be called Yahoo. What if it were just a mobile phone company? Then it would be called Motorola. But it’s not a narrow company; it’s Google. And it dominates.
“When markets can shift quickly,” Hartung writes, “focus simply loses its value.” He continues, “Open borders, rising global education, loosely regulated free flow of capital, universal real-time access to information for almost everyone–those things have all dramatically changed competition. New players enter very quickly, completely stripping growth and profits out of an industry.”
If you focus only on what you think is your core, then your company may lose the ability to adapt to rapidly changing market conditions. You may end up with all your eggs in one basket—and then find out no one eats eggs anymore.
Indian River Advisors—a corporate development consulting and investment banking firm—helps its clients accelerate growth and complete desired transactions at the most favorable value, and working with management teams, investors and Boards to map out the best business strategy is an essential part of this work.
If you have questions about how to maximize enterprise value or about strategies that emphasize specialization vs. strategies that emphasize generalization, please contact Andrew Scherer, Partner and Director of Research at Indian River Advisors, at email@example.com or 443.535.0642. Market opportunity analysis, competitive analysis, strategic partnering opportunities, US Federal government contract vehicle analysis, product development, corporate valuation studies—Andrew brings to Indian River extensive research and business experience developed over two decades. Andrew understands that research is the foundation for all good business decisions, and he’s committed to helping entrepreneurs successfully establish, grow, and ultimately sell their businesses. He looks forward to working with you.