171
See also: Study the competition 24–27 ■ Stand out in the market 28–31 ■ Gaining an edge 32–39 ■ Porter’s generic
strategies 178–83 ■ Why takeovers disappoint 186–87 ■ The MABA matrix 192–93
WORKING WITH A VISION
is struggling to win sales for its
core product, it may be tempting
to consider diversifying, but this
often ends up being a distraction.
During the second half of the
20th century, there was a trend
for companies to acquire unrelated
businesses. Gillette, a leader in
razors, bought PaperMate pens;
Dalgety, which made Homepride
Flour, acquired a pig-breeding
company; and Cadbury, best known
for candy, took control of Schweppes
beverage business. The trend began
to turn in 2003, when McDonald’s
began to sell off diverse restaurant
chains it had acquired, including
a pizza brand purchased during the
1990s. This was because it wanted
to focus on its core business:
McDonald’s. Other companies
soon began to divest unrelated
businesses to protect the core.
Understanding the core
The theory behind selling secondary
interests is that the business should
focus its energy and resources on
what it is good at. This idea was
taken further during the 1990s, when
some companies decided to
“outsource”—contracting a business
activity to an outside company—
peripheral activities that they had
previously performed internally.
The trend of outsourcing gathered
momentum as companies realized
they could cut their business back
to the core and achieve leaner, more
efficient, cost-effective operations.
For example, a company that
manufactures refrigerators may
decide that its core business is
simply the design, manufacture,
and marketing of those refrigerators.
It might outsource delivery (which it
sees as not adding value), and its
information technology (IT) needs
(which it views as a specialized
function). In the short term, handing
over these activities to a third party
would seem to make sense. But in
the long term, it could be a mistake.
Delivery might be an important part
of customers’ perceptions of the
product, and the business could
suffer if the outsourced delivery
company is unreliable. Similarly,
IT is increasingly integral to the
success of a business, both forinternal functions and customer
interaction. Outsourcing is useful
for lesser functions, but only as long
as it works well—if it fails, it can
adversely affect the core business.
Whenever companies outsource
or acquire a separate business to
take over a peripheral function, it is
vital that management take steps
to protect the “main thing.” Any
secondary units or third parties
must be fully aligned with the vision
and values of the organization. ■If you cannot be the best
in the world at your core
business, then your core
business absolutely
cannot form the basis
of a great company.
Jim Collins
US business expert (1958 –)McDonald’s acquired several food
chains, such as Donatos Pizzeria, during
the 1990s in an attempt to enter new
market sectors. In 2003, it sold them to
refocus on its core business—burgers.Core competencies
An organization has a particular
set of diverse production skills
and individual technologies.
These are its core competencies,
according to business experts
C. K. Prahalad and Gary Hamel.
Unlike physical assets, which
inevitably deteriorate over
time, competencies become
enhanced, because they are
applied and shared. They are
strengthened by involvement,
communication, and a shared
commitment to working across
an organization’s boundaries.Prahalad and Hamel describe
the corporation as a tree.
Its roots are its unique
competencies, and from these
roots grow the organization’s
core products, which in turn
nourish separate business units.
From these business units come
the end products. The idea of
core competencies can be used
to identify those things within
an organization that are not
“at the core,” which might be
a distraction, consuming a
company’s valuable resources.