Focusing on core business
Our world knows many different branches and industry sectors. Generally, todays markets tend to become global, and therefore the national companies tend to meet global competitors in the future. Markets are full of products and services, so the customer has a good choice.
This leads to new strategies (of cause, they are not really new 
) of competition. First, the enterprises tries to be first on market with their products. That leads to market dynamics, that described in my last post. But interesting for me are organisational issues, they are the subject of this post.
In the eighties the management was thinking, that solid company has to have many divisions with their own products and services in even completely different branches. That should ensure company’s revenue, even it looses positions in one of branch. Trend of the last years was an opposite to such, where concentration on core competence was in vogue again. That means that companies that are good in produce nails were no more interested to have cool IT division, that is just there to balance risk of “nail-branch”.
So the change in strategy was in saying: ok, we are good in producing nails, and that is what we can do better than maybe anyone else. And that is why from now on, we concentrate all resources of our enterprise to produce and sell nails. And we should (cause we can) have better nails, to secure our competitiveness on market. Maybe we have to develop our nails further and further, e.g. creating extra hard nails or even weak but pure gold nails, to be different. But we can do that better than anyone, cause we have enormous experience in producing them, selling them and we have the knowledge and experience in that market sector.
You maybe already notified that “nail” was not really good example ;). Nevertheless, building up new IT division in above example, just because nail market stagnates, possibly makes not much sense. That is what we notice in today business. Many companies have sources old core divisions out, by selling them, grounding child companies and bring them to the stock and so on. That process is still on going and allows companies that are innovative and qualitative to be competitive on global dynamic markets of today.
Tags: business strategy, core business, dynamic market
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December 4th, 2007 at 2:21 am
Strategic management of larger enterprises is market-trend-driven domain. In the eighties, the vision of the universal enterprise dominated the market: larger enterprises supported multiple business domains, resulting in a high product diversity from mobile phone to power plant. This idea follows a basic paradigm of investment management, propagating the adequate spread for risk minimization. This strategy especially applies for the time of economic boom. Growing economy results in a high ROI in different domains. In particular, the investment strategy is minimizing the impact of the stock market crash, distributing the investment to different domains. This process is supported by continous takeovers from small enterprises.
In times of economic stagnation, this strategy turns out to be inefficient. The spread between the business domain result in a capital split. The recession period allows only enterprises with a strong market position achieve high ROI. In times of high competition, the market leadership can only be hold due to advantages, that usually require consolidation of investment strategy and know-how. Therefor, the enerprises outsource their supporting activities and sell whole product divisions, concentrating on their core competences.
The two trends co-exist in the same time. Especially, they are dependent on the market situation in every particular domain. In addition, the classic “investment” management prefers the first strategy. In contrast, the “operational” or “domain-specific” management favours the second strategy.
December 11th, 2007 at 11:54 am
Thank you for comment Simon, you of cause right about such trends. Additionally it can be said, that traditional capital markets prefer universal enterprises, because that minimizes risk of capital. On the other side investors can spread their capital on multiple companies that focuses on their core capabilities and preserving low risk of capital by having greater yield opportunity. That is the modern investment.
My intention was to say, that focusing on core capabilities is better strategy and is that, what we can see today. I think that it is aslo right long-term strategy for the future, cause quality of products and services is very important today and stay it in the future. Today’s customers are ready to pay more for high-quality products! People don’t want to have cheap things, they wanna have high quality, hot image products for low price. That is mostly independent of market trends. So Companies have to satisfy them.
In that situation, be just “good” is not enough. Be good and spend resources on continuous development is the way todevelop, to be the best. And bests have high yields!
My personal believe is that focusing on core business can lead to new heights in every thing you or someone do. That is the simple deliberation in behind.