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 Balancing smart growth and core competencies is a core concept.
There was a time during the 1980s and early 1990s where corporations went on buying binges gobbling up smaller ancillary companies in an effort to diversify the organization's business portfolio. The effort was to duplicate the successful model established by General Electric and Johnson&Johnson, where risk was spread out over related and divergent categories. Unfortunately the risk mitigation and growth strategy adopted by the GE-wannabes backfired causing massive losses and asset divestitures. The main lesson was that companies need to stick with their core competencies. In his book titled- "Beyond the Core" - author Chris Zook agrees with the core competency philosophy, yet he emphasizes a smart-growth strategy that extends beyond that core market. Soundview recommends this book because it relies on extensive research of thousands of companies and their respective growth trajectories - charting the best path to smart growth, which is a core focus of any organization.
Good, But Not Infallible Structure!
Profitable growth is is a major source of value creation for stockholders - as much as 50% of the value of many stocks is based on expansions around core businesses. It also provides the pull that attracts and retains the best people. However, only about 25% of all growth initiatives succeed, and 75% of the top business disasters of the past 5 years involved growth initiatives gone wrong.
Zook tells readers that the most powerful long-term growth trajectories are composed of repeated sequences of small adjacency moves; in contrast, the occasional "big move" in search of growth seldom leads to sustained value creation.
Adjacency could take the form of a shift from a flagging product business into services (eg. IBM Global Services), a foray into a major new customer or product (eg. Nike from running to baseball to golf), leveraging of core assets to a totally new business (eg. American Airlines' Sabre System), geographic adjacencies (eg. Wal-Mart). (Zook, however, omitted the reticence competitors have to use non-core products of their competitors - eg. AA's Sabre reservation system, or pizza parlors, etc. buying Pepsi from a conglomerate that also owned Pizza Hut.)
UPS provides a good example of the serial pursuit of adjacencies - from local message delivery (1907) to local package delivery (1918), to regional package delivery, to common carrier (1950), to national network, to the addition of two-day air freight (1953), to next-day-air service via the purchase of a fleet of planes (1988), to global package delivery, to warehousing parts and providing fast repairs, to tracking services (eg. new Ford cars), to freight.
Nike provides another - running shoes in 1963, basketball in 1985, tennis in 1986, then baseball, football, etc. in the 1990s, and finally golf. Golf expanded from shoes, apparel, balls, and finally irons.
But Zook's (Bain's) approach is not infallible - he gets tongue-tied trying to explain Dell's initial failure in store sales, followed by H-P's successes in using store sales to pass Dell. Then there's Zook's vague praise for Starbucks - prior to its loss of market share due to others emulating its product.
Nonetheless, his suggested structure for evaluating possible adjacent moves (Are the customers, competitors, cost structure, and distribution channels the same? The greater the sum of the deviations the greater the risk.) makes sense and seems helpful.
I also liked his simulation model approach - to outgrow a 3% growth market, a 6% growth over 5 years would require attacking 15 adjacencies with 5% potential to increase the total business and achieve lasting success in seven years. Nine percent growth requires 35 moves and 14 successes - a tall order. Speeding the process to require only 2 years allows 2 adjacent areas/year at a 40% success rate to create 5% growth.
 An insightful, data-based treatise on why profitable growth seldom strays far from the core business
To the CEO, nothing is (or should be) more important than business growth. Chris Zook, an expert on corporate growth strategies, explains why you should focus your expansion and growth efforts on "adjacencies" that closely align with your current core activities. Zook bases his observations and recommendations on extensive research: He profiles 25 corporate growth leaders; analyzes 12 pairs of companies that were comparable in the 1990s but are no longer in the same league, as one company has outpaced its match in terms of growth and profits; reviews 181 initiatives for corporate growth; and covers a trio of in-depth surveys of executive attitudes and insights on growth. Zook makes numerous recommendations, backed by research, on how your company can achieve sustainable growth through adjacency expansion. He also warns against mistakes such as ill-advised mergers and acquisitions, poorly planned product introductions and unwise market expansions. Indeed, with certain growth plans, sometimes the smartest move is "just say no." We are impressed with this book, which is an ideal resource for senior corporate executives, boards of directors and investors who must assess the risks and benefits of growth proposals.
Practical and Insightful
What is especially useful about this book is that it is practical. It gives advice for every stage of an adjacency expansion, from strategy development to execution, on how to increase the likelihood that it will be successful. The case studies are interesting and the analysis is insightful.
For people like me who do not have a business background or management consulting experience, this book is an excellent read and, at the very least, should get you by at parties where you would run into such people.
An Outstanding Growth Guide for Global Business Leaders
As a second year MBA student at the Kellogg School of Management and a future corporate strategist for a global financial services firm, I found reading Beyond the Core to be one of the best time investments that I've made over the last few years. Chris Zook seems to have a knack for writing great books that not only stand the test of time but that are also highly relevant to the current business and economic environments. Specifically, his first book, Profits from the Core, which focused on maximizing the value of the core business, was launched when businesses needed it most - during the economic downturn. Now, Beyond the Core is perfectly timed since, from what I and other MBA's are observing in the market, most businesses are remobilizing for growth.Overall, I greatly enjoyed Beyond the Core - it's a relatively quick read that is focused, insightful and well structured. More specifically, I think there are three key things that make this book stand out in comparison to many other business books I've read: 1) it takes a global perspective 2) it is highly data driven and has great examples and 3) its very actionable and offers lots of insights on implementation. To elaborate, the first thing I really liked about Beyond the Core is that it takes a truly global perspective with examples from Europe, Asia and Latin America. As an MBA student majoring in International Business Strategy who will be working in a global firm after graduation, it was great to read about the strategies that firms such as Li & Fung (HK), Ambev (Brazil), Lloyd's Bank and Vodephone (UK) and STMicroelectronics (Italy). Overall, I also liked that the book mixes an array of fresh case studies (Tesco, Biogen, Ambev) with more traditional ones (Dell, Nike, American Express). Secondly, Beyond the Core is highly data driven and the recommendations are based on empirical evidence, not conjectures. As a student of business strategy, I too often come across books or theories that are supported by nothing other than a few select examples that prop up the author's hypotheses. Beyond the Core, in contrast, is supported by an enormous amount of financial, competitive and market research and by many CEO interviews and studies by Bain & Company. This is extremely insightful as it helps the reader understand the odds of success and failure across the business world and thus leads to much more informed strategies. Finally, Mr. Zook has focused nearly a third of the book on implementation and execution strategy. This makes the book and its recommendations highly actionable instead of leaving the author asking "so what?" The book sets out a systematic and understandable road map for adjacency expansion. More importantly, it discusses issues that are critical to growth initiatives such as: organizational structure, decision making processes, staffing, accountability and reporting, etc. In sum, I highly recommend Beyond the Core, especially to global business leaders looking for a practical guide for profitably growing their businesses. Enjoy!!
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(based on 15 reviews)
