Industry transformation often creates as many viewpoints about growth options as there are employees in a company. When old business models decay, there can be a bewildering set of choices about how to stretch a company into new areas. Frequently firms approach this challenge by assessing what they do best and finding new businesses that exploit those competencies. We believe this method is like driving by looking only into the rearview mirror.
Instead, companies need to think broadly about the areas where they can play. UPS, for example, determined that it is in the logistics, not the freight, business, and today its supply chain services can contribute half of the firm’s total profit. Companies can re-conceive their playing fields by starting with a set of target customers and delving into their underlying problems and needs, many of which may be unarticulated.
Firms should also look at where they play in an industry and assess whether the profits may be migrating to a different place. Intel, for instance, has long dominated the market for high-end microprocessors. Yet it saw that small laptops, tablets, and mobile devices were ready to fuel much of the growth in the computing market in coming years and invested in creating chips that help these machines consume less power. This decision created a multi-billion dollar platform for profitable growth.
Occasionally a company’s environment contains so many uncertainties that the best approach is to map out scenarios of industry evolution. The goal is to determine the desirability of various scenarios, the ability of the company to affect the outcome, early signals that the market may evolve in a particular direction, and things the firm can do today to either help bring about that endpoint or hedge against that risk. Wargaming may be useful in these situations.
With a market-centric rather than a company-centric view, a firm is better positioned to ask how far the company can be stretched in unfamiliar directions. Oftentimes the new growth platform can leverage many of the firm’s pre-existing competencies. The challenge is to avoid bringing along unhelpful baggage from the old business model, and to start new initiatives in a way that does not cause too much dislocation to the current business, which is likely to be supplying the profits that fund this endeavor.
We believe that effective strategies amidst industry turmoil are both proactive and humble. They have a clear point of view about how they want the industry to evolve and take a series of steps to bring about that future. Equally, they are conscious of the many events – regulations, mergers, new technologies, etc. – that can suddenly impact strategies for new markets, and they account for how the company's approach may need to shift in these circumstances.