Saturated markets

These days the life of a business averages 10 years, a drop of four years since the 1980s.

by Harvard Business Review
Last Updated: 23 Jul 2013

Three forces reduce the value of a company's core business, leaving many of them with declining profitability. First, profit pools dry up: Apple's home computer business became less profitable because the wider market was becoming less profitable. Its move to digital music helped to revive its business.

The second threat comes from inferior economics, exposed when a new mover enters the market with the ability to produce at much lower cost: Toyota was able to out-compete GM in this way.

The third factor is unsustainable growth, where a market ceases to offer growth potential, such as mobile phones. Apart from spotting these threats before it is too late, executives mustalso seek out their next growth business. Surprisingly, the answer is often very close to home. In fact, in a study of 25 companies, as many as 21 of them found hidden assets within their own organisations that became the core part of their new growth strategies. Apple, for instance, used its native capability in software, product design and marketing to develop the iPod and its digital music division. This new part of the business now accounts for 50% of Apple's revenues and 40% of its profits.

Three seams of untapped assets are hidden in an organisation: these are the places you need to go to find your next big core business. First, there are undervalued business platforms. PerkinElmer was a leader in making analytical instruments, including the mirrors and sighting equipment for Nasa's Hubble space telescope. A decline in this market led the company to search for new growth opportunities.

By using an underused platform, it developed an analytical instruments business for life sciences labs. Following some key acquisitions, the company created a new data and diagnostics subsidiary, which went on to sequence the human genome. The company, now known as Applera, recently made $1.9 billion in revenue.

The second place to look is in your customer base, where you might find untapped markets. For instance, Harman International, a maker of premium audio equipment, realised that there was a huge amount of untapped demand for such equipment in the auto industry. Following an acquisition of a German supplier of radios to Mercedes-Benz, the company increased its auto 'infotainment' business. Largely on the back of this division, the company's market value increased 50 times between 1993 and 2005.

The final area to look is in your company's unexploited capabilities. Novosymes, a Danish developer and producer of enzymes, drew on the capabilities of its workforce to upgrade to bioengineered speciality enzymes.

Finding your next core business
Chris Zook
Harvard Business Review, April 2007

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