Traditionally, the most reliable way for a firm to find its next wave of growth was to apply the capabilities of its core business in an adjacent market. But recently a new pattern has begun to emerge. More firms are learning the art of building largeGiven that in the past five years, 60% of big public companies have seen their growth stall out or stagnate—often because of technological disruption—finding an engine two has become increasingly imperative.
In the past the most reliable way for businesses to find their next wave of growth was to mine their one or two strongest core businesses and apply their most distinctive capabilities in adjacent markets. Classic adjacency strategies included moves into new geographies , new products , and new customer segments . Many successful companies have been propelled for decades by strategies based on adjacencies.
A second form, accounting for nearly half the successful engine twos, involved moving into a market that historically was just minimally related to the engine one business, drawing on the first core’s assets and on new technologies.
As these examples illustrate, successful second engines are often built on exciting frontiers opened up by novel technologies. Notably, we didn’t find any successful engine twos predicated on consolidating competitors across a declining industry or on acquiring and rejuvenating an underperforming leader in a lagging industry.Businesses make money by being sustainably different and better, not just by pursuing growth. This is the cold truth of hot markets.
Another pattern was a “big bang” acquisition that formed a major part of the new core and gave it significant market share, which the buyer then worked to enhance. A dramatic example is Dell’s $67 billion purchase of EMC, the leader in computer storage software and equipment. Note that this is far different from the “catch and kill” approach incumbents often use to squash insurgent competitors by buying them only to shutter their operations.
The need to give start-up enterprises within a company freedom is not a new concept. Robert Burgelman wrote about the challenge of using assets from the original core to build new businesses in his bookcomparing the established core to a creosote bush, which discharges sap to kill any new plants that grow around it—an analogy first used by former Intel CEO Craig Barrett. Clayton Christensen’s bookdocumented the many factors that prevent companies from putting new ventures in separate units.
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Source: RollingStone - 🏆 483. / 51 Read more »