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Wednesday, January 09, 2008

Unleashing the superheroes within!

Chris Zook, Partner Bain & Company
Companies that face turmoil must leverage on their inherent strengths

Peter Parker, alias Spider-Man, was about 15 years old when he first appeared in the 1962 comic book Amazing Fantasy No. 15.

ThatChris Zook, Partner Bain & Company would make the besieged photographer from the Daily Bugle close to 60 years old this spring, when he exploded on movie screens around the world with the release of “Spider-Man 3.” Perhaps even more marvelous is how the geriatric Parker also rescued Marvel Entertainment, the firm that created him. Not so long ago, Marvel’s financial fate hung by a thread. Spider-Man’s box-office might shows that superheroes are not the only ones with hidden powers. Businesses have them, too, in the form of underutilized or underappreciated assets – assets that can reinvigorate their core.

One way to understand Spider-Man’s rebirth is through what’s called the focus expand- redefine cycle, which nearly every large enterprise is moving through at an accelerating rate these days. In the “focus” phase, companies concentrate on building their core business to its full potential. They grow their markets, cut costs, improve operations and develop innovations in core products. In the “expand” phase, they take advantage of these capabilities and market positions to move into adjacent markets. Inevitably, though, many companies have to experience dwindling growth and profitability.

Perhaps Peter Parker, alias Spider-Man, was about 15 years old when he first appeared in the 1962 comic book Amazing Fantasy No. 15.the market has reached saturation or the available pool of profits has shifted. Or perhaps new competitors with lower cost structures or innovative products have appeared. This is the time to “redefine” the core. With the average lifespan of companies dropping from 14 years a decade ago to now just over 10 years, and with a dramatic decrease in the useful life of a company’s strategy, more companies will find themselves in that fateful third phase. The issue for executives looking to redefine their businesses is which new course to take.

Some will stubbornly defend the status quo. Others will try big mergers or leap into a hot new market. But a number of companies have found an alternative that entails less risk. They uncover and deploy hidden assets that have been overlooked, undervalued or underutilized. Companies that manage to do this can reinvent their core. Marvel used this approach to successfully fight its way back from its 1996 bankruptcy. The struggling publisher’s vast assemblage of 5,000 comic-book characters was in a kind of hibernation. But director Isaac Perlmutter, now CEO and vice chairman of the board, understood the power of nostalgia, and the old characters began to be revived and reborn on the screen. The first was Spider- Man in 2002.

Thanks When faced with dwindling profits, companies could uncover & deploy hidden assetsto films featuring the well loved web-slinger – as well as others starring Marvel marquee names such as Wolverine, Daredevil and the Hulk – by 2005, revenues from movie licenses and merchandise accounted for more than half its $390.5 million in revenues and much of its $103 million in profits. In fact, most hidden assets tend to fall into three categories: undervalued business platforms, untapped customer insights and underexploited capabilities. All, it turns out, can provide a new core for a company. Spider-Man, and his stable of super colleagues, represents a classic case of an undervalued business platform.

On the other hand, De Beers, the legendary South African diamond distributor, redefined its core by mining consumer and customer relationships. Back in the late ‘90s, the famous firm was sitting atop a $5 billion stockpile of rough diamonds, yet its profits were sinking. De Beer’s looked hard at its business, and found it had deeper relationships with consumers than it realised, and more knowledge about those consumers that it could put to work. DeBeers understood the value of its customer relationships, liquidated 80% of its inventory & created a new business modelLiquidating 80% of its inventory, the firm created a new business model, building up its brand through advertising and developing new product ideas for distributors and jewelers. Suddenly couples were buying three-stone rings to celebrate the past, present and future of relationships. Men were buying rings designed with a male fl air. Women were buying “right hand” rings as symbols of independence. By 2001, the company’s diamond business was valued at $9.3 billion, up from roughly $1 billion just two years earlier.

Grocery chain Tesco has managed to exploit underused capabilities. Earlier than others, Tesco understood the competitive advantage of superior logistics and replenishment. Indeed, having the right item on the shelf when shoppers reach for it has made Tesco the leader in UK's hypercompetitive grocery market. “We focused first on distribution capabilities,” explains Lord Ian MacLaurin, the former CEO. “We eventually became so good that we could run smaller stores efficiently that others could not.” The thread that runs through each of these examples is that, frequently, the secret to a company’s renewal doesn’t have to be a risky new venture. Rather, like Spider- Man, it can be an under-tapped asset, just waiting to be unleashed. The trick for the mere mortals who occupy corner offices is to identify what hitherto unrecognized platforms, capabilities or customer insights they may be sitting on that can launch a new wave of growth.

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Source :
IIPM Editorial, 2007

IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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