I spend a lot of time looking at and writing about disruptive business models (many of them are discussed in my most recent book, Surviving a Business Earthquake, and lately I have been talking about a handful that I think are really meaningful that will continue to mature over time and work their way into lots of other industries.
Read more at Blogging Innovation » Five Major Trends to Watch No
- Talent follows where business models lead: The Media Business Disruptions (asymco.com)
- Business Model Innovation (patricksea.com)
- What is the relationship between a business idea and a business model ? [Michel Poirier] (ecademy.com)
It’s really astonishing to realize how little most firms understand about innovation, especially the fact that people are paramount to innovation success. In the title I’ve made a fairly definitive statement. Innovation is the last people-centric process, and yet we starve innovation efforts of our best people and chip away at the time dedicated to innovation even of the people who want to participate.
To be continued at Blogging Innovation » Innovation – The Last People-Centric Process
- Scaling Passive and Active Customer-Centric Innovation (fasterfuture.blogspot.com)
- Imitation With Innovation Reduces Risk in Startups (startupprofessionals.com)
- Innovation – It Starts From Within (mcnakblog.com)
Our (you)…. must come stronger out of the recession and depression is often said by business leaders, politicians (and shrinks). This also applies to you on a personal level and professional level.
This archived item (early 2008) created – at least for me – a consciousness of a changing context, that i had to adhere to it?
Recessions are famous for breaking companies. But what few people realize is that recessions are in fact more likely to make a company’s reputation.
A recent study by Bain & Company found that twice as many companies made the leap from laggards to leaders during the last recession as during surrounding periods of economic calm.
Case in point: Walgreens, the Chicago-based drugstore chain. In the midst of this last recession, the company focused on expanding its lower cost, generic drug business. Earnings and sales for the fourth quarter of 2001 grew by 10.7% compared with the same period in 2000. Not only has Walgreens gained market share on its key competitors, but at a time when many drug retailers face capital constraints and a shortage of pharmacists, it plans to build 475 new stores and two new distribution centers this year.
Walgreens’ success is not unique. The Bain study, which analyzed more than 700 firms over a six-year period that included the recession of 1990-1991, offers insight into how companies can take advantage of downturns. But first, you have to understand the strategic impact of a recession.
1 Recessions “shuffle the deck” more than boom times do.
The Bain study found more than a fifth of companies in the bottom quartile in their industries jumped to the top quartile during the last recession. Meanwhile, more than a fifth of all “leadership companies”-those in the top quartile of financial performance in their industry-fell to the bottom quartile. Only half as many companies made such dramatic gains or losses before or after the recession. Arrow Electronics (Melville, N.Y.) offers a striking example of trading places when times are tough. During an industry downturn in the late 1980s, the financially troubled distributor of electronic components and computer products launched a series of audacious but smart acquisitions that allowed it to increase sales by more than 500%, turn operating losses into profits, and seize market leadership from competitor Avnet (Phoenix, Ariz.), which was once twice Arrow’s size. During the recent recession, Arrow has been acquiring again and widening its industry lead.
2 Gains or losses show up early.
Many managers tolerate sub par results during a recession, believing that their firms will accelerate past competitors once the economy recovers. This rarely happens. More than two-thirds of the companies that made major gains in our study period did so during a recession, not before or after.
In 2001, Dell Computer grew unit sales by 11% even as industry sales declined 12%. Realizing that price elasticity sometimes increases during a recession, Dell used sensible price cuts to gain more than six points in U.S. market share and, in the toughest period of all-the fourth quarter of 2001-to capture more than 90% of the profits in its industry. Such opportunities always exist for strong companies, but the impact of exercising them is much higher during a recession, when many competitors are either distracted or hibernating.
3 Gains or losses made during recessions tend to endure.
Of the firms that made major gains in revenue or profitability during the last recession, more than 70% sustained those gains through the next boom cycle. The corollary was also true: fewer than 30% of those that lost ground were able to regain their positions. After losing significant ground during the retail downturns of 1987 and 1991, Kmart continued to slide downhill from there-all the way to a Chapter 11 bankruptcy filing earlier this year. Meanwhile, Wal-Mart continued to invest in service infrastructure during these periods; rolling back prices, it gained an estimated 2% to 4% in comparable-store sales over Kmart and Target.
These findings show that recessions are not so much “slowdowns” as they are intense crucibles of opportunity. Why is this so? Good times can cushion the hard truths of company performance, whereas tough times reveal true strengths and weaknesses. Then, too, the number of strategic opportunities to make deals or to take advantage of weaker players increases during a recession. Many companies either hunker down or stray outside their core business in a desperate bid for growth, creating openings for companies willing to pursue thoughtful and balanced recession strategies. Judging from the experiences of the best performers of the last recession, the key is to stay focused.
Know your starting point. The biggest failures from the last recession were companies that misunderstood their starting point and invested inappropriately. Example: Borden Milk Products (Dallas), which diversified from its core in dairy products and lost market leadership. Winning firms undertake careful internal and external diagnostic inquiries at the beginning of a downturn. Identifying their key strengths and weaknesses, they develop a watertight definition of their core business and strategy. This provides a reliable yardstick by which to measure new strategic options.
Maintain strategic discipline. If the data says your core business is weak, don’t try to invest through the downturn until you’ve fixed the problem. During the last recession, Mattel maintained a clear picture of its business needs. It reduced capacity, eliminated costs, and refocused manufacturing and management resources on its core brands: Barbie and Hot Wheels. It also forged a strategic alliance with Disney. By tending to its core, Mattel was able to grow despite the turbulence; in fact, it achieved double-digit annual growth in sales and income during the boom that followed.
In the late ’90s, Mattel seemed to forget the importance of strategic discipline with its ill-advised acquisition of The Learning Company. But since divesting itself of The Learning Company, Mattel has gone “back to Barbie.”
Correct your wrong turns promptly. Companies that fared poorly during the last recession exhibited a common response: they overreacted, then “stayed the course” even when rougher seas lay ahead. The lesson? If your strategy isn’t showing results, reevaluate it. Don’t expect it to start paying dividends just because the economy is recovering. Winning firms react to trouble early, scrapping ideas that aren’t working and turbo charging those that are. Firms that hunker down can miss opportunities and create even bigger problems down the road.
In the recession of the late ’80s, Kmart diversified to hedge its bet on a struggling core discount retail business. But the acquisition of a slew of unrelated retail businesses sapped much needed resources and attention from Kmart’s core. As the company struggled to manage and later unload these unrelated businesses, Wal-Mart and Target were able to make sizable inroads in many of Kmart’s key markets and customer segments.
Even the deepest recessions have bright spots. Housing and some consumer goods segments, for instance, held up reasonably well in 2001. Conversely, boom times have dark spots: nearly 20% of U.S. industries will be battling downturns any given year. For companies hoping to get ahead during down times, the good news is that you may not have to wait long: your sector may experience some turbulence-well before the next recession.
Sarabjit Singh Baveja is a vice president in Bain’s San Francisco office, where Steve Ellis is managing director. Darrell K. Rigby, a director in Bain’s Boston office, is the author of the study Winning in Turbulence. They can be reached at MUOpinion@hbsp.harvard.edu
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- Walgreens Buys 31 Drug Fair Stores (shoppingblog.com)