It is easy for leaders to lose track of what matters. When times are good, they focus on growth and expansion. When times are tough, they focus on cost-cutting and retrenching, sometimes too much.
The core business is essentially the heart of any business. It is what it strong and sustainable for the future. It needs to be managed with intention and attention. Often that is the not case. Companies venture into strategies that dilute the core and redirect cash to non-essential initiatives. That can be deadly.
The core business is often defined as a core competency. For General Motors, it is producing cars. For Boeing, it is about aircrafts. For Carrier, it is HVAC and refrigeration equipment. The core is an area in which a company excels, has deep specialization, and enjoys cost excellence due to economies of scale or deep expertise. It is the economic heart of any company as it generates most of its revenues, profits, and cash flows. At least, it should.
Over time, if not managed carefully, the core weakens either because competition catches up or because the company loses track of what matters. Sometimes both.
With today’s incredible level of uncertainty about what the future holds, I propose that any company should go back to the core and pay close attention to its level of differentiation and attractiveness. It is not a matter of deciding whether to invest in the core or not. It is a strategic imperative to do so.
I propose five activities to make this happen:
1. Test your core value proposition with voice-of-customer research: You need to know where you stand. A robust internal business assessment might give you a strong indication of trends and patterns. But the answer comes from outside. Customer perceptions matter. Customer research might lead to the discovery that you are losing steam. Competitive positioning and satisfaction surveys are tools you can use to find out. Refreshing your customer segmentation can also identify groups of customers that have been neglected or not fully leveraged in the past. When was the last time you visited prospects and lost customers?
2. Immediately reinforce the core: This is priority number one when facing a possible recession. Gage how the core business is doing and immediately reinforce it. That means investing in it, making things even more differentiated for your customers. You might think you are in good shape, but only customers will confirm that or not. Your short-term strategy and budget need to be focused on making the core stronger. How do you make your core stronger? Invest in services, installed base management software, cross-selling and up-selling programs, advanced loyalty programs and partnerships. All of this should bring impact to your core, as you are already well-positioned in it. It is like a boost of energy that should pay back tremendously.
3. Reinvent the core with ongoing innovation: If your core is weak, then the priority is to reinvent it as soon as possible. That means making a strategic pivot and taking a slightly different course. That happens with strategic innovation, business-model innovation and investment in value-based innovations. For example, can you move your equipment from a transactional model to an innovative as-a-service model? Can you address a portion of your customer base through a direct-to-consumer business model? When that does not work, you might have to think about the overall strategic position of your business. This is why firms do strategic acquisitions, divestitures and corporate breakups.
4. Extend your core through strategic adjacencies: Reinforcing the core can also mean extending to core adjacencies. It is a matter of not going too far from the core so that a company can leverage its expertise and capabilities without having to invest a lot of CapEx or develop new internal capabilities. Extending can also be done through joint venture or acquisitions. Think about an OEM investing in a spare-parts business or a software venture. The key to being successful here is to leverage existing assets (plants, customers, relationships and systems) and increase the return of these assets.
5. Leverage technology to extract more value from the core: Technology can help make your core stronger and more accessible. For example, collecting and mining data from your existing customers can lead to quick innovations in services. Deploying an installed-base platform can accelerate the launch of cross-selling and upselling offers. A CPQ (configure, pricing, quote) system can accelerate your sales velocity. I have seen companies neglect the core for too long and continue to do things manually while investing heavily in distractions. Managing the core must be automated and systematized.
The next few years might be challenging for many companies. Growth might slow down, and profitability might be under pressure. Leaders must keep an eye on the prize. The priority is to make the core unstoppable by investing in it and not by cutting costs in it. Discontinue other non-strategic programs to make sure the core is well taken core of.
We are in budget season right now. Look at your business, innovation, marketing strategies. How much efforts, resources, and budget are you allocating to your core business? Is protecting and strengthening the core one of your corporate priorities? If not, you might be giving your competitors a chance to catch up and narrow the gap. At the end of the day, it is all about competitive advantage. And it starts with the core. Self-disrupt or be disrupted.
Stephan Liozu is founder of Value Innoruption Advisors, a consulting boutique specializing in industrial pricing, XaaS pricing and value-based pricing. He is also the co-founder of Pricing for the Planet, which specializes in pricing for sustainability. Stephan has 30 years of experience in the industrial sector with companies like Owens Corning, Saint-Gobain, Freudenberg and Thales.