Reinforcing the core business is an often-unappreciated precondition for successful growth. It is easy for business leaders charged with strategy and growth to become fixated on adjacent & transformational opportunities. They are new, exciting, and can define legacies. Headlines, movies, and MBA curriculums showcase stories of disruptive companies that cleverly uncover unmet customer needs, create new markets, and reap windfall profits. Uber, Facebook, and Amazon quickly come to mind. Yet, for many established companies to grow successfully, apt management and reinforcement of the core are just as important – if not more so – as pursuing new growth.
A common mistake companies make in search of new growth is overlooking opportunities directly in front of them. Fixating on new growth can draw teams to focus on longer-term adjacent and transformational opportunities to the detriment of core growth. As a result, they pursue riskier investments rather than create a balanced portfolio of pursuits. It’s tempting to over-complicate growth strategy and to get lost in the realm of possibility. However, focusing on the core often presents the highest probability of success, the most significant return on investment, and the shortest time to impact. Conversely, underinvestment in the areas that deliver profit today creates risk and limits the pace of growth in new places.
Yahoo is a prime example of a company that neglected its core business in search of new growth. They were the early leader of internet search and advertising in the late 90s and early 2000s but became distracted by opportunities such as video streaming, job search, and original entertainment. In parallel, their primary competitor Google did not make the same mistake; in fact, Google did the opposite. They doubled down on their core while judiciously exploring adjacent and transformational growth opportunities. We all know how this story ends, Yahoo’s misstep ceded their early advantage to Google, who exploited their error to take all in online search and advertising. Subsequently, Google’s dominant position provided abundant fuel for longer-horizon, new growth plays that eventually transformed Google into the Alphabet behemoth of today.
To highlight the role of the core, it's helpful to think about opportunities in three categories: Core, Adjacent, and Transformational. We’ve adapted a framework introduced by mathematician H. Igor Ansoff and modified by Monitor’s Bansi Nagji and Geoff Tuff to outline relative risk and proximity to the core at a more granular level. By plotting opportunities across the Growth Portfolio Matrix (see illustration), leaders can more clearly see where the risk lies and whether their growth portfolio introduces risk or diversifies to reduce it.
So, what does reinforcing the core look like in practice? Each company is unique, and a company's core business could be in growth mode (Tesla, Apple), stable (McDonald’s, Campbell Soup), in decline (Blockbuster, Kodak) – or anywhere in between. Regardless of the situation, below are four actions that any business can take to invigorate and reinforce its core.
Cultivate Customers & Channels: Focus on the right customers and channels to generate long-term value. Shed unprofitable customers (cautiously) and attract profitable ones that align with your company’s values and goals. Pursue missed opportunities, recapture lost sales, and find ways to add more value.
Optimize Product & Service Portfolio: Refine offerings and rationalize to reduce complexity. Streamline the product portfolio to remain competitive and focused. Reallocate capital and capacity to the most profitable offerings and targeted opportunities across the Growth Portfolio Matrix.
Renew Pricing: Revisit pricing to adapt to the current environment. Ensure your pricing strategy matches your position in the market. Assess offerings as a set and re-evaluate the impact of inflation. Develop pricing intelligence to test and validate price points and closely monitor evolving market conditions.
Evolve With Core Customers: Innovate within the core to adapt to changing customer needs and stay fresh. Look for ways to create more value for core customers by evolving from products & services to insights & experience. Practice sound capital allocation to continue appropriate investment in the core to balance non-core pursuits.
Efforts to reinforce the core should be iterative. Decisions on customers, products, and pricing must be integrated to compound impact and strengthen the core business. Done correctly, these efforts can provide quick wins and short-term value to fuel adjacent and transformational growth pursuits with longer-term returns.
A solid plan for the core is critical to a company's long-term success and must be a part of any growth strategy; ignore it at your peril. However, it is essential to remember that the core is only one element of the growth equation. A comprehensive and winning growth strategy integrates and synchronizes opportunities across the Growth Portfolio Matrix - core, adjacent, and transformational - to deliver durable, predictable, and outsized growth.
For more information on our approach to growth strategy and insights on other growth opportunities, please click here.