Exploiting I.T.'s Hidden AssetsBy Baselinemag Print
Undervalued corporate assets could be the secret to a winning strategy, says author Chris Zook.
New technologies and globalization are forcing executives to devise new business strategies. In Unstoppable, Chris Zook, author of Profit from the Core and Beyond the Core, and head of Bain & Co.'s global strategy practice, argues that new strategies can usually be found in undervalued, underutilized company assets—including IT and information assets—that are already within the organization.
The popular press on strategic renewal often emphasizes the spectacular. We studied fifteen of the most heralded big-bang transformations of the past ten years, like AOL's merger with Time Warner. Our analysis was sobering. None of the fifteen companies increased its market value over the period by more than the average of the stock market. In fact, eleven of the fifteen companies experienced a decline in market value, and seven of them declined in value by more than 50 percent.
Instead, we found that nearly all the successful and relatively lasting cases of renewal spring from existing assets in or near organizations' core businesses, assets that had been underappreciated and undervalued for their future potential. [Separately] in twenty-one of twenty-five case studies of successful strategic redefinition, a hidden asset was the linchpin for the new strategy.
A hidden asset is something that you possess whose value, properties or potential you have not fully appreciated or realized. The more complicated, large or established your company, the more likely it is that you possess numerous hidden assets, some of which might contain unmined veins of business gold. When available, such solutions, based on the assets you already have access to, have a rate of success that is four to six times as high as other general paths to strategic renewal.
Specifically, three types of hidden assets emerged as keys to the strategic renewals in our case studies: Undervalued business platforms, unexploited customer assets, and underutilized capabilities.
[One kind of] undervalued business platform is an internal support function to the core that can become world class and broader in its reach. For example, the remarkable rejuvenation of IBM in the past decade was built on a small services business that had always been in the background of the hardware business.
Unexploited customer assets come in three primary forms. The first is knowledge gathered as part of serving the customer but that, over time, accumulates an inherently greater value of its own. The renewal of American Express took hold when the company focused on a unique asset: the power of its payments network to provide insights about what customers and merchants wanted, and how to deliver it to them. The second form comes from a unique position of trust or relationship you have with a set of customers, giving you much more access and influence than has been recognized. The final type of customer asset comes in the form of hidden segments of customers that emerge when companies use new methods to disaggregate their customer base. Nike's ability to produce, economically, a line of shoes tailored to a particular microsegment is a case in point. Further, if Nike's capabilities—its supply chain and design shop—allow it to target microsegments profitably, its combination of customer insight and capabilities to serve new customer segments gives it a marketing and production edge on competitors that changes the playing field for shoes.
U.K. grocery chains Tesco and Sainsbury's were once nearly identical. Today, Tesco is the clear winner. The key factor? Capabilities. Early in the game, Tesco recognized the competitive importance of superior logistics and replenishment. As a result, Tesco began to outinvest its competitors by a wide margin. Lord Ian MacLaurin, CEO at Tesco during much of the period, said, "We focused first on distribution capabilities. We eventually became so good that we could run smaller stores efficiently that others could not."
Reprinted by permission of Harvard Business School Press. Excerpted from Unstoppable: Finding Hidden Assets to Review the Core and Fuel Profitable Growth by Chris Zook. Copyright © 2007 Bain & Company, Inc; All Rights Reserved.
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