A Clear Vision for Success
Every business needs to understand what success looks like and how it will be achieved
Diversification can be a powerful tool and has been the secret to success for many a multinational conglomerate. Just think of Xerox, once synonymous with photocopying; paper manufacturer Nokia, or Virgin whose empire now spans everything from transport to entertainment.
But while strategic expansion into related areas, carefully costed and planned, can both mitigate market risk and drive business growth, poorly executed and ill-thought out leaps into the unknown are a recurrent cause of business failure.
Self-awareness is a critical attribute for any thriving company. Leadership needs to intimately understand what differentiates the organisation from its competitors, what its strengths are and where it is heading. Management teams must not be distracted by risky acquisitions, tangential market-moves or mega-contracts that the business cannot properly handle.
A lack of the requisite expertise to operate in new areas and a failure to understand the cost implications of heading in a new direction, are both common mistakes that we see. A reduced focus on core customers and competencies, as a result of the distraction, meanwhile, has proved many a business’s undoing.
The cost of distraction
History is littered with failed forays into uncharted territory - Kodak’s dalliance with pharmaceuticals and Coca Cola’s attempt to enter the booming US wine industry in the seventies, just to name just two.
Smaller enterprises, however, rarely have the capacity to withstand such experimentation. Our FR&R team witness the aftermath of failed excursions into the unknown on a regular basis. For example, we started working with a recruitment company as a result of a large intercompany write off from a project-based venture into the construction industry.
This was completely outside of the groups’ core business of the provision of labour. The management team failed to understand, or manage, the risks associated with the new venture and the outcome saw the company hit with a significant loss and large reduction in net worth on their balance sheet.
We find that these misguided vanity projects are particularly prevalent in sales-led organisations, where margin and cash are sometimes sacrificed for scale and kudos.
It’s imperative that a strong sense of business identify and a clearly-defined strategy, implemented by a balanced management team with robust corporate governance, are key if companies are not to be derailed by non-core diversions.