Exit at "neighboring" markets a dangerous idea | Предприниматель

Exit at “neighboring” markets a dangerous idea

In 2008, many observers – and I among them – at a loss scratched his head when Cisco spent $ 590 million on for the popular camcorders Flip, Pure Digital Technologies. It was not clear that companies need to manufacture their own cameras, even more so – amateur cameras that have little to do with their core business – networking equipment for enterprises.

Skepticism was justified. Under the wing of Cisco Flip cameras were a popular niche product, but it’s not worth it to be distracted from the main activity. Cisco just announced the closing unit to cameras Flip, and the reorganization of other parts of the production of consumer goods in order to focus on their core business. Cisco will dismiss 550 employees and incurred costs of $ 300 million – before taxes.

The failure of the Flip, of course, not a disaster for a company with 73,000 employees and revenues of $ 40 billion, but we can all learn from this history, a lesson not to repeat such mistakes. Cisco experience may be particularly timely because of economic recovery, many are tempted to follow the footsteps of Cisco – and risk a deadlock. Acquisition Flip – an example of an incorrect assessment of related areas of activity, one of the most common strategic errors.

The yield on the related markets seems pretty reasonable, when growth slows down major markets. According to the legendary General Electric CEO Jack Welch, “adjacent markets – the easiest way to grow.” But it turns out that the “easiest way” is not easy.

Perhaps the most thorough research in this area was conducted Bain & Company. Analysts Bain 5 years studied 1,850 companies and found that the most sustained and profitable growth comes when a company pushes the boundaries of its core business into adjacent areas. But there is a snag. In 75% of companies trying to enter the adjacent markets failed. And only 13% reached that the study’s authors call “a modest level of profitable growth.”

Another study by Bain shows that progress in related areas can result not only failed, but a major disaster. Among the 25 most expensive failures in 1997-2002 (not counting those that were caused by the collapse of the dot-com) attempt to enter the adjacent markets was a main reason why a major contributing factor in more than 70% of cases.

Attempts to expand the scope of the drowned many experienced captains of industry. One of the largest cement companies in the world, Blue Circle, decided to start lawn mowers. The company’s managers believed that the company has been working in the field of household goods, and the houses are known to have a lawn. Attempting to enter the consumer market failed miserably: the company has fallen behind its competitors and was acquired by Lafarge in 2001.

Laidlaw, the largest operator of school buses in North America, has decided that it could use its expertise in logistics to offer ambulance services. The company spent $ 4 billion to buy up the right firms and became a major player in the U.S. in this market. The realization that the ambulance service apply to health care, rather than transport and is regulated by complex rules, it’s too late. Laidlaw turned a business, losing almost $ 2 billion

Kodak Corporation decided in the late 1980s, she worked in the chemical industry, not just in photography. Kodak acquired Sterling Drug for $ 5.1 billion, and soon discovered that the chemically treated paper is not quite the same thing as cardiovascular drugs. Other clients, and other delivery channels, the other legal environment. By 1994, Kodak sold off piece by piece Sterling about half the original cost.

They were all good company with a balanced management. Nevertheless, they could not understand what “adjacent” markets were not all that and adjacent. Because of the proximity of the new sector to the principal activity of the company may not realize that the differences are large enough to be a problem.

To counter this trend, the manager and the board of directors is important to ask ourselves hard questions about the potential to penetrate the adjacent markets. In addition to the analysis of the advantages to explore flaws, look not only at the similarities of markets, but also their differences. What makes the sales channels in the new market? What makes your customers? What makes food? Considering the assets to purchase, think about the problems that you buy with them. Ask yourself is whether your customers are yours for the new market.

Only turning the ordinary decision-making process on its head and looked for potential problems, you can be like Jack Welch and triumphantly enter the adjacent markets, and not collapse like Blue Circle, Laidlaw, Kodak, Cisco and many others.

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