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Leg 1. Summary. Understanding “Core Business”. Part I.

Dear all:

Hope you are doing super well. The Volvo Ocean Race Leg 1 finished last Saturday.  Leg 2 is a 7,000 nautical miles run south, starting from Lisbon next Sunday 5th November, and going from the coast of Portugal to Cape Town, South Africa. I am so thankful with this race, since the realization of it, came into my life perfectly “just in time” when I was going to start writing about strategy main concepts and contexts. It is an amazing experience for us to follow the race, to learn about sailing. And personally, for me, it´s so lovely to relate the sailing meaning of crossing oceans with the challenges in business strategy. Best of success for the 7 teams during the next adventurous Leg 2.

These are the Leg 1 final results:

As I promised previously, this week I would like to do a summary or a little recap of what we covered last week about the theme of “core business”. In addition, I would like to add some more updated information on the topic developed by Chris Zook & James Allen during the last decade. Chris Zook and James Allen are avid writers. Both have been writing for years. Doctor Zook has been very active lately, writing at Harvard Business Review. His articles are so interesting and refreshing. I invite you to read his articles if you wish to be informed about strategy.

Let´s get started with our today´s objective: Leg 1 “Understanding Core Business” recap. These ideas come from my Leg 1 posts, and from several articles that Chris Zook has written in Harvard Business Review during the last 15 years.

“Core business is the set of products, capabilities, technology, customers, channels, and geographies which defines the essence of what the company is or aspires to be to achieve its growth mission – that is to grow its revenue sustainably and profitably”. For the purposes of this strategy race, we will stick to this concept from now and then. Again – Core business is a set of:

  • Products and services: What do you sell?
  • Customer segments: To whom are you selling?
  • Geography: Where are your customers?
  • Distribution channels: How do you serve customers or distribute products and services?
  • Capabilities: What are your core competencies and competitive advantages?
  • Technology: What is your digital technological source of value in your business? How can you use technology to help you to be more profitable?

When trying to understand our “core business”, Professor Zook has encouraged us to ask ourselves the following questions:

How do we define our core?

What are we best at?

What is the economic center of our activity?

Our core relates to the root cause of our competitive advantage. What is the state of that advantage? Is it relevant to the consumer right now?

And what about our business´ boundaries?

Is the market in which we can compete using your core assets?

What’s our reason for being?

Ask ourselves how long it has been since our company talked at length about the boundaries of the core or the root cause of differentiation several levels down — or, better yet, since w made a full assessment of the state of the core itself. What did our assessment say?

A couple of years ago, Professor Zook also shared with us, about a multi-year study of the root causes of companies´ enduring success. Guess what Professor Zook found: that success is related to “an increasing premium to simplicity in the world of today — not just simplicity of organization, but more fundamentally to an essential simplicity at the heart of strategy itself”. The more complex your “core business” and your strategy, the more difficult is to be able to deal with competition in every industry. Companies with simplicity at their “core business” deployment seem to be enduring a strong competitive advantage.

Doctor Zook also has shared with us the following: “When in times of economic crisis, the “profit from the core” principles are more relevant. This is especially important during an economic downturn, as management teams everywhere consider how to:

  • Protect and defend the core during tough economic times
  • Identify opportunities to improve position in the core against weaker competitors
  • Refocus and prioritize investment priorities in, near, and away from the core
  • Set realistic targets and expectations
  • Justify and articulate a more focused strategy”

master the art of observingWhen you are lost in your strategy, or you don´t know how to start your “core business” definition analysis,  Zook recommends: “When in doubt, drill down to the core customer”. “The best ideas come studying their behavior, not from outside big ideas. With shrinking differentiation, the ability to find microsegment opportunities and gain insight faster may be the ultimate competitive advantage”. The needs and wants of your customers will tell you all. Observe your clients. When we clearly observe our clients we can find so many answers and build successful value propositions.

And “How do you determine customer needs? Zook has recommended us to see it through five main lenses: the customer lifecycle of purchases, customer system economics, customer share of wallet and purchasing patterns, your own customer adjacencies, and customer segmentation”.

I will dedicate Leg 2 from Lisbon to Cape Town to the topic Customer Segmentation and it will be awesome. One of my favorite themes. Tomorrow I will continue with the “core business” strategic recap Part II.

Blessings from a Starbucks Coffee Shop in San Salvador.

Source References:

Note: All the pictures shown on this blog do not belong to me. I do not own any of the lovely photos posted unless otherwise stated.

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