Strategy must solve for the core before testing boundaries.
Remember when Michael Jordan left basketball to be a professional baseball player? The topic was covered by an ESPN “30 for 30” documentary, “Jordan Rides the Bus“. It wasn’t a total disaster, but it does make you cringe to think about. The greatest basketball player of all time took significant time off from his main sport to play baseball. Jordan was basketball. Basketball was Jordan.
Google, a company that is fantastically sound in its core business of search-targeted advertising, has spent millions (perhaps billions) looking for the next big thing. Nevertheless, a huge portion of Google’s revenue and profit comes from its AdWords platform. AdWords is what Google “is.”
While my home state’s Birmingham Barons loved the spectacle that Jordan offered them by testing the baseball waters, and though Google has doubtless made many millionaires by dipping its toes into new venture areas, both of these anecdotes offer lessons for those of us who focus on strategy. Strategy, in so many ways, is about being who you are, first—then testing the boundaries.
I have the pleasure of serving many companies on strategic issues. I’ve now consulted with well over 50 companies at the top management level. Without a doubt, the biggest strategic blunder management teams commit is chasing shiny new things at the cost of their core business.
Loss of focus on the core is the critical risk for a business in transition. Companies have core assets. Those may be people, machinery, locations, patents, or products. A strategy that ignores the core is likely to fail.
Why? It comes down to risk. Let’s use Jordan as an example. When he played basketball in the 1992 Olympics for the United States’ famed “Dream Team,” he had to adapt to a new style of play. There were different rules, a differently shaped key on the court, and the 3-point line was at a different distance. He even had to watch out for being called for traveling, which is rarely enforced in the NBA. But it was the same ball. It was the same dribble, drive, shoot he’d mastered for years as a pro, and he was successful while the Dream Team dominated its way to a gold medal.
What about Jordan’s foray into baseball? Well, that was a different story. Baseball was, literally, a whole new ballgame. Different ball, different skill set, different rules, and different player mentality. It was a whole new world. Jordan hit for just a .200 average in the minor leagues. The whole scenario basically proved he was a fairly flexible athlete, but a very average baseball player.
See the issue? New ball, new rules, new skills, new mindset? Jordan tried to enter a change of pace that had too many degrees of uncertainty. Companies do this all the time. They seek to enter arenas with new technologies, new customers, new channels, or all three—and they commit resources that should probably be focused on their core businesses.
Combining the risky trifecta of new customers, technologies, and routes to market with your existing skills is a recipe for disaster. Doing it at the expense of your core business is just plain obtuse.
I once served a diversified firm whose explicit, vociferous strategic focus was on new product development within a very narrow set of businesses, but whose bread and butter was really in driving cost reduction within a vast core business that wasn’t pursuing a cost-leadership strategy. You get that? To be clear: Driving cost reduction as the key strategic move while not pursuing a cost-leadership strategy is, in itself, a strategic blunder.
Though this company’s new product-development areas were promising, they were also extremely long cycle. And they ate a tremendous amount of resources (as those things sometimes can). Still, management treated the core business as if it were on autopilot while suckling away at the cost-reduction teat without a discernible cost-leadership end point.
The issue with this is that strategies have to be focused against end games, and this particular company had a vast core whose strategic end game left the company itself out of the mix. It would not be a cost leader in its market, but was depending on cost reduction to ensure its financial performance. Meanwhile, new initiatives focused on new technologies, customers, and channels—not to mention new skills—were front and center, resourced heavily but not exclusively, and extremely long cycle to maturity.
The end result of such a quasi-strategic scheme is predictable: a stumbling core and an immature periphery. Why? Because the core business in such a scenario has such mass that a trip up in the core overwhelms any “big” wins in the new, new thing. The core would eventually trip, and the periphery would not be significant enough to save it. It’s the industrial equivalent of the savings and loan crisis: savings and loan institutions borrowed from depositors’ short-term funds and lent long term, automatically setting up a liquidity crisis somewhere down the line.
You have to focus on the core, no matter how ugly it is. The core is your short and intermediate term. You have to be who you are.
The lesson is this: Your core has to have a strategy, and that strategy must reflect who you are in terms of strengths, skills, and competences. You can (nay, must) look for the new, new thing—but you must do it with a core strategy that is effective, extensive, and sound.
Now, none of this matters if you are fat and happy. If you’re a multi-millionaire athlete who has millions upon millions of dollars in endorsements (like Jordan did), or if you’re a high-margin juggernaut like Google (excuse me, Alphabet, Inc.), you can afford to emabark on a diversion that is totally against your strengths.
But if you’re like most of the world, you have strengths, and you only have a finite amount of time to exploit them. You also have a finite amount of time and resources to commit outside your strengths. Be careful with those.
Be sure to form a strategy for who you are first, and then keep a little margin to test who you might be. It can be a liberating thing.
What do you think?