All too often, companies take the scope of their offerings as a given, delaying changes that make the organization ripe for disruption. Kodak stuck with “film” as its core business while competitor FugiFilm Holdings, Inc. accepted the inevitability of digital replacing film. Fugi transformed its business by leveraging its chemical and processing capabilities into liquid crystal displays and beauty products. The change was traumatic -– thousands lost their jobs -– but, unlike Kodak, Fugi company exists and is growing.
The WSJ is full of change-in-scope decisions. HP is splitting into two parts, enterprise solutions on one side, printers and PCs on the other. Unless HP can make a go of 3-D printing, I expect Lenovo or Dell will acquire the printing/PC unit as computing shifts to mobile devices. IBM is harvesting its more commodity-like businesses to double down on mobile, software and the cloud. HP and IBM exits from commodity markets make financial sense, but I for one feel a sense of lost opportunity. Apple integrates a broadening set of offerings in ways that reinforce its value promise. Why can’t IBM or HP?
P&G is doubling down on its leading consumer brands where differentiating innovation holds promise, selling off about half of its brand treasure chest including smaller, less successful or slower growing brands. For example, it is selling its Duracell brand (batteries) to Warren Buffet. Kraft is taking similar steps. In 2012, it put its fast-moving snack brands like Oreo into a new business called Mondelez International, and the remaining slower-moving grocery brands like Oscar Mayer into Kraft Foods Group, Inc. Apparently SG&A synergies are not as great for share price as showing Wall Street a rapidly growing business.
The right offering breadth is one that benefits your customers, creates hard-to-copy advantages, truly lowers your costs, or creates a stronger defense against rivals. In the past wider was usually better. But with today’s external sourcing of business services, breadth no longer necessarily lowers costs. Furthermore, the complexity of a broad offering can make your company react too slowly to change. In Medtronic’s acquisition of Covidien and Thermo Fisher’s of Life Technologies, scope is dramatically expanded. Leaders of the acquiring companies should focus on innovation and revenue synergies and not just eliminating duplication. Post acquisition cost cutting too often squeezes innovative juices from the acquired company and emboldens niche competitors.
I recently met with Damian McKinney, founder and CEO of McKinney Advisory Group (MAG), a real estate company that provides a strong example of how to expand scope. MAG has expanded beyond tenant representation to include brokerage, asset management, portfolio management, investment analysis, development services, legal services, project-management, and workplace optimization consulting. With this broad scope, MAG can serve as an expert (outsourced) real estate department for its clients.
MAG also takes a holistic approach to client needs. Following the 2008 downturn, a client seeking leased space mentioned they were having trouble attracting the interest of Wall Street in a $10-20M loan for expansion. “Our client saw money needs, and we saw an opportunity to bring clean tech jobs and a global customer base to a community,” McKinney stated. “We helped them raise $99M in development benefits from a competitive process involving 30 states for their new location. The publicity led Wall Street to their door, with attractive loan offers from patient capital providers.”
MAG has expanded its scope in yet a third way, empowering its brokers to give back to the San Diego community. Associates have 8 hours a month to volunteer alone or as a group. MAG also hosts an annual charity event that introduces area non-profits to its clients. RSVPs fill up quickly for the sold-out event where each guest is given $100 to give to one of the invited non-profits, non-profits with whom MAG associates have volunteered. “Our annual events help leaders think about causes they feel passionately about. They leave thinking about how they might use their time, talent and treasure to make a difference, just as we try to do as a firm,” said McKinney. And non-profits often leave the event with introductions to future board members and donors. Efforts like these make it easy for MAG to attract and retain employees who bring their full engagement, not just their bodies, to work each day.
McKinney’s daughter Rachael, who heads the marketing and corporate social responsibility efforts of MAG, says it best. “If you give yourself a bigger box to work in, you can do different things. You can also reach more people – partners, universities, non-profits that can then add value to your offering to your clients.”
How does your scope benefit your customers and earn your employees’ loyalty? What else (or less) should you be doing?
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