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Making Strategic Choices: Abandoning Business

Recasting your firm’s strategic direction may be well worth it, but who has the time to take on more initiatives with everything else we have to do? The answer may not be in what you do, but what you don’t!

There seems to be a dozen different ways to define strategy, but all have one thing in common--- making a series of choices. In fact, almost everything about crafting strategy involves choices. These choices must be made as clearly as possible without a lot of ifs, ands, or buts.

  

The more well-defined the choices, the more focused an organization can be. In turn, the more relentless the organization can be in pursuit of its new strategic direction. To create new strategic positions, an organization must make fundamental decisions not only about what it does, but more importantly decide what it does NOT do. Here are two classic examples:

What business are you in?
Answering this question is the single, most important step in the crafting of a breakthrough strategy. Why? Because an organization’s "perceived business" colors everything it "sees" and "does." It is the filter that tells managers which opportunities to pursue and which to reject as "applicable to the business or not." What an organization believes defines what facilities it builds, where they locate, who they hire, how they organize and so on. Is Disney in the theme park business or in the entertainment industry? Is IBM in the computer business or the consulting arena? Was PepsiCo in the beverage/salted snack segments or in restaurant business until they sold off Tricon?

Obviously the answers to these questions will shape the overall form and function of those business. This is such a huge question that it can’t be answered in a single weekend planning retreat. It’s so big, most organizations will never ask it. But if a company won’t at least think about it, they will probably never develop a simpler strategic plan.

Who are your customers and what will you sell them?
There will always be customers to pursue and products and services to offer, but the question is, which ones? If a company fails to make clear choices here, their business growth strategies will be less focused and consequently less successful. Good strategies can result from deciding what customers and products you will go after--- Breakthrough strategies often come from deciding which customers and products you will abandon! The Sleeter Group, a successful national seminar company, decided to forsake accounting software users as customers in favor of accountants and CPAs, a less crowded and more profitable segment. While a bold move at the time, it was well within their capabilities. Time Warner’s acquisition of AOL has not been so successful, primarily because it brought in a customer/service segment that didn’t make sense for them or their core competencies. It will likely be in their best interest if they soon divest themselves of those ISP customers who at this point only serve to drag them down.

Do you have difficult, slow pay, or marginally profitable business that you have been hanging on to? Are you trying to serve customers outside of your core competencies? What would it mean to your business to abandon them? What else could you invest your time and resources into next year? The irony is that forsaking certain classes of customers, products, or even entire lines of business can have startlingly positive effects on your bottom line. Often, it is dumping the losers and feeding the winners that will allow a firm spectacular profit growth with less effort and investment than expensive and time consuming new initiatives!

It's Not Easy
But making such choices can be difficult. At crunch time, no one knows for sure whether a particular idea will work out or whether it is the best and most appropriate direction for the future of the firm. But many executives shy away from making changes that are broad enough, deep enough and swift enough to make a difference. Instead, they administer a series of cosmetic changes that focus on process rather than measurable results and do it too slowly to make a noticeable difference.

This uncertainty can be reduced to some extent by establishing a sound evaluation process and/or by testing the idea to see how it works. But, uncertainty cannot be eliminated altogether. No matter how much careful thought goes into a decision or how much testing is carried out, the time will come when the firm must make a decision, one way or another.

Business Growth Strategy Tip:
Instead of taking on more next year, what customer segments, products and services would be best for you to abandon? Willingness to relinquish the right segments takes courage, but will ultimately pay off handsomely when done well!