A Sick Company Needs to Concentrate on its Core Competence

By: Mike Teng
Submitted: 2007-01-17 15:31:49
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The surgeon operates only one patient at a time. Similarly, a sick company needs to concentrate on its core competence.

During the turnaround phase when the company is on the brink of bankruptcy, there are time and resource constraints. The company needs to concentrate all its resources on doing a few major things right. You should have a laser-sharp focus just as a surgeon focuses on only one operative field during surgery. If you are a patient, you will not allow your surgeon to operate on you and another patient simultaneously. Similarly, an ailing company needs to concentrate only on its core competence and try to rid itself of activities that do not help the bottom-line targets as well as those that do not immediately improve its cash flow. Under such critical circumstances, you can even succeed at far lower cost by ensuring that you do a better job with the businesses and skills you already have.

In order to release resources for its core business, the ailing company has to divest any unprofitable or non-related businesses. Quite often, in their bid to bolster sales performance, troubled companies clinch lots of sales contracts with thin profit margin. This tantamount to buying sales and they often turned into subsequent financial losses. Such a scenario is equivalent to having a lot of sizzle but no steak.

It is better to amputate all loss-making ventures and unprofitable sales whenever possible. According to the standard surgical procedure if there is pus, get it removed. In fact, the famous Chinese military strategist Sun Tzu believed in the principle of concentration in fighting a war. He said: “The strength of an army does not depend on large forces. Do not advance relying on sheer numbers. Rather, one must concentrate one’s forces and anticipate correctly the movement of the enemy in order to capture him.”

To compete in the global market, it is important to narrow your focus to a specific segment, Olivetti has lost its competitiveness as its product lines proliferate from typewriters to computers. When the market is 58 million people in Italy, a broad line is all right. But when Olivetti went global it could not compete. Hyundai, S Korea a major conglomerate also lost focus in the quest for expansion. It is involved in all kinds of businesses ranging from chemicals, ship-building, engineering, automotive, pharmaceutical, etc. As a result it confuses the minds of the customers. When the financial crisis hit S Korea in 1997, Hyundai was one of the first chaebols to fall apart. Marketing will need to be focusing on specific niches for the riches are usually found in niches.

The soft drink giant Coca-Cola tried to venture into the bottled water market in Europe with the launch of “pure” water Dasani. News broke out that the Coca-Cola’s treated tap water contains cancer-causing chemical and it had to withdraw the Dasani from the market, creating a lot of bad taste. Although Coke drinks and “pure” water are in the soft drinks category, the technology and know-how can be quite different. Coca-Cola should have stayed with the “ real thing”, its core competence.

Remember to have laser sharp focus. The laser is actually a weak source of energy. A laser takes a few watts of energy and focuses them in a coherent stream of light. A few watts of energy are not useful. However, laser is able to drill through diamond, the hardest rock and eradicate cancer cells as well for lasik treatment. Similarly, companies with laser sharp focus can dominate a market. When a company is not focused, its limited energy gets dissipated over too many products or markets.

Article source: Expert Articles