While analysts are unsure about how the US economic slowdown will affect Malaysia, local companies should stay focused on the big picture.
No matter how this market drama plays out, they need to be prepared at all times to weather any change in the business climate. Winning CEOs have learnt this lesson and have a growth strategy in place to ensure the future stays bright.
Even in the best markets, survival and growth can be a challenge.
When we looked at companies that made the Fortune 500 list in 1994, our research found that 153 either went bankrupt or were acquired within 10 years while 283 companies out of the 500 faced serious threats to their survival or independence during the decade. However, half of this group met the threats successfully—many did it by joining the ranks of businesses that are redefining their cores.
It's an approach that has helped companies in Asia as different as South Korea's Samsung, the Chinese-financed trading company Li & Fung, and mobile phone company, Nokia.
Nearly every large enterprise moves through what might be called the focus-expand-redefine (F-E-R) cycle.
In the focus phase, companies concentrate on building their core business to its full potential.
In the expand phase, they take advantage of these capabilities and market positions to move into adjacent markets. But at some point, many companies find growth and profitability starting to decline.
This is the time to redefine the core. Today, there's little doubt that the F-E-R cycle is in a fast-forward mode as companies face a host of threats—new competitors shaking up entire industries, new technologies lowering costs and shortening product life cycles and capital, innovation and management talent flowing more quickly around the globe.
Redefinition today is essential. But the issue for executives is how to do it. Some companies resort to moves like pursuing a big merger or leaping into a hot new market.
But others have found a far less risky alternative—uncovering hidden assets that have been overlooked, undervalued or underutilized and redefining their company around them.
Most hidden assets fall into three categories—untapped customer insights, undervalued business platforms and underexploited capabilities. Each can provide the foundation on which a company can redefine its core.
Untapped customer insights can help companies that have taken customers for granted. Many executives readily admit to losing touch with customers.
In fact, in a recent series of business seminars, less than 25% of participants agreed with the simple statement: "We understand our customers."
Consider mobile phone maker Nokia, which entered India in 1996. It faced tough market conditions, including intense competition from established players, as well as slow mobile phone growth. Undeterred, Nokia carefully developed customer insights to adapt products to Indian market needs.
It launched a low-priced, multilingual handset targeted primarily at Indian consumers, who often conduct business in two languages.
The company also created the Nokia 1100 to attract rural customers—a mobile phone that serves as an alarm clock, a torch (for power cuts), and a radio. This hardy device became a best seller in India and abroad. In just three years, Nokia grew its Indian market share for GSM phones from 46% to 79%.
Undervalued business platforms also can fuel a transformation.
After struggling throughout the 1990s, Samsung analysed its assets and came to the surprising discovery that its core semiconductor business was actually an undervalued business platform.
Samsung flew in plane loads of technical consultants with the goal of becoming the world's best-practice producer at each stage of semiconductor manufacturing.
Working diligently, Samsung went from "average" to "best" at cycle time for building a new semiconductor fabrication facility, as well as the fastest to get high yields from those plants.
In the process, Samsung liberated the potential of its inefficient semiconductor platform to fuel its high-end consumer electronics business—and at just the right time. It was also one of the few companies in this sector to possess all the needed technologies, and at a low cost.
Meanwhile, it began to emphasise innovation, going from being a laggard in the filings of patents to one of the world's leaders.
Underexploited capabilities represent the last and often the most obscure hidden asset. Given resources and time, companies can combine capabilities to create new properties and powers, with enormous commercial power for change or renewal.
When Li & Fung, one of the first Chinese-financed trading companies, reached its growth limits, it reinvented itself by exploiting a hidden asset in logistics: its knowledge of and proprietary access to the broad, complex maze of specialised manufacturing plants throughout China.
Over the past 25 years, Li & Fung has used this intricate knowledge to turn itself into one of the leading logistics-management companies in the world.
Replicating the success of these Asian companies starts by taking five steps.
- Define your most loyal and valuable customers.
- Figure out key sources of differentiation, whether they are strengthening or eroding, and why.
- Focus on your industry's profit pool and determine where profits can be earned.
- Assess your company's capabilities.
- Probe your organisation's culture and ask yourself whether that culture is ready for change.
Finding hidden platforms for growth may also require new ways of looking at your business and the environment in which it competes. Try asking frontline employees for their perspective; they deal with customers every day. Look for ideas outside your four walls.
Some of the most successful corporate rejuvenations are innovations from another business unit, vendor, customer or even competitor.
In a world of constant change and distractions, keeping the future in view has never been more challenging.
Management teams that understand their core, and begin to redefine early enough, still face a difficult task. But with such foresight and action, they substantially increase the odds of success.
Chris Zook is a Bain & Company partner based in Amsterdam. He is the author of Unstoppable: Finding Hidden Assets to Renew the Core and Fuel Profitable Growth (Harvard Business School Press, 2007). Edmund Lin and Till Vestring, both based in Singapore, are partners in Bain's Southeast Asia practice.