CASE 1: FINDING YOUR NEXT CORE BUSINESS BY: Chris Zook Group 1: Hartoyo Sugiharto Leny Chandra Robert De deo Widya Buenastuti Business Corporate Growth – MME 34 – October 8, 2009

The Questions: Why do so many companies face the need to transform themselves? How do you know when your core needs to change in some fundamental way? How do you determine what the new core should be? How to see early signs that its core business is losing relevance? What are the Successfull features in core re-defining?

The Questions: Why do so many companies face the need to transform themselves? How do you know when your core needs to change in some fundamental way? How do you determine what the new core should be? How to see early signs that its core business is losing relevance? What are the Successfull features in core re-defining?

Transformation of Apple – 2001 Apple’s renaissance presents Windows era Apple Lisa Power book iBook iPod

The Questions: Why do so many companies face the need to transform themselves? – Remain in Business by Focusing on what they do well – Expanding to Growth the Company Enlarging its Market Share Increase the value of its shares – Redefining their core to keep on growing. Focus- Expand - Redefine

Time for Deep Strategic Change 1.Profit pools 2.Inherently inferior economics 3.Growth for formula that cannot be sustained

Profit pools : If the company is shrinking or shifting profit Apple : PC’s MS plummeted from 9 % to 3% ( ) Apple moved its business toward digital music General Dynamic : 1990 – defense spending declined sharply. It redefined to just 3 core business: Submarines Electronics Information systems

General Motors vs Toyota Compaq vs Dell Kmart vs Walmart Xerox vs Canon Inherently inferior economics The New Competitors enter new field without any cost structures that an older company cannot readil shake off or driven by laws that a company cannot be changed

Growth Formula That Cannot be Sustained Market reaches saturation Competitors replicate its once unique source of differentiation Competitor is catching up Running out of new territory to conquer

Dometic is a customer driven, world-leading provider of leisure products for the caravan & motorhome, marine and automotive markets. Dometic Group also provides specially designed hotel refrigerators and safes, compact fridges for home, office and wine cabinetsfor maturing or serving fine wine Caravan Air conditioners Awnings Cleaning CARE series Converters Cooker Hoods Cookers Cooktops Dishwashes, Doors, Generators, Grills, Hobs-Stoves, Inverters, Reversing Video System, Rooflights, Safes, Sinks Toilets Vacuum Cleaners Ventilation System etc

Products for RV Source:

Products for Medical Devices Medical Refrigerator Blood Samples Cabinet Medical Refrigerator Incubators Source:

DevelopmentInnovation Expanding by ProductsSpin OffRedefining Absorption refrig is founded 1936 Millions were sold 1950 compressor refrig entrants refrig for caravan was introduced 1960 Dometic Subsidiary was created Refrig w car battery was introduced Demand for RV is high Selling to end cons via dealers Electric refrig was introduced AC & heating equipment Cookers & ovens for pleasures Awning for RV Medical Refrig 1 st Water purification was developed Windows & doors for RV The MILESTONES Electrolux sells its Leisure Products Dometic becomes Legal Entity Sanitation system for pleasure boat Increase Dometic product with lighting system Dometic enters the marine industry as system supplier Global Supplier of products for RV (75% world MS) & pleasure boats Source:

Focus – Expand - Redefine Absorption Refrigerator Interior Components for RV Customer Base Interior Components for Live in vehicles Boats & long haul trucks

Lesson Learned 1.Gradualism during transformation 2.The discovery and use of hidden assets Moving to the RV Moving to “live in” vehicles 3.Underlying leadership economics central to the strategy Change in People’s lifestyle – mobility became not only a trend but need. 4.A move from one repeatable formula that is unique to the company to another. Medical, military and marine industry

The Questions: Why do so many companies face the need to transform themselves? How do you know when your core needs to change in some fundamental way? – Dometic – new inventions & customer insights How do you determine what the new core should be? How to see early signs that its core business is losing relevance? What are the Successfull features in core re-defining?

The Questions: Why do so many companies face the need to transform themselves? How do you know when your core needs to change in some fundamental way? How do you determine what the new core should be? How to see early signs that its core business is losing relevance? What are the Successfull features in core re-defining?

Evaluating Tools Evaluate the Core Business Hidden Assets – Undervalued business platforms – Untapped insights into customers – Underexploited Capabilities Explore to New Core Business

Evaluate Your Core business

Hidden Assets

Explore to New Core Business

Undervalued Business Platform Perkin Elmer Market leader – Optical electronics for analytical instruments – Chosen as NASA’s supplier 1993 – lower cost and more innovative competitor – Revenues stuck at $1.2 Bio (same as 10 years earlier) – Market shares eroded New CEO, Tony White is appointed – Examining range of product lines – Customer Segment Served Found that in 1990 had develop products to amplify DNA with Cetus Corporation (Key Life Science Platform) 1993 – acquired a small Silicon Valley life sciences equipment company, Applied Biosystems (AB)

White’s Strategy: Reassemble the parts of AB Appointed new leader for the division Announce to reform the core of the company  key life sciences detection technology. Analytical instruments division – Cost reduction – Cash flow target Setting up a new data & diagnostics subsidiary (Celera Genomics) Celera & AB were combined  Applera The instrument division then sold to EG&G

Lesson Learned from PerkinElmer 1.Hidden asset may be a collection of products and customer relationship in different areas of a company that can be collected to form a new core 2.The power of market leadership. 3.The concept of shrinking to grow.

Untapped insights into customers Harman International 1990 – focused on consumer & professional audio markets (less than 10% revenues from original equipment automotive market) Stagnant growth and profit nearly zero 1993 – Sidney Harman returned to rejuvenate the company. – More people were spending their time in the car – Drivers are music lovers accustomed to highend equipment at home

Harman’s strategy Acquired the Becker (radio supplier to Mercedes-Benz). New digital hardware with high performance audio for smaller space than before – had been newly developed. Invest heavily in high end automotive infotainment systems. Market value increased 40x from 1993 to 2005.

Underexploited Capabilities Underexploited Capabilities can be an engine of growth if and only if it can combine with a company’s other capabilities to produce something distinctly new and better.

A Danish Company Now- a world leader in the development and production of high quality enzymes. (formerly was on a relatively low tech commodity enzymes i.e for detergents)

The Strategy of CEO Steen Riisgaard – CEO Found that Novozyme’ underutilized scientific capability. Focused on the creation of bioengineered specialty enzymes. – Scientists will look for the enzyme that is closest to what was needed by the customers. – Uses the state of the art technology to single out the haystacks and accelerate the search. – The capabilities have shortened product development from 5 to 2 years

Growth Horizon: To have a better understanding with finding new core business, we use the Horizon Growth. Horizon I Extend and Define Core Business Horizon 2 Build Emerging Business Horizon 3 Create Viable Options Future Now Future Profit

Management’s Reactions when their core business is under severe threat Defend the status quo Transform their companies all at once thruogh a big merger Leap into a hot new market

Conclusion The surest route is not to venture far afield but to mine new value close to home (core), assets already in hand but peripheral to the core offer up the richest new cores.

Chris Zook, a partner at Bain & Company, leads the firm's Global Strategy Practice. During his more than 20 years at Bain, Mr. Zook's work has focused on companies searching for new sources of profitable growth, in a wide range of industries.Bain & Company In 2001 he published his best-selling business book, Profit from the Core, (Harvard Business School Press), which found that nine out of 10 companies that had sustained profitable growth for a decade had focused on their core businesses, rather than following a siren's song toward diversification. The book offers an approach to assessing and making the most of core business opportunities. Mr. Zook's sequel, Beyond the Core, (Harvard Business School Press, 2004), examines how companies that have fully exploited their core businesses can systematically and successfully expand beyond into related, or "adjacent" areas. Unstoppable (Harvard Business School Press, 2007) completes the series and examines what to do when your growth formula of the past begins to approach its limits, demanding that your company change its strategic focus and redefine its core. All three books are based on a growth study begun in 1990 at Bain & Company that involves thousands of companies worldwide. The study's findings have been expanded each year; adopted and applied, in hundreds of successful companies in all types of industries. Mr. Zook also writes extensively in the business press, is a frequent speaker at business forums, such as the World Economic Forum at Davos, and appears regularly on television and radio. He received a B.A. from Williams College, an M. Phil. in Economics from Exeter College, Oxford University, and holds Master's and Ph.D. degrees from Harvard University. He splits his time between homes in Boston, Massachusetts, and Amsterdam, The Netherlands. Chris Zook