Adapting to change and unlocking hidden assets

Financial Times

It took someone named Ford to spell out the truth. “The business model that sustained us for decades is no longer sufficient to ensure profitability,” said Bill Ford, then chief executive of the great motor company, in an e-mail to his staff last summer.

That was bound to attract the attention of any decent strategy consultant, and it is not surprising to see Chris Zook quoting it in his new book. Zook, head of Bain & Co.'s global strategy practice, has completed what is in effect a trilogy of publications on strategic focus.

The first work, “Profit From the Core” (2001), urged business leaders to make a greater effort to understand the full potential of their core business. The second, “Beyond the Core” (2004), showed how growth could be achieved by building on those core activities.

This latest work is more ambitious and asks even more fundamental questions. How can you cope when business models (and those precious core businesses) are facing greater turbulence than ever? How do you make urgent, necessary changes while keeping the business going?


Based on a thorough analysis of data and supported by interviews with and studies of a range of corporations, Zook brings good and bad news.

The bad news is that corporate strategies are becoming obsolete faster than ever. Markets are changing, and so are areas in the market where you can actually make money.

The good news is that many companies “already hold most of the cards for a winning hand” in this game but just do not realize it. Hence the “hidden assets” in the sub-heading of this book.

Over time, Zook says, assets are accumulated and slip into the general fabric of the organization; they eventually get taken for granted and disappear from sight.


They can take the form of undervalued “business platforms” (“non-core” businesses, perhaps), untapped “customer insights” (relationships with customers that you are not making the most of) and underexploited capabilities (profitable business models that could create even more value).

By focusing on core activities, expanding those with greater potential and then redefining your business structure, Zook says, you can transform your company from one that is unsustainable to one that is unstoppable -- for a while.

Which companies exemplify the right approach? Apple Inc. successfully shifted its focus -- drawing on design and software expertise in its computer business, allied to the new possibilities of online music -- to create the iPod phenomenon.

“Virtually all the value created by Apple in the past 10 years can be attributed to hidden or underexploited assets and critical new capabilities it acquired,” Zook says.


Marvel Entertainment Inc. was languishing until it released the hidden asset of its catalog of comic-book characters, introducing Spider-Man and the Incredible Hulk to a new generation through blockbuster films.

But hidden assets can also take the form of a service function, such as IBM Corp.'s global services group, launched by Lou Gerstner, former chief executive. By 2005, the group was generating 35% of company profit.

Similarly, GE Capital Solutions was a modest financial support vehicle until management grabbed hold of it in the 1990s. By 2005 it too was delivering 35% of General Electric Co.'s profit.

Unearthing and redeploying assets is not a quick-fix solution, Zook says. Transformation takes place in stages, like the gradual growth from childhood to adulthood.


And like an earnest parent, Zook firmly tells us that commercial salvation may lie in our own hands, if only we are prepared to do the hard thinking and the hard work. He contends that it is not necessarily the strongest but the most adaptable that will survive.

He concludes with this neat paradox: “The real focus of business should be external -- on competitors, shifts in technology and customer dynamics.

“Yet my overwhelming feeling ... is that, ironically, many of the most challenging demons are internal, and our most difficult foes are often ourselves.”



Stefan Stern is a columnist for the Financial Times of London, in which this review first appeared.