As core markets mature, companies are identifying new visions for their future and they are taking steps to bring those visions to fruition. This brings challenges. So, as the future unfolds, handling the situation well can make a major difference between success and failure.
It is easy to opt for a vision that is rather different from the company’s mature business, especially if the vision seems to promise high growth. Pursuit of the vision often leads to acquisitions intended to add expertise that the company would not otherwise have. This is done with the intent to steer the business in a new direction thought to represent a more prosperous future.
But, it’s not always that simple. Companies may incur large losses as they try to learn the business comprising their new vision. This loss laden process may take longer than originally expected. And, some stakeholders may start to question whether the new vision is right for the company.
Furthermore, if the company is publicly held, activist investors may push to modify the vision or to spin off acquired businesses. Sometimes what the activists propose will make sense for the company, but sometimes it won’t. Sometimes what the activists call for would have made sense if it had been recommended before the company plunged into the acquisitions for which spin off is now proposed. If time has passed and an acquisition is already heavily integrated into the company, a called for divestiture can be much tougher to implement. It might actually be better to build on what’s already there to ultimately reach a point where what didn’t fit well initially is now deeply intertwined with the company’s operations, seemingly with good future potential. When this occurs, the value of divestiture can be less clear.
What is the lesson here? When plotting changes for navigating the future, companies need better up-front thinking. They need to better assess whether possible visions really are or are not a good fit. As I’ve seen in my 25+ years researching business success and failure patterns, there can be very effective ways for companies to expand when a business reaches maturity. Nonetheless, it’s often tempting for companies to chase idealized high growth futures, rather than identify and pursue areas most likely to succeed. Companies need to avoid this temptation and to concentrate on what is truly a good fit.
Do you want help with your company’s options for the future? If so, just contact us.