Join Anil Gupta for an in-depth discussion in this video Identifying high-potential opportunities, part of Designing Growth Strategies.
- Take the case of Starbucks around the year 2000. The company has been around for over 15 years. It is growing and doing well, yet, Starbucks places relentless pressure to keep growing. Shareholders demand it; managers expect it. Hypothetically, Starbucks could consider entering any industry or segment which would be new to it.
Such as internet search, or smartphones, or pharmaceuticals, or what about telecom equipment? Obviously, such thinking would be ludicrous and a waste of time. Any company that diversifies into a business that it knows little about is goading disaster. How then should Starbucks identify a set of the more promising growth opportunities rapidly and logically? In answering this question, a two-dimensional framework can be extremely helpful.
The central idea behind this framework is that in pursuing new growth opportunities, the company should build on its historical strengths while also stretching itself into new marketplaces. Let the x-axis represent the company's current products and services. Along this axis, think of two options. Current versus new.
"Current" refers to those products and services that the company currently offers. In contrast, "new" refers to those products and services that would be new to the company. Now, let the y-axis represent the company's targeted customer segments. Along this axis too, think of two options. Current versus new.
"Current" refers to those customer segments that the company currently serves. In contrast, "new" refers to those customer segments that would be new to the company. We now have four cells on this two-by-two matrix. The cell on the bottom left. This cell represents the company's existing business. For Starbucks, this would be the company's coffeehouses in the US.
Within this cell, the company can still grow. It can do so by stealing market share from competitors and or by increasing the size of the potential market for cafes. The bottom right cell refers to new products and services targeted at current customer segments. For Starbucks, potential growth options in this cell might include an expanded product mix for sale in the cafes, a broader menu, packaged coffee beans, instant coffee, fancy tea leaves, that customers can purchase to make beverages at home.
How about accessories, such as beverage mugs and coffee makers? The top left cell refers to current products and services targeted at new customer segments. Potential growth options in this cell would include expansion outside the US, but also think of cafeterias in offices, universities, and the like. In these locations, it may not be possible to set up a Starbucks store.
However, it may be possible for Starbucks to enable franchised kiosks akin to a store within a store. Such an approach could expand the potential target market for Starbucks. Finally, the top right cell refers to new products and services targeted at new customer segments. Growth options that belong to this cell represent truly white spaces.
Every company should be careful about growth options that emerge from this cell. It would generally be best to stay away from those ideas which imply diversification into product market arenas that do not build on any core strength. Ideas such as Starbucks diversifying into smartphones or pharmaceuticals.
However, those ideas which build on existing core strengths could represent excellent opportunities for profitable growth. For Starbucks, these could be ideas such as tea houses designed around gourmet teas and aimed at tea enthusiasts. These tea houses might be set up under a brand entirely different from Starbucks. Other ideas might include Starbucks-branded beverages, yogurts, and ice creams sold through grocery stores such as Safeway or Walmart.
To sum up, it is not a good idea to engage in random brainstorming when generating options for future growth. Instead, such brainstorming should be guided by the two-dimensional framework that we just discussed. This approach reduces the risk of overlooking potentially good opportunities, while preventing corporate leaders from distraction by red herrings.
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- The growth imperative
- Identifying opportunities for growth
- Assessing and choosing among the growth options
- Implementing the chosen growth strategy
- Organizing and leading for growth