Liberating Market Potential

Companies, large or small, get formed and prosper because there was something unique they could offer to the market place. With time, as sales get established and complacency settles in, companies tend to lose their razor-sharp focus that they had at the very beginning of their existence.

To keep the focus sharp, executives must go back to their roots. Uncovering the unrealized market potential is not something that can be done overnight or by one person. Usually, it is a collaboration process of a well-tuned multi-functional team that can look at opportunities in the market and compare them against company’s core capabilities and unique expertise. Driving a company too far from its core competency has been proven many times to be a mistake. Consider two most known cases: Apple and Starbucks.

Apple (NASDAQ: AAPL) may be the most improbable of the turnarounds. The company was co-founded by Steve Jobs in 1976. He was forced out and then returned to build one of the world’s great corporations. Apple created one of the first PCs and for a time competed directly with IBM’s PC products which ran Microsoft software. The most successful product that the company produced in its first decade was the Macintosh, launched in 1984. Sales were initially strong, but Apple mistakenly relied on software that was incompatible with PCs. The Apple board decided that Jobs was not old enough or experienced enough to manage a company that was growing quickly.

New CEO John Sculley, who was brought in from Pepsi, pushed Jobs out the door in 1985. The products launched under Sculley were popular at first, particularly the Powerbook, one of the earliest portable PCs. Sculley decided to capitalize on the Mac’s success by launching a broad range of new products. The market’s appetite for such a large number of models did not exist. Apple’s large product line damaged customer retention. Apple also refused to release software that worked with Windows, which had become the dominant operating system. Sales dropped so sharply in the early 1990s that Apple went through a series of large layoffs and two CEOs.

In 1997, Apple’s board, now desperate, turned back to its co-founder to salvage the flailing company. Jobs understood that Apple’s success could not be based on the niche market for the Mac. Apple launched the iMac in 1998 to reinvigorate the modest customer base for the computer. But, Jobs took a real risk when decided in 2000 to use the Apple brand to launch a portable multimedia player–the iPod. Apple had never produced a product even remotely like it. Jobs decision paid off. The iPod became one of the best-selling consumer electronics products in history.

(Source: 247wallst.com)

Starbucks … The coffee shop chain became one of the largest food and beverage retail chains in the world. Starbucks expand so rapidly in the early 2000s that it had 15,000 stores by 2007. Management, led by CEO Jim Donald, had diversified into the sales of music, coffee accessories, and food. Donald publicly challenged McDonald’s and said that Starbucks would eventually have 40,000 outlets.

Donald made three critical mistakes. The first was to move Starbucks well beyond its core products. The next was to fail to counter fierce competition from McDonald’s. The last was to continue to move toward the 40,000 store goal while the economy began to weaken. The Starbucks success story came to an end in 2007 as sales and the company’s share price fell rapidly. Founder Howard Schultz returned to Starbucks as CEO in early 2008.

As is true with many large turnarounds, the first thing that Schultz did was brutally cut costs. From the time Schultz returned, he cut the number of Starbucks locations by nearly 1,000 and the number of workers by over 15,000. Schulz had a base to build profits, but the economy was in the middle of a recession. The CEO made several critical decisions, the first of which was to focus on the company’s core product–coffee– and the second was to recreate the ambiance of a local coffee houses. Beans were ground locally. Machines were changed so that customer could more easily see workers behind the bar. The company guaranteed that any drink not made to a customer’s satisfaction would be replaced. Schultz built customer affinity programs and aggressively extended the brand into instant coffee and stores. Schultz returned Starbucks to the position of being a premium brand and not just an expensive competitor to McDonald’s.

(Source: 247 wallst.com)

Read more: America’s Ten Biggest Corporate Turnarounds – 24/7 Wall St. http://247wallst.com/investing/2011/02/03/america%e2%80%99s-ten-biggest-corporate-turnarounds/#ixzz3TcGaLPjt

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s