The most successful organizations use five essential leadership strategies to lead them toward long-term profitable growth.
Only compete in industries where you are No. 1 or No. 2.
When you are the top competitor in a market you have competitive advantages that make it more difficult for others to steal your customers or market share. Being No. 1 or No. 2 provides an opportunity to be a market leader and to set the trends of the industry. It affords you the opportunity to claim the best suppliers and customers in the industry. It affords you the opportunity to utilize competitive pricing to continually re-position yourself as the leader.
This unique idea was the basis for General Electric’s (GE) program of 10 years ago for re-inventing itself. GE divested itself of all businesses in which they were not ranked first or second.
They used the income from the sale of these businesses to pay off debt on those they intended to keep. The results were staggering. GE’s net income went up, the stock price increased and excess case at the end of the year positioned them to buy up more of their competition.
Buy out industry competitors to become No. 1 or No. 2
When you are not positioned as one of the top two competitors you are facing a competitive disadvantage. Thus, you need to use a three-step formula to change your market and industry positioning.
First, study the “key” players in the industry to determine their strengths and weaknesses. Determine how you can steal market share and customers from them in specific and selected sections of the market.
Next, study the “bit” players to see if they can add strength to your competitive situation in the specific sections of the industry where the key players are weak.
Last, buy as many of the “bit’ players as necessary to make your company one of the top two in the industry. These “bit” players are usually positioned as No. 8 through 15, and they can be purchased at a reasonable price.
ABB of Sweden has been very successful with this strategy. They have impacted many of their competitors by appearing to “come out of nowhere” to become one of the two significant players in the industries in which they compete. This strategy has propelled them to significant global success in the past five years.
Buy knowledge and technology overseas.
One of the most expensive and dangerous concerns of international business relates to the cost of building plants and facilities with the inherent fear of having them nationalize and losing your total investment.
The smart solution is to avoid building these facilities and to buy only knowledge and technology which is easily portable and can be updated daily.
IBM hires five software developers in India for the cost of one in America. Their total fixed investment is the computer hardware. Every night the total day’s work in India is uploaded and then downloaded directly into IBM’s computers in the United States. Thus, if this operation is ever nationalized their losses are minimal. They have protected themselves on the downside while investing themselves on the upside.
Rockwell International hires software developers in the former Soviet Union for the same purpose – to gain knowledge and technology and to limit exposure to global risk.
Before investing in fixed assets, consider investing in portable assets that can be mobilized, repatriated or protected at a moment’s notice.
Focus on licensed, leased or purchased R&D.
Basic research and development is very expensive to create, takes a long time to develop and is easily made obsolete in today’s fast changing world.
Learn to license, lease or purchase R&D. Let others take some of the development risk while you reap the profits of applying these developments to the marketplace. R&D is an investment cost until it becomes bottom line profit. Shorten the curve.
Use downsizing only as a path to profitable growth.
Downsizing is not a strategy. It is a method of achieving a leaner organization to become more competitive. It is a means and not an end. At its best, it provides a starting point profitable growth – at its worst, it leads to decline and dissolution.
Profitable growth is a strategy. It is a strategic system of operating that makes you focus on your strengths and weaknesses and forces you to concentrate on your profitable (or potentially profitable) markets. Downsizing is the past. Profitable growth is the future.
Make sure you invest your leadership strategies into a future of profitable growth.