Bain & Company
Buy the books | Bain.com | Contact


Not every company whose growth strategy of the past is reaching a limit needs to rethink its core strategy. To the contrary, declining performance in what had been a thriving business can usually be chalked up to an execution shortfall. But when a strategy does turn out to be exhausted, it's generally for one of three reasons.

1. Shrinking or shifting of the future profit pool

If Apple had not moved its business toward digital music, one might wonder about its prospects: the profit pool in personal computers had been contracting, and Apple held only 3 percent of the market. Within two years of launching iTunes, Apple attained 70 percent of the market for portable MP3 players and 85 percent of the market for music downloads. General Dynamics, faced in the 1990s with a sharp decline in defense spending, sold off many of its units and redefined the company around just three core businesses (submarines, electronics, and information systems) where it held substantial advantages. Only such a radical move saved it from being stranded by the receding profit pool. Since that time, General Dynamics has been among the best-performing major defense companies in the world.

2. Direct threat to the core business

Perhaps the most difficult threat to counter is a new competitor with a business model involving inherently superior economics. Indeed, the business landscape is littered with failures and near-failures because management didn't react to such a threat fast enough: General Motors (Toyota), Compaq (Dell), Kmart (Wal-Mart), Xerox (Canon), and so on. Occasionally a company sees such a threat in time and responds. Nokia saw the confluence of wireless technology and digital information as the future for the company. By divesting its rubber, cable and energy businesses and investing in a cellular start-up, Nokia became the cellular phone handset market leader.

3. Stall-out of the growth formula.

Growth may stall for any number of reasons. The market may be nearing saturation (cell phones). The cost-benefit equation of further expansion may shift unfavorably. Or a natural advantage may start to erode. A mining company whose mines are playing out, a pharmaceutical company with too many expiring patents, a television network that can't find enough hit shows—all are faced with the need to find a new formula for growth.

Learn more on the redefine cycle by reading about Unstoppable, which shows managers how to look deep within their organizations to find undervalued, unrecognized, or underutilized assets that can serve as new platforms for sustainable growth
   
© 2001-2011, Bain & Company Terms of use  |  Privacy