Know When to Hold ’em and When to Fold ’em – Knowing when to get out of a core business is key to being successful in the future.
By Denise Harrison, Executive Vice President and COO
Sony, the leading consumer electronics company in the 20th century, is not having success in the 21st century – many of its core businesses are hemorrhaging cash. Recently the company has taken steps to right the ship:
- Cutting jobs in the PC business and putting it up for sale
- Cutting jobs in the TV business and separating it out – potentially putting it up for sale
- Separating the video game and cell phone businesses
As noted by the CEO, Kazuo Hirai, Sony is looking to rekindle the spirit credited with spawning cool gadgets in the past. (WSJ, February 7, 2014) Sony lost focus on what made it a success – innovation in the consumer electronics space. Instead, it held on to old technologies and old businesses that had become commodities. And by focusing on low cost production rather than innovation, it lost its competitive edge.
One of the hardest decisions to make in developing a strategic plan, is knowing when to fold a core business. When looking at a mature segment of your business, consider the following questions:
- Has this business become a commodity business where purchasers are only looking for low price? This means there is little price differentiation resulting from additional features and/or additional service.
- Does your company still have a competitive advantage in this business? (For example: Blackberry evaluating its skill set after the iPhone was introduced; can they still compete in the cell phone market?)
- Will you get higher return by investing in other areas – specifically areas in where your competitive advantage is better defined?
Making the transition away from a formerly attractive core business to new areas for growth is a difficult one. Still many companies have faced this dilemma and made the transition to a new core. (DuPont is a good example.) Will Sony be able to make this transition? The jury is still out.
Interested in more ways to improve your strategic planning process? Download a complementary version of our Strategic Planning Tune-up book by clicking on Tune-up.
Denise Harrison is Executive Vice President and COO of the Center for Simplified Strategic Planning, Inc. She can be reached at firstname.lastname@example.org.
© Copyright 2014 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.