Introduction
Both when planning strategically, and when diagnosing or financially rehabilitating a company, it becomes crucial to analyze how focused or unfocused it is.
If there is something that few professionals, consultants, managers and owners know and properly manage, it is all about the approach, being it a generator of important strategic errors, which end up breaking the balance of business finances.
The exceptional American consultant, Al Ries begins by exposing it as follows:
"The Sun is a powerful source of energy. Every hour, the Sun bathes the Earth with billions of kilowatts. But with a hat and a good sunscreen you can sunbathe for several hours with few negative effects.
A laser is a weak source of energy. A laser requires a few kilowatts of energy and converts them into a coherent beam of light. But with a laser it is possible to cut steel and remove a malignant tumor.
When you approach a company, you create that same effect. Create a powerful, laser-like ability to dominate the market. That is the work of focusing.
When a company goes out of focus, it loses its power. It becomes a sun that dissipates its energy in too many products and too many markets. "
“In recent decades, an explosion of new goods and services has flooded markets. The combination of rapid technological development and lower production cost techniques has led to a massive increase in the number and variety of products available to consumers everywhere. Computers, copiers, color televisions, cameras and video recorders, cell phones, fax machines, the list is endless.
Existing companies responded by expanding their product lines. General Electric, a manufacturer of electrical equipment, has launched to produce televisions, jet engines, computers, plastics, to offer financial services and a host of other products and services unrelated to its core power lines. And so did almost every company in the world, from American Express to Zenith.
Today, the charm has disappeared. It should have been obvious that a company cannot expand its product lines to infinity. Sooner or later it reaches a point of diminishing returns. It loses its efficiency, its competitiveness and, worst of all, its ability to manage a heterogeneous bunch of products and services unrelated to each other. ”
There is no better way to start expounding on focus than with this famous reasoning.
Many may say that there are many companies that despite their wide variety of products and services offered are profitable. But, around this we can say that they would be much healthier and more profitable if they were more focused.
Much has been written about Just in Time production systems and flexible manufacturing systems. These are actually subsets of a broader phenomenon: the need to be flexible throughout the corporation.
If flexibility and speed of response are becoming key competitive factors, diversified corporations will have a bad time. It is difficult to move quickly in several directions at once. An interesting analogy is this: World marks at most athletic events are not held by pentathletes and decathletes who take part in five or ten competitions. Daley Thompson may be the most complete athlete in the world, but he will always be defeated by Carl Lewis and dozens more in the 100-meter race, or in other specialties.
Just as Thompson is crushed when he runs or jumps against specialists who have trained for one or two closely related events, so it is with overly diversified companies when they stumble on concentrated businesses. There may be an award for being the best athlete, but in business there is no such thing. In a competitive world that demands greater speed and variety of production, the prize will be in the hands of the competitor who is focused on a single purpose and is dedicated to his task.
Causes
There are many reasons that lead an organization to lose its focus. But in order to be more effective in approach analysis, we must conceptualize the approach with much greater precision. And a good way to do this is taking into account that since the resources that an organization has are always limited, it must make the most profitable use of them, for which it must concentrate on carrying out those activities for which it is most capable (in economic terms we are talking about comparative advantages), for which you must dedicate your efforts to produce goods, services, and serve markets, or segments of it, from which you can achieve maximum profitability.
That said, we can go on to verify the different causes that cause the blur:
- Ignorance of the principle of approach by owners, managers, officials, advisers and professionals. Given the great importance of the topic in question, it is really surprising the lack of existing knowledge about it. Lack of a clear definition of the organizational mission. The ignorance or the blurred vision about the business in which it is, leads to face activities for which the company is not trained, or would obtain much better results by deriving them from a third party. Companies that produce their own software, or that have their own advertising development departments, their main activity being construction or manufacturing, are a clear example of this. But these observations are also valid for those organizations that do not have well defined what products,services and markets must satisfy. It is impossible to be good at everything and for everyone. Management's misunderstanding of the economic principles regarding diminishing marginal returns and diseconomies of scale and scope. Once certain levels of activity have been exceeded, the total profit begins to decrease. Organizational and bureaucratic structures that support an increasing variety of lines and markets, diminish both their control and response capacity. Ignorance of these rules leads employers and managers to incur in blurring. Ignorance of the 80/20 Principle. If 80 percent of the activities, clients or markets generate only 20 percent of the profits, and the other 20 percent generate the remaining 80 percent of the profits,The logical thing is to concentrate resources on those activities that generate the greatest potential for benefits, avoiding falling into the tendency to seek marginal benefits and possible synergies. Search for excessive diversification to reduce risk levels. Considering that the more diversified the company, the lower the risks to which it is subject is another reason that leads to the progressive loss of focus. Search for new businesses aimed at increasing profits. Dumping financial resources to new activities or markets, once the existing ones have been exhausted in order to increase or preserve the levels of profitability on capital and investment, is another reason. The syndrome of success. The more successful entrepreneurs achieve,the greater the temptation to incur new fields of activity. Yesterday's success generates the belief of possessing the capacities to face any type of activity. Managers with the imperial syndrome. Linked to the previous one, but with a very personal characteristic, is the strong temptation to consider yourself unbeatable, want to impose yourself on everyone, and try to achieve total domination. Thus we have what was the imperial vocation of corporations such as General Electric or General Motors.Thus we have what was the imperial vocation of corporations such as General Electric or General Motors.Thus we have what was the imperial vocation of corporations such as General Electric or General Motors.
The imperial syndrome
Given the little that has been written about this aspect, and the strong tendency of many individuals to fall into it, we treat this aspect in a special way.
There is a very strong tendency, above all in men, to the spirit of conquest, which ancestral was the conquest of territories, towns and slaves, and which continued until well into the 20th century with doctrines and ideologies that promoted the domination of towns and spaces. It is represented in many individuals and companies by the conquest of different markets, in terms of products and segments that are intended to dominate.
The more segments or lines that are attacked, the less control one has of the situation in each market, the less specialist one is in each of them, the more "enemies" they have, the more bureaucratic and heavy the organization becomes, and the more problems they must be object of treatment and resolution.
Many have to taste the taste of "defeat" or misfortune to become aware of the famous phrase "shoemaker to your shoes".
The vocation to be infallible, to be able to do everything, to be beyond any limit, leads managers to make the gross mistake of opening many fronts, and many times all at the same time. The desire for power, the desire for wealth, managing huge sums of money, having large numbers of employees, in the manner of armies, leads businessmen to fall out of focus.
We all know well how the USSR ended, the imperialist objectives of Japan, Napoleon and his armies scattered throughout Europe, or the irrational claims of domination by Nazi Germany. Similarly in business, be they small or large, pretending to fight on countless fronts brings deconcentration, loss of control, and increased levels of waste.
Focus and positioning
One of the great advantages of the approach is to achieve a greater and more precise positioning of a company, brand or professional in the minds of consumers, making it feasible that a brand or name is synonymous with a product or service. So when we say "Kotler" we are talking about "Marketing", and when we say "Crosby" its relationship with "Quality" is clear. Similarly, "McGraw Hill" is synonymous with "books", "Coca Cola" for "soft drinks", "Honda" for "engines", "Toyota" for "cars" and "Google" for smart search engine. If a company or professional is dedicated to satisfying a multitude of segments or variety of offers, the question is, how is this positioned in the minds of consumers?
A greater focus brings with it a better positioning, and with it greater demand and, as a consequence, higher levels of profitability. As the company loses focus, it loses positioning and profitability.
Generation of problems due to lack of focus
Lack of focus leads to using resources in a less effective and efficient way, which brings lower levels of profit, or even losses. The lack of focus leads the company to confront on many fronts, facing rivals who, being more concentrated, are in better conditions to win, even with fewer resources. Opening many battle fronts leads to dispersing resources, loss of power, and the inability of managers to focus their energies and experiences on a given problem.
The higher the degree of blur, the less harmonious and balanced is the organization and its management. Those most profitable aspects are no longer attended to promptly, to disperse resources in an infinity of activities and tasks that are less so.
The greater the number of activities, the greater should be not only the resources allocated to them, but also the size and quantity of administrative tasks that this entails.
Companies that start out being very successful in a certain branch of activities believe they can repeat the success with the same solvency in other branches, but then time is in charge of showing them otherwise. Falls in inventory turnover levels, losses due to obsolescence, increase in general expenses, are some of the many symptoms that lead to and generate a drop in profits and consequently profitability.
The more an organization concentrates its effort on certain experience curves, the more efficient is the use of resources by it, achieving lower costs and response times, lower levels of defects and higher levels of customer satisfaction and consumers.
In the medium and long term, the lack of focus motivates the loss of competitiveness and with it, puts at risk their own survival.
How to correct blur
Firstly, the business in which the company wants, can and must compete must be redefined. Not always wanting is power. It is essential to clearly recognize the restrictions and act accordingly.
Defined and / or redefined the organizational mission, we must proceed to eliminate those activities outside it.
Buying from third parties and outsourcing are some of the solutions. The other is to separate those activities not directly related, within other areas, with other brands or names, other managers and hold them responsible for generating results. She provides her services to the mother organization as to other companies.
Selling business units that do not fit within the new strategic business matrix to third parties is the most recommended remedy to rebalance corporate management and operations.
Strong publicity around the specialty or market that the company will exclusively face, is a way of refocusing and repositioning it in the minds of customers and consumers.
Conclusions
Resources are scarce, that is a basic and fundamental rule of the economy, a rule that must never be forgotten. Rule that implies making the most effective and efficient use of the resources that an organization has. Being more effective and efficient implies using such resources in the activities and processes for which you have greater knowledge, capacities, experience and skills. A person can practice judo, karate, kung-fu, pa-kua, and aikido, but he will never become a great teacher in all of them. In the same way, a company or a professional will be able to face many activities, but it will never be the best in all of them, thus exposing itself in the battle for the markets, to losing in the hands of those who, having a greater specialization, have the conditions to overcome it.
In increasingly competitive markets, a greater focus generates better positioning with all that this implies in the fight to occupy a place in the minds of customers and consumers.
Focus is the first step in achieving positioning, and therefore its crucial importance.
Professionals and managers must take note of the risks to which they are exposed due to their excessive diversification, as well as being aware of the way in which they unconsciously dilute their resources in countless operations and activities that generate waste.
A company with a small staff and focused on producing a few things really well, is more likely to be flexible and therefore more capable of responding to threats and competitive opportunities, than a diversified bureaucracy.
Strategic refocusing involves concentrating the business around a few genuinely connected skills, activities, or resources that, taken together, allow the business to engage in excellent performance in a few areas. The company must get rid of everything that is foreign to these core activities. No company should follow a strategy designed to ensure that it is not a leader in something.
Since refocusing often involves leaving many people out of work, that's one of the most difficult things for head offices to deal with. But businesses do not work effectively if they remain under the clutches of a large and powerful corporate office. Managing a company with large administrative staff is something like flying a plane with a large amount of lead on one wing - you have a better chance of staying in the air if the wingtip is trimmed. Once a company has shed a large chunk of its overhead, it must apply the same principles to its operations as it does to its strategy: it must focus on the few things it takes to do really well to succeed.
A focused and skinny business where the best management talents participate in the core of the business rather than in managing processes, is much more likely to be competitive and successful than a diversified and flabby corporate group.
Bibliography
Focus. The future of your company depends on it - Al Ries - McGraw Hill Publishing - 1996
Operations Administration - Jack Meredith - Editorial Limusa - Wiley - 1999
Financial rehabilitation of companies - Mauricio Lefcovich - www.gestiopolis.com - 2004
