Some company should be focused to be successful?

Two professors from the INESAD school in Fontainbleau _ Karan Girotra and Serguei Netessine _ just released an article on the Harvard Business Review. They argue on the fact that the really successful companies are not the ones who try to growth by expansion but the one who focus on what thing that they can do almost perfectly.

We have seen some big companies trying to expand as much as possible following the Keiretsus’ model. Maybe one of the best example is Virgin which try to enter many different kind of markets. We can mention Virgin Atlantic (transatlantic airlines company), Virgin Megastore, Virgin Drinks, Virgin Galactic (space travelling), Virgin Oceanic (scientific ocean exploration), Virgin Books (publishing company) and we could go on. However, even if Virgin is a huge company, it also has to deal with major financial issues. What is characterizing Virgin except the fact that they do almost everything?

There are some companies who have chosen a totally different business model. As the two authors point it out, we can take the example of southern airlines which has only one type of class (economic) and only one type of aircraft (boeing 737). They know how to fix and maintain it. You also have Belron, a Belgium company who is specialized in vehicle glass repair _ now present in 30 countries and hiring more than 25,000 people_ or RedBull who is only making one enerydrink.

Thanks to this focus, these three companies control all their process and they avoid expensive underutilized equipment. However, the best examples still are the Mittelstand companies. It’s the name given to the small and medium-sized companies in Germany which are specialized in one field and which are export-oriented. They employ 70% of Germany’s workforce in private business and contribute 50% of Germany’s gross domestic product (GDP : $3.3 trillion).

Have a look at this  two minutes video that shows an example of Mittelstand company that is making print pincode:

Karan Girotra and Serguei Netessine give us 4 common features:

            1)      “Most Hidden Champions are extremely focused in what they do”.

            2)      “They do one thing but they do it extremely well by achieving tremendous efficiencies”. They can do really cost-competitive and avoid a real new competitor arrival on the market.

            3)      “Lean Management Hierarchy”. As their processes are simplified, their organization is too.

            4)      “International diversified”. Be specialized allow them to export everywhere in the world and to make great economies of scale.

The last point is maybe the most important because if you can produce the best product at the best price, you technically avoid the entrance of any other competitors on your market. We can take the example of Jungbunzlauer. You don’t know them but you already consume them. They are making the acid citric for Coca Cola Worldwide! They are alone and ultra-specialized.

The authors ask: “why don't we see more of these firms?”.  Maybe it’s cultural as they think but there is something in this kind of business model that is very dangerous: to be the best one without any risk of new technology revolution. Any inefficiency in your process let the opportunity to another competitor to enter as says the laws of economics.

So, be focused can be very successful but it also very hard and every company cannot think their business model in that way. However, that doesn’t mean not taking the risk.