Don't Underestimate Growth Plus the Digital Operating Basics (122)

This week’s podcast is about combining two previously covered topics: growth and the digital operating basics. This can be surprisingly powerful.

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Most of the growth thinking is a summary of work by Chris Zook at Bain’s strategy practice. I am citing the books:

• Profit from the Core
• Beyond the Core

He argues most all sustainable growth is based on 1-2 strong cores that continually adapt.

• A profitable core is centered on the strongest position in terms of loyal customers, competitive advantage, unique skills, and ability to earn profits.
• Adapting the core can be:
  • New products / services
  • New customers – microsegments
  • New geographies
  • New businesses.

Then add growth adjacencies. To assess an adjacency move:

• Factor 1: Adjacency is tightly tied to a strong core.
• Factor 2: An attractive adjacency market in terms of profit pools
• Factor 3: The ability to capture economic leadership in that market. Competitive advantage as an attacker and then an incumbent.

 Growth + DOB can sometimes get you the dream scenario:

1. Grow the revenue line.
2. Increase gross profits. An expanding margin with size.
3. Increase operating leverage with increasing scale. This is more about going for scale.
4. Invest in R&D, tech and infrastructure. This will result in a better user experience and improve operating efficiency.
   1. Drive efficiencies and increase monetization.
   2. Improve the user experience.
   3. Expand the products and services in high growth areas.
5. Do targeted M&A. To increase innovation and protect against disruption.

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Related articles:

• Core vs. Adjacency Growth in Digital Businesses (Asia Tech Strategy – Podcast 104)
• Lessons in Digital Operating Basics from Ram Charan. Part 1 of 2 on “Rethinking Competitive Advantage”. (Asia Tech Strategy – Podcast 98)

From the Concept Library, concepts for this article are:

• Growth: Core vs. Adjacency
• Digital Operating Basics
• DOB7: Sustainable Cash Engine that Scales

From the Company Library, companies for this article are:

• n/a

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