My human Resources Manager says, recruitment at MBA schools exasperates him. When he asks students if Bata can make jam, they smugly reply, ?Of course! If a cigarette company can make food to cosmetics to agarbatti, why not a shoemaker?? It?s scary how Indian business schools are adulterating the marketing courses they have copycatted from the West. Our License Raj heritage of unsynchronised additions to the conglomerate seems embedded in India?s business practice. Do such organisations understand what their perceived business core is?
Root, trunk and fruit analogy: This is a device I?ve defined since 1994 on how an organisation can grow sustainably with high topline and bottomline. Every corporation, like every tree, has to have its root and trunk aligned to sustainably produce healthy fruits. This alignment meets the end-customer?s needs and desires in the phenomenally competitive environment. In analogy, the root is the perceived core with precedent and inherent value as practiced by the enterprise that its end-customers experience and recall. The trunk is the direction its operating systems need to be driven towards; the fruit is excellence of its delivery execution to end-customers.
End-customers will perceive a single point of an existing company as its core. Their repeat purchase from this company, instead of from its competition, makes that core evident. A start-up?s core comes from how it studied the market for at least a decade to find its unlimited potential and business viability there. You can consider the business you are trying to enter as your core only if you can match your personal expertise and competency with it, and have the stamina to encounter up and down situations there. Refine that every three years on how your end-customers perceive your core.
From my personal experience of working in several countries, I?ve understood that seeding and nurturing the core makes business sustainable, and differentiates it from trading business. Indian enterprises while driving one brand for multiple industry opportunities will face enormous problems in establishing their perceived core. In global business that?s already in India today, not driving with perceived core focus can be a stumbling block.
Nobody prohibits an entrepreneur from entering multiple industries. When you have money, you can go wherever you want, but with a single brand it is tough. Do end-customers know that L?Oreal belongs to Nestle? Or that brands like Cartier, Dunhill, Van Cleef and Arpels, Piaget, Mont Blanc are all part of Richemont holding company? Each business keeps its perceived core separately. Similarly, LVMH has 60 autonomous luxury brands from Louis Vuitton to Dior, Moet & Hennessy, Sephora hyperstore; while PPR drives YSL, Gucci, Puma and Fnac. It?s interesting that Swatch, the low cost watch, has bought several prestige, luxury, high and middle range watch brands like Breguet, Omega, Tiffany, Longines, Rado, Tissot and Balmain while respecting its perceived core. Swatch Group is a neutral entity from their basic range Swatch, while Endura is their private label.
Traditional Indian conglomerates with huge countrywide awareness often drive the corporate brand for every category. So when competing with specialists globally, their brands will never be competent. This shortcoming is historical consequence from the protected economy. Industrialists with clout used to grab the limited business opportunities the government licensed out, so their diversified companies became big brands bought by non-evolved domestic end-customers. To compete in today?s consumer-driven global free economy, it?s not enough to have large numbers of IIT-IIMs, youth power, skilled labour and immense opportunity, unless companies have sharpened their perceived core.
Here?s how the $12 billion French conglomerate BSN globalised by honing their perceived core. With acquisitions, BSN grew to have 14 verticals by 1993, but profitability was 2.5% only. Among their businesses, dairy had high operating margin and its promising promise was health. Launching Activia with bifidus actif bacteria in 1987 brought huge value to their brand Danone. So they took a strong disruptive strategy to seed their core to become global. Using ?Active Health? as the perceived core, they changed the name to Groupe Danone. This allowed focus on three ?head? businesses related to health: dairy, water and biscuit. They discontinued all ?tail? categories, and kept biscuit upto 2007 for critical mass. To reinforce the perceived core, Active Health, they expanded inorganically into baby nutrition and medical nutrition. Today, Danone is the world?s No. 1 dairy company with 2010 turnover being $22.62 billion and profit margin 10%. This is called a core loving corporation for globalisation. It proves that if you do not have a perceived core, you can define it for your business now.
The Indian market is growing, but the near future will see severe global competition. When Indian companies meticulously build their core and discontinue with tail businesses, they will become winners tomorrow. With strong sustainability they can encash high profitability both locally and globally.
?Shombit Sengupta is an international creative business strategy consultant to top managements. Reach him at http://www.shiningconsulting.com
