A New Business Strategy: Give Up the Core

I like this article. It sounds a little crazy but in my last restaurant management job, I found it necessary to think of it as not a restaurant. Giving up that core was the only way to become a healthy and vital business.

 
 

via HarvardBusiness.org by Ranjay Gulati on 5/7/09


In making outsourcing decisions, companies are very careful to hold onto the core–those activities and competences that are at the heart of the business. The core represents its very being; it tells its employees and customers what it does.

That’s why Sprint’s plans to outsource the management of its cellular network is unusual. In the mobile phone industry, letting go of the network is akin to cutting out the heart of the company. But according to an article in Monday’s Wall Street Journal, the company is in talks with Ericsson to hand over the maintenance of its cell towers and transfer thousands of employees to the equipment vendor. The deal would cut Sprint’s costs by about 20%, according to the Journal. And it would free resources for product innovation and the development of partnerships, as the company seeks new sources of revenue growth.

But when it starts to give up core competencies, what will Sprint be? The answer will become less clear over time but, ironically, Sprint is finally onto something that companies in emerging markets have jumped onto already

In my research into how companies are fighting commoditization and shrinking markets, I spent some time with Bharti Airtel, a fast-growing telecom network based in India. (VG Narayanan and Asis Martinez of HBS worked with me on this research). Way back in 2003, CEO Sunil Mittal signed away the operation of the firm’s telecommunications network to Ericsson, Siemens, and Nokia, in the belief that they could better solve the problem of meeting mounting demand, leaving him to focus on solving customer issues. The move was shocking at the time, and represented a philosophical shift–from protecting the core to solving customer problems, without regard to company boundaries. From a bunker mentality to a kind of near-agnosticism. It’s the ultimate step toward becoming customer-centric, adopting a mindset that begins with the customer and then moves to the particulars of who will deliver the right products or services.

So what exactly is Bharti now? Previously, Bharti knew for certain what it was and what it did, with management of the network an essential component to its being. Now, it's the sum total of its on-going arrangements, a shape-shifting enterprise that slips into market crevices. It's far less certain what it is, but it's been rewarded with both revenues and market share. 

Such agnosticism isn’t limited to the mobile phone industry. Apple, for instance, relies on many other companies to produce and accessorize its phenomenally successful products. Shortly after the iPhone was launched on June 29, 2007, a third party ― iSuppli Corp. ― took the phone apart and found that a large portion of the innards of the device were made by third-party companies such as German semiconductor supplier Infineon, Epson, and Samsung. Five percent of the accessories available in Apple stores are made by Apple, and the goal is to bring it to zero. At Cisco, employees are expected to embrace a “no-technology-religion,” meaning that they are agnostic about platforms and standards and will consider supporting any technology endeavor that meets customer needs.

Being agnostic or customer-centric does not mean blindly following customers’ instructions. Customers themselves may not be able to articulate their needs precisely. Instead, it involves a creative process driven by a deep and holistic understanding of the problems that the organization’s customers are facing, together with a careful consideration of the capabilities both inside and outside the organization needed to solve those problems. The goal isn’t to push your offerings onto customer, but to immerse yourself in customers’ problems to offer up unique solutions. To make it, you need to be willing to give up some of your being and live with a little nothingness.

Ranjay Gulati is the Jaime and Josefina Chua Tiampo Professor of Business Administration at Harvard Business School and author of several HBR articles including, most recently, “Silo Busting: How to Execute on the Promise of Customer Focus.” His book, Silo Busting, will be published by Harvard Business Press this year.

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