PREFACE
An Alternative Path to Growth
During many years analyzing and advising hundreds of companies, we have observed a simple but distinct pattern in the fabric of corporate strategy. Our research demonstrates that this recurring theme exists in all sixty-two industries in the Standard & Poor’s (S&P) index. We have witnessed this phenomenon in large companies and small, worldwide, and over time. The familiar aspect of the pattern is that the best prospects for driving profits tend to leverage resources and capabilities that your organization already knows. The less intuitive aspect is that the best leverage often exists at the “edge” of your business model.
Our business focuses on improving other businesses. As a result, we see companies striving, reaching, and bending, quite literally contorting their business models in search of a way to augment their bottom lines. However, we have found that many of these companies struggle to advance with the traditional growth strategies.
The issue for most firms, regardless of industry, is that they seem to be programmed to simply do more of what they do best: extending their presence to more regions, expanding their range to more customers, or just plain selling more stuff. We often find that companies are so focused on doing more of what they do every day that they start to think everything in their organization has a singular purpose. They understand the purchase process inside out, they drive vendors and channels, and they chart operational flows in NASA-worthy detail, all in ruthless pursuit of optimization.
The problem with “more” is that it only works for a while. There are only so many locations, so many customers, and so much output that is in demand until saturation occurs. Even when companies think that they have plenty of rows to till in their particular fields, they turn around to find familiar or new competitors, squatting on their land and harvesting their crops. The inevitable market-share game also proves a fool’s errand, a war of attrition where even the cleverest of core strategies is ultimately copied, resulting in a return to a similar equilibrium.
Companies are eventually motivated to look for growth in far-flung places. Typically, this means acquiring rival companies; developing adjacent, but quite different, businesses; or searching for “blue oceans” of uncontested market space. The trouble with these strategies is that while the rewards can be high, so too can the odds of failure.
The myopia associated with core business perfectionism often blinds us to the value of what we already have. Looking around for new bets, companies also tend to overlook a significant, untapped source of profit that exists in the near field—on the edge of the core business, through the sale of ancillary goods and services that actually make existing customers’ interaction with the business more complete.
We call this “edge strategy.” Unlike many accepted approaches, edge strategy focuses on gains that are easily within a company’s grasp. It shines a new light on the latent leverage that companies already have, and as a result, it requires less up-front investment and less risk.
Edge Strategy: An Alternative Path to Growth
Often, the periphery of your core business, rather than the core itself or some distant horizon, is richest with opportunity. We have identified scores of organizations that have unlocked value by exploring what we call their “edges” and, by doing so, get more yield from assets already in place, access already established, and investments already made. When an organization relaxes its assumptions of what exactly it does, what exactly its customers want from it (or who else might have a different use for what it has acquired or built along the way), the result can be profound. Developing this insight is the essence of edge strategy.
Edge opportunities are available to more companies precisely because they are modest by definition. They also provide a sensible path to innovation in that they build on what is already resident. Some attractive, but frequently observed characteristics of edge strategies include:
- Profit margins that are often greater than those generated by the core business.
- Risk, and up-front investment, that is lower, given leverage from existing assets.
- Power to address a greater number of fragmented customer needs, increasing the overall value proposition for each customer.
- Upside that is incremental, not only to the company but also the market; that is, edge revenue doesn’t necessarily have to be captured from competitors.
- Significant improvement in customer satisfaction via better calibration to customer needs.
Our goal with this book is to instill in you the ability to recognize and take advantage of edge strategies: what we call an edge mindset. To do this, we provide a practical and visual framework that characterizes three different kinds of edge strategy. We provide a wide range of examples across industries and geographies that illustrates how companies have employed these strategies and how they have benefited. We consider familiar situations that your business may be experiencing to set the context for where each kind of edge strategy could have the most impact for you. We provide a ten-step process for how you can find and gain leverage from edge opportunities in your company.
Empowered with an edge mindset, any executive or manager in any company, large or small, in any industry, has the ability to find and realize new sources of profitable growth.