Blog #2: Perfection vs Expansion - Strategic analysis for success

A multi-billion-dollar question: “Should companies just focus on what they do, or venture into other businesses to increase their footprint?”. It is a common business trend to invest into other businesses – in same or other industry – to strategically position the company for future. Executives – in big organizations – often make the mistake of assuming that they can run any business successfully ^[1]. However, industry analysis shows that it is very hard for a company to keep all the customers of an acquired company; after acquisition, with change in core values of a company comes a shift in customer loyalty ^[1], often times, this shift becomes a major factor for an “unsuccessful merger/acquisition”.

Companies that perfect a service/product that they offer tend perform fairly well. However, companies have to keep innovating to provide leading services, rather than working towards perfecting a particular product ^[1]. For instance, Kodak, a market leader in producing Cameras and Films, did not pivot to digital cameras until after it was too late ^[1]. The strategic gap that delayed Kodak’s adaption of next generation products led Kodak to fall from its market leader position, and led to a drop of 75% in its market capitalization ^[1].

“Perfection before Expansion”: Chick-fil-A, a brand that resonates tasty and quality chicken-sandwiches, is the third largest fast food chain in US ^[2]. The brand perfected its limited product line, and became a market leader in the fast food market by focusing on providing high-quality products. The brand operates on a franchise model, and makes sure that the new vendor is fully trained before allowing them to open their own Chick-fil-A store. This kind of standardized training makes sure that a Chick-fil-A customer receives the same service across all the Chick-fil-A stores, and helps maintains coherence within the company.

After perfecting their product line for the first sixty years, Chick-fil-A – in 2011 – started looking into expanding its menu. The venture into other fast-food products helped the brand serve a wider market. QSR Magazine, a famous business-to-business magazine, reported that Chick-fil-A’s annual sales per outlet – US$ 4 Million – is the highest in the industry. The perfect pieces in Chick-fil-A’s strategy has helped the brand grow exponentially over the years.

To be successful, a company does not necessarily have to venture into multiple industries. It is very important for companies to question themselves what value a new venture could bring to the existing company, do the core values of new business align well with company’s core values, and what will make the company successful in this domain ^[4]. A simple acquisition in a domain does not necessarily set a company on the course to success.

[1] https://hbr.org/2008/09/seven-ways-to-fail-big, Accessed September 17, 2019

[2] https://www.nrn.com/top-200-restaurants/inside-chick-fil-s-rise-3rd-largest-restaurant-brand, Accessed September 17, 2019

[3] Video: The Rise Of Chick-fil-A, CNBC, Accessed September 17, 2019

[4] The coherence Premium, HBR, Accessed September 17, 2019