Two very different business examples of recent times have started me thinking about the dilemma business leaders face when tying to tell the difference between a strategy that is cleverly shifting to preempt disruption and a strategy that is ‘wandering’ away from core business. Last year I enjoyed frequently quoting this late 2013 remark from Kevin Plank, the CEO of sports clothing maker Underarmour, made in an interview with Forbes:
“We have the hardware with Armour39. People may wonder if we are getting away from our core with this acquisition [because it’s software], but I think it’s important that we’re there. It’s a long term play in the space. There no reason we should just sit around and wait for Google to do this.”
He was talking about the acquisition of MapMyFitness – an online and mobile app that millions of people use to track and store their running, cycling and other fitness data. I’m sure you see why it makes sense. The wearbles area is moving forward very quickly. This year Ralph Lauren Polo say they will market a shirt with respiration and heart rate tracking built into the fibers of the cloth. That makes the shirt an endpoint ‘device’. Then it’s easy to see fitness data as ‘content’ and soon enough you start thinking about the iPod and iTunes history analogy. If you only have the shirt, but not the data service – maybe you’ll end up being a Sony, not an Apple in a forthcoming industry battle.
However, last week Tesco announced that it is doing something that appears to be opposite to the strategy of Underarmour – it is selling off ‘digital’ assets. Tesco has long been regarded as a company that is pretty tech savvy. It usually comes in the top 10 of non-tech companies mentioned by CEOs as admired, for the use of digital and information technology for competitive advantage (paywall source). Yet Tesco has decided to sell two businesses: Tesco Broadband and Blinkbox (a UK internet TV service, similar to Netflix.). Furthermore, Tesco has said it is considering selling DunHumby, the business that manages and analyses all of its Clubcard customer loyalty program data. Many business news commentators, including the FT have been referring to these actions as the sale of “non-core” assets. To be sure, Tesco has some very serious business problems to tackle and a substantial financial hole to fill. So it must make some forced and painful choices. However I find it interesting that what is admired by commentators as insightful future digital strategy one year, can be reinterpreted as ‘non-core’ the next. Tesco’s fight against Amazon, Ocado, Netflix and others for consumer wallet in the UK hasn’t suddenly evaporated.
Digital business change is accelerating and your company will likely come to a point when it has to start investing in a new and unusual business direction that doesn’t feel natural or comfortable. E-cigarettes for tobacco companies, wearable devices for Swiss watch companies, drones for helicopter operators … none of it will suddenly feel “core”. As your innovative new strategy follows the inevitable hype cycle, there will be a trough of disillusionment. Make sure you agree upfront, that digital business will be your future ‘core’. It’s not just a fair weather game, for when times are good. If you don’t believe that – why bother?
P.S. As a long time admirer of Tesco, I wish them a speedy recovery in 2015.