How do you shrink strategically in order to grow?
April 27, 2017
Where is the middle ground between strategic growth and the radical restructuring of organizations? Sometimes it seems that such middle ground does not exist. But it does exist. Such middle ground exists and is called "strategic shrinkage." The word "strategic" points here to a striving to create value from a defensible competitive position. This is definitely not the same as the strategically blind "shrinking to grow" which leads to dismantling operations, aimed at generating more dividends in the short term – and securing bonuses, with happy shareholders as a result.
If you want to shrink strategically while staying healthy you should first ask yourself the following question: "What are my organization's strategic resources? Which of my organization's resources determine our competitiveness and are difficult to replicate? These resources often consist of the network/relationships, knowledge, and/or a unique corporate culture. It is important to closely analyze other resources to see if they are really involved in creating value. Or do they distract the organization from focusing on the time, money and resources needed to distinguish itself from the competition?
As a manager you are expected to have a clear view of your organization's strategic resources. That is important so that you will not shortsightedly cut into the organization's vital resources or keep too much flotsam. Red Bull has always strongly believed that, in addition to the brand, the organization's distribution system also forms a strategic resource. In recent decades, the company has managed to continue strengthening both the brand and the distribution system.
Red Bull is also trying to set up new, competitive operations involving other resources, such as cola with (maybe) 0.00000001% cocaine in it and new-age tea (water ionized by exposure to moonlight). Unfortunately, these efforts have been unsuccessful. Red Bull has decided to pull the plug on these operations to free up management time, money, and other resources. In short, shrinking in order to grow faster, but in the right direction.
But what do you do if you cannot immediately answer the question about your organization's strategic resources? If you feel/think that your organization is very much like its competitors? What if your customers do not see the difference?
Then look as soon as possible for new, attractive markets and build a defensible competitive position there so that you can distinguish yourself from your competitors. Once successful, you will see that many of the current operations are ready for sale, a museum or asset stripping. And then shrinking for growth comes into focus again.
Make sure that your organization stays fit! Give your organization wings with a much needed strategic renewal.
Martyn is managing director of the Center for Strategy & Leadership, a consultancy based in Rotterdam, the Netherlands. Besides, he is adjunct professor at TIAS. His international teaching experience stretches over 20 years, covering both open and customized in-company programs, and MBA modules in the fields of strategy renewal, implementation, and strategic leadership.