By Michael Jacobides
Don???t delude yourself: only expand where it makes sense. It???s important to innovate, to be at the leading edge, and to have a strategic overview of where the industry is heading and where synergies exist. Innovation pays off for the early players going into hot areas. It may be that the latecomers are deluded in their capabilities. They may be overestimating the synergies their business has with the new areas.
They may also feel pressured to change when they actually shouldn???t. Boards must take a more qualified view of scope expansion. It???s valuable when you build the capabilities to expand, and when you???re part of a firm shaping the sector, close to the changes in your industry. It???s fruitless to enter a new area just because everyone else is.
Many latecomers would be better off staying put. Logic might suggest that the trailblazers taking risks and breaking the mould by entering experimental areas should be penalised. It???s sensible to think that the latecomers should benefit from the road more travelled. But that???s not the case. The firms only interested in building empires end up wasting money and reducing their return on equity.
The firms that engage in corporate renewal, the ones that enter and then exit at the right time, have a better chance of being profitable. Companies should consider expansion as a set of moving experiments.
From ???Make Your Innovation Strategy Pay Off???
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