eToys, Pets.com, and many more) did not succeed in creating valid business concepts and ultimately perished. Similarly, RadioShack was once a successful enterprise, serving several generations of electronics hobbyists; but its business concept became outdated and muddled, leading to a long period of irrelevance in the market and decline that suggests its ultimate disappearance from the retail market space.11
Another key strategic problem or challenge of creating a business concept is to strike a balance between one that is too narrow to facilitate future growth and one that is so broad as to be strategically meaningless. We shall deal with the development of a business concept in Chapter 6, when we address strategic planning. At this point, our primary concern is with the purpose or function of a business concept in the context of building a successful organization over the long term.
In brief, the identification and clear definition of a business concept provide the foundation on which all other aspects of the business are and should be built. The customers to be served, products offered, and the company's day-to-day systems are all built upon the foundation of the business concept, as explained below.
The Strategic Mission . While the business concept defines what an organization is, the strategic mission identifies what the enterprise wants to achieve or become. It is a statement of the strategic intent of the enterprise. It answers the question “What do we want to achieve or become?” over a defined time period. For example, in its early days (1994) Starbucks Coffee Company (now Starbucks) established the strategic mission of becoming “the leading brand of specialty coffee in North America by the year 2000.” It was an aspirational statement. Similarly, in 2014, Techcombank (then the eighth largest bank in Vietnam) established the strategic mission of becoming the leading bank in Vietnam. We will discuss the nature and development of strategic missions further in Chapter 6.
The Core Strategy . While a strategic mission identifies what the enterprise wants to achieve or become, a core strategy is a statement of how the organization will compete and achieve its strategic mission. Most organizations have several strategies, but relatively few have core strategies. Core strategies depend upon the type of business. For example, the core strategy for a commodity type of business (such as Walmart, a retailer, or Rio Tinto, a mining company) is to be the low-cost provider. The core strategy is the central theme around which all other strategies are created. We will discuss the nature and development of core strategies further in Chapter 6. However, it must be noted here that many companies do not have core strategies. They can have lots of strategies without a true core strategy that ties all strategies together.
Once a company has identified its business foundation (either implicitly or explicitly), it begins the process of developing the organization that will support this foundation. Our research12 and consulting experience suggests that there are six organizational development areas or tasks that are critical in determining whether an organization will be successful at any particular stage of growth. Taken together, these six key tasks make up the “Pyramid of Organizational Development,” shown in Figure 2.1. As can be seen in this figure, this pyramid is built upon the organization's business foundation. We will first identify and describe each key organizational development task individually and then examine the Pyramid of Organizational Development as a whole.
Figure 2.1 The Pyramid of Organizational Development
Identify and Define a Market and, if Possible, Create a Niche . The most fundamental prerequisite for developing a successful organization is the identification and definition of a market and, if feasible, the creation of a market niche. A market is made up of the present and potential buyers of the goods and/or services that a company intends to produce and sell. A market segment is simply a place in the market differentiated by products offered (e.g., luxury, mid-sized, compact, and used automobiles) or customers served (e.g., businesses, schools, homes, etc.). As used here, a market niche is a place within a market where a company has developed a sufficient number of sustainable competitive advantages so that it controls a market segment. Although this distinction will be discussed more fully in Chapter 6, which deals with strategic planning, it should be noted that, in contrast to popular usage and its implicit connotation, a market niche does not have to be small. A true market niche can be very large, as illustrated by Microsoft and its control over most of the operating system software in the PC market. Similarly, Amgen, a leading biotechnology-based pharmaceutical company, has a niche in the market for kidney dialysis with its product Epogen, which historically controlled about 95 % of the market for this type of product. In both Microsoft's and Amgen's case, part of their niche is derived from patent protection. Another and more important contributing factor to the creation of the niche for both of these companies, however, is the focus they have placed on understanding and meeting their customers' needs.
The first challenge to organizational survival or success, then, is identifying a market need for a product or service to which the company will seek to respond. This can be either a need that has not yet been recognized or that is not currently being satisfied by other companies. The chances for organizational success are enhanced if an organization identifies a need that is not being adequately fulfilled or that has little competition for its fulfillment. This challenge is faced by all new ventures; indeed, it is the challenge for a new venture to overcome. It has also been the critical test of growing concerns and has even brought many once proud and great companies to near ruin or total demise.
Many businesses have achieved great success merely because they were one of the first in a new market. For example, Apple Computer grew from a small entrepreneurship in a garage to a $1 billion firm in a few years because its founders identified the market for a personal computer. Dreyer's, a manufacturer of ice cream (which is a relatively undifferentiated product), went from sales of $14.4 million to sales of $55.8 million in just five years because the company saw and cultivated a market segment between the super-premium ice creams such as Häagen-Dazs and the generic (commodity) ice cream sold in most supermarkets. Many Internet companies (like Amazon.com, eBay, and Alibaba) have also experienced rapid growth as a result of developing ways to sell products leveraging this transformational technology.
The reverse side of this happy picture is seen in businesses that have experienced difficulties and even failed either because they did not clearly define their market or because they mistakenly abandoned their historical market for another. For example, a medium-sized national firm that manufactured and sold specialty clothing wished to upgrade its image and products and become a high-fashion boutique. However, it failed to recognize that its historical market was the medium market, and its efforts to rise out of this market were unsuccessful. Similarly, Custom Printing Corporation with more than $10 million in annual revenues found itself in difficulty after trying to upgrade its position in the medium-priced printing market. Attracted by the market segment where the highest-quality work was done (with accompanying high profit margins), the company purchased the best equipment available. It also hired a high-priced sales manager to recruit a sales force that could compete in the new market segment. However, the company had underestimated the strength of existing companies in that market segment, and it found itself unable to break into this higher-priced market as easily as managers had hoped. Moreover, the additional investments it had made and the related increases in its overhead made the company's cost structure higher than that of its former competitors, so it began losing business from its historical market. Thus, the company
