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Published: February 28, 2006

 
 

Sharpening Your Business Acumen

This was the seedbed for a new strategy that Mr. Immelt brought to the GE board in 2003. He predicted that 60 percent of GE’s growth rate might come from emerging markets in coming years. Indeed, by the end of 2004, emerging markets contributed $21 billion of GE’s revenues — a 37 percent increase over 2003. This helped overall organic revenue growth achieve a pace for 2005 that exceeded Mr. Immelt’s 8 percent target.

Only a leader with business acumen can effect that kind of strategic response. Mr. Immelt recognized macroeconomic trends, thought about the development needs of emerging nations, and factored in the potential political responses. Then he set GE on a path to take advantage of these new opportunities.

What would have to happen first?
For any future event, there are steps along the way, prerequisites, that enable that future to occur. Company leaders who want a particular future to unfold can identify such milestones and either watch for them to emerge or deliberately enact them.

For example, Apple Computer’s wildly popular iPod digital music player, launched in 2001, was relatively easy to design and produce. Apple reportedly developed the player in just six months. The real secret to the iPod’s success wasn’t the hardware; it was the iTunes Music Store.

But it wasn’t enough for Apple to conceive of an online source of downloadable music. For the iTunes Music Store to be a success, Apple CEO Steve Jobs reasoned, three missing ingredients had to be added to the mix. First, consumers would have to be willing to pay for downloaded music. For years, college students and others had been avid users of file-sharing services, indicating that there was some demand for digitized music but not much willingness to pay. Then the legal travails of Napster and Grokster began to push mainstream consumers toward the ethical higher ground of paying for digital music — and one missing ingredient was in place. But this presumed that consumers could access all the music they wanted and that it would be affordable.

Thus the second and third missing ingredients were the broadest possible selection of music, and a price point at which both consumers and studios would be comfortable. With the iPod’s “cool factor” and Apple’s digital rights technology, the major music studios latched on to the service as a way to reach the online consumers left behind by Napster’s court defeat. And buying songs for 99 cents each appealed more to consumers who were used to buying compact discs than did the monthly subscriptions that other online music services offered, while satisfying the needs of studios and artists to earn revenues. With missing ingredients two and three added, the iTunes Music Store launched in April 2003 — and Apple sold its 30 millionth iPod in November 2005.

Some missing ingredients are completely out of a company’s control. They may lie in a government’s hands, as when China negotiated for WTO accession or India held back on allowing foreign entrants into its retail sector. Others may fall under a market’s control: The high price of a gallon of gas, for example, underpins the rising popularity of hybrid cars. A competitor’s move may also tip the balance. Apple’s agreement with Disney to offer downloads of ABC television shows for the video iPod spurred other networks to seek their own agreements for content on demand. Within weeks of the Apple/Disney agreement, NBC and CBS announced partnerships with DirecTV and Comcast, respectively. An executive who has thought about this question is prepared to recognize the potential impact of a competitor’s small moves on larger trends, and to respond with appropriate speed (as NBC and CBS did).

 
 
 
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Resources

  1. Kenneth R. Andrews, The Concept of Corporate Strategy (Dow Jones/Irwin, 1971): Classic strategy manual, still relevant in a turbulent world.
  2. Larry Bossidy and Ram Charan, Confronting Reality: Doing What Matters to Get Things Right (Crown Business, 2004): How to define an ongoing, external-world-savvy strategy.
  3. Ram Charan, “Boardroom Supports,” s+b, Winter 2003: How governance and leadership development can align. Click here.
  4. Randall Rothenberg, “Ram Charan: The Thought Leader Interview,” s+b, Fall 2004: On building better executives and continuous transformation. Click here.
  5. Jack Welch with Suzy Welch, Winning (HarperBusiness, 2005): Guide to acumen in practice.
 
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