Question: Finding a new core business

Military sequestration has eroded the profitability of our engineering firm. We realize our cost cutting measures are not going to change this fundamental shift in market reality, so the key theme in our strategic planning is to find a new "core business."

I was wondering if any of the experts in this community have facilitated such discussions. Are there models we can use to keep the discussions structured?

7 Expert Insights

Even during "good" times, you want to review your strategic plan annually. During these more challenging times you have even more reason to dig deeper. We facilitate this kind of discussion with our clients regularly.

Finding a new "core business", as you say, is a result of going back to basics & you want to Build it Backwards from your Vision. What is it that you (the firm) is/are passionate about? What do you want to do to change the world?

1) Ask your self "What are our core competencies?
2) Use a SWOOTT analysis (beyond SWOT) model.
3) Calculate the 2-part Make vs. Buy analysis to see what you should produce & not.

These 3 will give you the eye-opening foundation to build from.

First, I'm not sure you want to keep the discussions structured. If it was obvious where to go next, you wouldn't be asking this question. You have at least two disruptive forces at work: sequestration, and the fact that every industry on the planet is wrestling with the changes wrought by an increasingly digital, wireless world.

It seems to me that you might want to consider thinking of at least a piece of your firm as a startup, and the Lean Startup methodology offers a structured approach for testing the viability of new products/services based around actual customers.

You will want to immediately read "Profit from the Core" by Chris Zook along with the sequels "Beyond the Core" and "unstoppable." I have facilitated many such discussions and the biggest issue you likely face is the lack of proper research PRIOR to the strategic planning meeting. That meeting should be the culmination of the process, rather than the beginning. Meeting in the absence of quality in-depth research will yield a less than optimal outcome.

You likely have multiple core strengths, different types of expertise and many opportunities. you'll want to assess and explore each of them before the meeting to determine potential opportunities. Remember that the entire future of your company is at stake. In auto racing they say "Sometimes you have to slow down to go faster." This is one of those times.

I'm a fan of the Business Learning Institute's Insights to Action (I2A) methodology. It is a very engaging methodology that leads you through the progression of looking at where you've been, doing a SWOT for where you are now, and then visualizing where you want to be.  It is structured, yet flexible enough to allow enough creativity to ensure that you are not constraining yourselves.

The key to keeping the discussions on track is also to ensure that you are using a good facilitator who can ask the right questions to keep you thinking outside the box, but also keep participants inline and on the right course.  I'm sure any of the mentors in the guild can be a great resource to you in this respect.

Once you have the vision for where you want your firm to be, then the next step is to examine your firm's internal structure, competencies, and supporting infrastructure and determine what changes need to be made to move you toward your vision.  I am a fan of doing an enterprise solutions architecture analysis and then using that to identify and prioritize your firm's investments in the changes needed to start realizing your vision.

You have an interesting challenge that your organization is facing.  In a sense, you are at square one in terms of what you want to be.  In facilitating such discussions I have always found it extremely effective to take the group to dreamland ... the land of what's possible.

In doing this exercise, it is valuable and important that you NOT go into the planning of any of the ideas that are put forth.  This is about taking what your company has the ability to do, what you sense the marketplace is needing/wanting and then exploring all that is possible for the organization to enter into.  This is not an easy task as participants easily gravitate to what you have been doing and the way in which you've gone about it.  It is a true exercise in 'break-it-thinking'  and most always opens the doors and the minds of things that have not been considered previously ... and yet are needed in today's world.

This is a session that is best facilitated by someone outside the organization and adept at doing this.  The payoff is that when you identify 'what's possible' and then examine what going down this path would require as well as what perceived need it would satisfy, you are guaranteed to have examining a broader range of options and thus a broader base of possibilities from which you can select your next and new path.

You are dealing with multiple issues. Not only are you looking for a new core business but a means of leaving your dependency on government contracts to access the commercial/industrial market.  In facilitating this shift in strategy, I have found that companies are most successful when concentrating on two core strengths:  technology and distribution linkages. In this case, distribution includes vendors, co-contractors, other military supplier relationships.  Bring these resources into your confidence.  

This strategy shift is not a short term exercise.  The brainstorming should start with a complete exploration (without critique) of your technology options:  particularly, are there products (not services) that can be generated; did products result from your contract work (or that in conjunction with others) could have commercial applications; are your engineering services of potential value to the commercial market.  Once the list is generated, only then should you begin to evaluate the potential of each. The resources, experience and expertise needed to implement can always be assembled to build on the core.

Creativity and innovation often demand a change in the corporate culture. Do not allow the naysayers to short circuit the imagination.  The role of the facilitator is to ensure that the process remains vital and productive and that all available resources are brought into the exploration.   Good luck.  

All businesses exist because they own and/or control an asset that can be used in a product/service which can be acquired by a customer to give them a competitive advantage in the market in which they operate. The goal of the business is to put in place the processes and manage the risks such that the value shared between itself and its client creates an excess that covers the cost of capital, returns money to investors and reinvests for the future.

If you business has been affected by military sequestration, as you say, I have to ask: Is that sequestration of the asset or of one application? From the sound of your question, it is simply the application. Assuming that is the case, then finding a new application may be possible. Finding a profitable application might be more difficult but it is also possible. In either case, focusing on the asset that underpins your business is the route I suggest.

I will offer up the example of company I am familiar with that developed a patented technology for non-invasive cancer detection. This application was harnessed by the US military to screen shipping containers arriving in US ports for nuclear material. Another example, is a robotics company that developed a telepresence system but licenses its technology for civilian aerial and submersible drones.

It is all a question of finding verticals and then adapting the application to the economics of the vertical.