Why firms seeking to expand should never overcommit
24 Oct 2016
The excitement of launching a new product or service can see businesses making big strategic mistakes
Strategies where companies look to expand into several markets or geographies simultaneously rather than focusing on one at a time are seriously flawed.
The biggest pitfall is that businesses dilute their product or service by trying to do too much at once, according to Costas Markides, Professor of Strategy and Entrepreneurship at London Business School (LBS).
“Companies are afraid to choose one type of customer,” he said in his London Business School Review article ‘How to make better strategic decisions’. “They invest in one type and a few years later say, ‘Whoops, I made a mistake, I should have gone for the other one’, and they try that. They put a bit of their resources here, a bit there, and don’t focus them enough. It’s a common trap that businesses fall into.”
Professor Markides, who teaches on the Developing Strategy for Value Creation programme at LBS, said that businesses should follow the ‘who-what-where' model when making strategic decisions.
Executives must ask themselves who the customer is, what they can and can’t offer them and how their company should develop and distribute new products or services. They then need to make strategic decisions that differentiate the business from their competitors.
“As well as analysing your decision, you can also use your gut feeling. But the best way to know whether you’ve made the right choice is to experiment,” Professor Markides said. “Try things out in a limited, low-cost way. If it works, expand and if it doesn’t, don’t. Don’t attack things head-on and never commit too much in one go. Spend less at first and experiment in your market.”