Using Business Model Innovation to Reinvent the Core

Using Business Model Innovation to Reinvent the Core

          
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Using Business Model Innovation to Reinvent the Core

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    Improving Core Growth

    Core growth is a critical driver of performance. Even as industry boundaries blur and the shift to emerging markets increases, most companies—around 60 percent in our sample—still derive a majority of their revenues from their core markets and businesses. And those that succeed in increasing the size of their core—as well as noncore—businesses tend to enjoy a shareholder return premium more than two times larger than those growing strongly in noncore businesses alone.

    Achieving core growth, however, is challenging. Over the past five years, the average growth rate in core businesses and regions was less than half that of noncore ones. This should come as no surprise. As core markets become saturated and new competitors emerge, traditional approaches that have successfully driven growth for years—product innovation and pricing strategy, for example—are reaching the point of diminishing returns.

    For leaders of companies facing this reality, now may be the time to move beyond traditional strategies and explore new solutions, just as ARM, Hilti, and Qantas have done. Starting on this journey raises a number of important questions:

    • Are there signs that traditional levers that worked in the past are now falling short?
    • What alternative solutions can drive superior performance?
    • How can leaders successfully implement these solutions?
    The sample is from the Russell 1000 Index, which primarily includes companies based in the U.S. We exclude companies with data gaps and those that saw a reclassification of their segments from 2007 through 2011. We included 542 business segments and 484 regional segments. A core business segment is defined as the largest business unit in 2007; a core regional segment is a home country or region. The threshold for “strong” growth is a CAGR of at least 5 percent from 2007 through 2011. Analysis is provided by BCG ValueScience Center, Compustat, and BCG.