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Compounding is another corporate strategy. It consists of adding new products with the same business model. Star uses Amazon.com and Wal-Mart as examples of compound businesses.
Amazon.com started its Locust business with books and later on added other products such as digital cameras and movies. Now it sells almost everything.
Likewise, Wal-Mart, another Locust business, started as a retail corporation with clothing, household items, and the like and later added groceries in the mid-1990s.
Both corporations leveraged preexisting resources and capabilities to create compound businesses with the calculation that each Locust business would draw customers to the other, but the business model stayed the same—Locust.
Diversification and Customer retention:
Customer management in a diversified company can have benefits, including sharing customers and turning customers of the Pig business into customers of the Chicken business.
Diversification can be a way of retaining customers: those lost to the Locust and Pig customers can be attracted to the Chicken business. The models can sustain one another.
For example, in a diversified company with Chicken, Locust, and Pig businesses, if the Pig business goes through periods of small or no projects, the revenue streams from the Chicken and Locust businesses can sustain the company.
Diversification can also help break with the strong dependency characteristic of the Black Widow business. The addition of a Chicken business can mitigate the structural disadvantage associated with the Locust and Pig businesses.
Even though diversification can involve any combination, it should strive to find/add a Chicken business to generate stable, predictable revenue streams. In addition, customers lost to the non-Chicken business can become Chicken with good customer pool management.
Star cautions about diversification as it has been shown to often lead to loss of value for stakeholders. He recommends, however, diversifying only to find/add a Chicken.
The Chicken business is useful in other ways. First, in the case of restructuring within complex corporations, “customer pools that share customers and have a Chicken business as their foundation would emerge as entities to be retained” (p.87). Rather than product and location as bases for restructuring, customer pool issues should prevail.
Second, in strategy management, customer pool allows better “analysis and prescription” than core competencies and external forces.
Third, corporate strategy should aim to create corporate synergy achieved by having one business model balancing and compensating “for the customer pool weaknesses of another” (p.89).
Thus, it retains customers that would otherwise be lost, for example by recuperating customers lost to Locust and Pig businesses into the Chicken customer pool.
Star’s customer-centered view of strategic management is the new, third paradigm, one that has been taking shape since the early years of the new millennium and has now gathered enough stream to count as such in 2019.
The Chief Customer Council reports that in 2003 there were fewer than 20 Chief Customer Officers (CCOs) worldwide. Now there are more than 500 of them.
This development conveys the importance of customer acquisition, retention and reacquisition, a proposition potently conveyed by Harold Star’s statement in the last chapter (about the implementation of “Chicken & Pigs”).
This will probably shock accountants and traditional business strategists: “Rather than use financial outcomes as a business’s score card, I believe that business model maximization is best measured in customer terms” (p.100).
So, what does this mean for business owners? Well, as Star says, “find your chicken” (p. 91) and “hold onto your customers” (p. 92). What kind of business do you operate? Who are your customers? What do you offer them? How compelling is it? What resources, capabilities, and core competencies do you have to support that value proposition? How do you maximize your business model, that is, how do you acquire more and more customers and retain them, if indeed you are aware that your customers constitute an intangible asset?
If you have a Chicken business, you need to focus on acquiring new customers and retaining current ones. You also need to invest in quality through innovation because your value proposition needs to stay credible to your current customers, to new customers, and possibly to lost ones.
If yours is a Locust business, you need a strong brand image. You probably need to advertise a lot. You also must be innovative. For example, if you operate a restaurant or a bar, you need to be innovative in terms of menu. You may want to maintain and remodel your place of business from time to time if you hope to have some of your customers come back and to attract new ones.
Other factors may play in your favor. If your Locust business is in a place where high traffic, you are likely to attract new customers all the time.
If you run a Pig business, you have to build for those projects that may come your way once in a while.
If you have a Black Widow business, bundle “multiple problem solutions into a single value proposition” (p. 102). That is, try to propose more than one service to your customer.
The author is a Professor at the State University of New York College at Buffalo
The views expressed in this article are of the author.