Calculus_of_Commerce_Aug04

Calculus_of_Commerce_Aug04 - viewpoint O C TO B E R 2 0 0 4...

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view point | 1 t he confluence of a cheap, global, standard communi- cations infrastructure, increasingly facile access to resources—including capital —and growing globaliza- tion are causing business models to age faster than ever. In turn, sustaining profitable growth gets tougher. Dick Foster and Sarah Kaplan in their 2001 book Creative Destruction documented this reality. When the Dow Jones Industrial Average was created in 1896 it included a dozen “smokestack” stocks selected on the basis of their expected staying power and representation of the economy. Of the initial 12, only GE remains on the index today. The remain- ing 11 have folded, been acquired or dropped from the index. (See Table 1 on page 2) 1 500 in 1957, 426 (85%) of them had fallen off the list by 1997. Of the 74 survivors, only 12 outperformed the index. Furthermore, the rate of corporate failure seems to be about 1.5% per year through the 1920s and ’30s. These com- panies lasted about 65 years on the list. By 1998, the churn rate had climbed to 10%, translating into a 10-year expected duration on the index. 2 © DiamondCluster International, Inc. All rights reserved. This viewpoint was prepared by John Sviokla, with the assistance of Caroline Calkins, Cate Quirk and Andy Rocklin. 1 www.djindexes.com 2 Creative Destruction , Richard Foster and Sarah Kaplan, 2001. Contact Dr. John Sviokla, Vice Chairman | 312.255.5780 | [email protected] view point The Calculus of Commerce: Why Business Models are Aging Faster and What To Do About It Tu rning and turning in the widening gyre; The falcon cannot hear the falconer; Things fall apart, the center cannot hold. —W.B.YEATS OCTOBER 2004
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The Calculus of Commerce | October 2004 view point | 3 DiamondCluster International 2 | view point emerging markets to find new growth. The second way to recog- nize an approaching stall point is to perform a growth gap analysis (GGA). In a GGA, the firm must look at its growth goals to determine how much growth is planned, ascertain how much of that growth will come from selling existing products and services to current cus- tomers and how much is expected to come from new cus- tomers for existing products, new products to existing cus- tomers, or new products to new customers. This analysis can help define the company’s growth aspirations and link those aspirations to the current product/service portfolio. For example, if your growth goals for the next planning horizon (say 5 years) are 15 % per year (for a compound growth of 101% by the end of year 5) how much of that 101% of growth is going to come from existing products and services and how much will come from those that are new to you and your firm? If existing products and services will deliver all your growth needs, you should focus on executing against current goals and objectives. But with business models
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This note was uploaded on 07/08/2011 for the course BM 501 taught by Professor Kop during the Spring '11 term at Bloomsburg.

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Calculus_of_Commerce_Aug04 - viewpoint O C TO B E R 2 0 0 4...

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