The Allied Forces put a stake in the ground during D-Day. A single point to control from which they were able to reach the rest of Europe from the Western Front. Similarly, a company should enter businesses from which it can expand its capabilities or improves its ability to deliver.
Most of the time there is interest in building conglomerates but a conglomerate has the problem of not shared capabilities. How does GE’s light business match the aircraft business. What are the capability that are shared?
If on the other hand growth is based on expanding existing capabilities certain things can be attained.
- The existing business can increase its flywheel based on this new capability.
- A new capability based business can be independently run to self-optimize resulting in new business opportunities.
- Expand into unrelated industries based on capabilities.
Capability based growth is different from industry based growth in that it at its core follows with comparative advantage. What are we the absolute best at and how can we use that to address multiple different industries versus an industry based company that limits itself to a single industry which may limit its growth.
Essentially the crux of this is that growth should happen from strength to strength.