Defining the Option Space Too Broadly

Combing the Ocean

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Historical Case

Alexander the Great

What Is Left of Alexander's Empire?

In an 11-year campaign, Alexander the Great built a vast empire, stretching over a space of 2 million square miles from the Mediterranean to India. It took a thousand years until it was equaled in size by the empire of China’s Tang dynasty. But neither an heir nor strong governments were in place to secure continuity after Alexander’s sudden death in 323 BC. As a result, his empire outlasted Alexander by a mere three years before being divided among quarreling successors.

“All life is an experiment. The more experiments you make the better.”

— Ralph Waldo Emerson

Business Case

Combing the Marketplace: Diverse Business Conglomerates

The 1970s and 1980s saw the peak of diversified industrial conglomerates, driven by antitrust regulation, inefficient internal capital allocation, and other factors. Their lack of focus became a liability as the business environment grew harsher in the mid-1990s, and most conglomerates began to trade at a discount. Danone was among those to recognize this in time and abandoned its “do a bit of everything” approach in 1996. In the following ten years, it sold 11 noncore businesses and focused on health and well-being. It is now a world leader in fresh dairy products, with sales of approximately $14.6 billion in 2013.

Exploring Too Many Options in a Harsh Environment Decreases Profits

Sirens

Warning Signs to Heed

  • No limits on option space; everything is in scope
  • A lack of a clear synergy logic between areas of exploration and current business
  • Declining returns on innovation activities

Lighthouses

Beacons to Navigate By

  • A clear vision to guide exploration, reflecting sources of competitive advantage
  • A self-tuning portfolio approach with evaluation, selection, and amplification to identify the winners and expand on their successes
  • Explicit assessment of what would be required for the options under consideration to reach critical mass
  • The discipline to terminate unpromising experiments and businesses