Every company utilizes a specific set of resources (e.g.,competencies and assets) to turn some form of input (e.g., raw materials, semi-finished goods, information, ideas) into some form of output (e.g., a product or service) of value to others. Many of those resources are embedded in an organization’s own business model. Others are possessed by external companies that work with the firm at various points in the value chain as part of a larger business ecosystem.
For most of the industrial era, companies have predominantly asked themselves how to use the resources available to them more efficiently — in other words, how do we produce basically the same kinds of goods and services only faster, better and cheaper? But in today’s value-based economy, companies increasingly need to ask themselves how to use the resources available to them more innovatively — “How do we leverage existing skills and assets in different ways, different contexts or different combinations, in order to create new opportunities for value creation and growth?”
Nobody on earth knows how to produce and distribute carbonated soft drinks more efficiently than Coke. But the fact of the matter is that soda sales in the United States have been declining for the past 10 years (and are now falling globally), as people in general become more concerned about health, wellness and obesity issues.
So the focus at Coca-Cola is not on how to produce greater quantities of soda at lower cost but on how to use all available resources to offer customers healthier or trendier alternatives, such as fruit juices, water and energy drinks, not to forget Coke’s new “healthier” soda, Coca-Cola Life.
If a company is not capable of doing this — of using resources not just efficiently (for optimized production) but also innovatively (for new value creation) — it runs the risk of one day becoming incredibly efficient at producing what customers no longer want. Nokia and Kodak are sad examples of this phenomenon.
Business history teaches us that innovators often come to their breakthroughs by decoupling, remixing and stretching existing resources. They view a company not as a set of business units but as a portfolio of distinct, standalone skills and assets that can potentially berepurposed, redeployed or recombined in different ways to create new opportunities for value creation. In fact, they look at the whole world as a rich reservoir of resources that may be leveraged to make innovation happen.
Over the last few decades, the Walt Disney Company has continued to leverage its formidable skills and assets to open up new avenues of value creation. For example, the blockbuster movie series Pirates of the Caribbean had its genesis as a theme-park attraction at Disneyland back in 1967. This asset was repurposed as a feature film in 2003 and went on to become a major franchise, encompassing several more movies as well as novels, video games, media publications and additional theme-park attractions. The films alone have grossed well over $3.7 billion worldwide.
Where would Sir Richard Branson and Virgin be today if he had decided not to diversify but rather to focus his efforts solely on running the world's best record stores? His advice to other companies? “You shouldn't be afraid to diversify if you are in a position to do so, especially because nothing ever stays exactly the same. ... Whenever Virgin has money I always renew my search for new opportunities.”