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A research team at Bain & Company found that of the companies that made the Fortune 500 in 1994, a decade later, 153 of those companies either had gone bankrupt or had been acquired. Of the remaining 347, the team judged that 132 had engineered a fundamental shift in their core business strategy. In other words, 285 out of the 500 faced serious threats to their survival or independence during the ten-year period. Only about half of this group was able to meet the threats successfully by redefining their core business.

What accounts for the fact that so many companies are facing the need to transform themselves? One way to understand it is through what we call the Focus-Expand-Redefine (F-E-R) cycle in business. Nearly every large enterprise seems to move through this cycle over time. In the Focus phase, companies concentrate on building their core business to its full potential. They expand their markets, cut costs, improve operations, and develop innovations in their core products. In the Expand phase, they take advantage of these capabilities and market positions to move into adjacent markets. They seek out new customer segments, new geographies, new distribution channels, and new-but-related product lines.

Expand Redefine Focus

At some point, however, many companies find that their growth and profitability is tapering off or even declining. Perhaps the market has reached a saturation point, or perhaps the pool of available profits has shifted. Perhaps new competitors with lower cost structures or innovative products have appeared. This is when a company moves into phase three and must face the challenge of redefining its core.

Today, there is little doubt that the F-E-R cycle has accelerated: companies move from one phase to another faster than ever, thanks to a number of well-recognized forces. New competitors from China and India have shaken up whole industries. New technologies have lowered costs and shortened product lifecycles. Capital, innovation, and management talent all flow more freely and more quickly around the globe than ever before.

The average holding period of a share of common stock has declined from four years in the 1980s to nine months today. The average lifespan of companies has dropped from fourteen years to just over ten, and the tenure of CEOs has declined from eight years a decade ago to less than five years today. Companies must thus navigate an unusually turbulent sea.

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