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As the F-E-R cycle continues to pick up speed, more companies will find themselves in the fateful third phase, where redefinition is essential. The issue for executives is what to do when that day arrives. Some will decide to man the fort and defend the status quo. Others will try to transform their companies all at once through a big merger or a leap into a hot new market. All such strategies, it turns out, are inordinately dangerous. But a number of companies, we discovered, have found a far less risky alternative. They search out and uncover hidden assets—assets that the company already has, but that have been overlooked, undervalued, or underutilized. They then proceed to redefine their core around those hidden assets.

The importance of a company's hidden assets to its strategic regeneration cannot be overstated. Our close examination of 25 companies that have successfully confronted issues of core redefinition revealed that, in 9 out of 10 cases, a hidden asset was the centerpiece of the new strategy.

Why would well-established companies even have hidden assets? Shouldn't valuable assets long since have been put to work or disposed of? In fact, large, complex organizations always acquire more skills, capabilities, and business platforms than they can focus on at any one time. Some are necessarily neglected—and once they have been neglected for a while, the people at the top of a company often continue to ignore them or discount their value. But then something happens. Market conditions change, or perhaps the company acquires new capabilities that complement its forgotten ones. Assets that were once secondary to the past strategy now take center stage.

The real question, then, is how to open management's eyes to the hidden assets in their midst. One way is to identify the richest hunting grounds.

Our research suggests that hidden assets tend to fall into three categories:

Most strategic approaches to redefining the core involve significant risk, but redefinition through hidden assets reduces that risk.

Read about the success rates of different strategies when the rules of the core change

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