Hidden Business Platforms
The first of these, hidden business platforms, often lie neglected within a company's core. IBM, for example, struggled to compete in the fast—moving personal computer industry and encountered new threats in the challenging mainframe environment it once dominated. Services weren't on the radar screen at Big Blue until the early 1990s, when newly named CEO Louis Gerstner spotted the potential of a captive subsidiary, the Integrated Systems Services Corp., which had languished as an obscure unit within IBM's sales force. Gerstner made ISSC a free—standing services business independent of the hardware divisions, ultimately spinning out IBM Global Services. With revenues today exceeding $48 billion, Global Services is more than twice that of IBM's hardware business and accounts for some two—thirds of the company's market value.
Untapped customer insights are a second source for renewing the core. Autodesk, for instance, rode a steep growth curve developing computer—aided design software for architects and engineers. But successful expansion stalled out in the late 1990s, when the company abandoned its strategy of pursuing deep, technical applications and shifted its focus to new forms of services and direct sales channels via the Web, bypassing third—party resellers and retailers. With sales declining, Autodesk knew it would have to renew its core to survive.
Company executives identified an overlooked source of customer insight: Autodesk's original sales network of third—party distributors. Rather than maintain an arm's—length relationship with these sales channel representatives as before, the company began to treat them like the partners they truly were. Autodesk invested in training them and deepened its partnership with the leading resellers. The software firm also redoubled its efforts to understand the technical needs of its end—users for more powerful 3—D applications and revamped its model for selling software upgrades, migrations, and add—ons. The new strategic initiatives fueled a six—fold increase in Autodesk's stock price between 2002 and 2006, as revenues increased at a 16 percent annual pace and return on equity jumped 46 percent.