In the previous articles of this series we addressed the tough competitive environment of the U.S. foundry sector. We’ve also set the stage for discussing growth strategy using the concepts of: Core Business, Adjacencies, and Opportunity Mapping. In this article we explore in greater detail how these concepts can be applied to a foundry business to map out strategies leading to long-term sustainable and profitable growth.
The Core and Adjacencies — The core is best described as whatever process or function provides the most unique and greatest competitive advantage for the company in the marketplace. Many foundries try to identify their core business internally, based almost entirely on process and metallurgical capabilities. Usually this is a mistake, unless the foundry can honestly say that they have a unique process or metallurgical capability from which they derive more than 80% of their profitability.
Perhaps one example of a foundry with unique process capabilities might be the investment caster Signicast. Their commitment to automating and yet keeping the investment casting process highly flexible has given them a commanding lead in the general industrial investment casting market.
An example of a company that has extraordinary metallurgical capabilities as its core is Belmont Metals Inc., of Brooklyn NY, which manufactures over 3,000 non-ferrous alloys and pre-shapes that go into a wide variety of industries and applications.
Some attributes that are not ‘core’ but seem to be high on the list for foundries are:
• Foundry age. While being in operation for a hundred years, or three generations, is admirable (and might mean there is in fact a strong core) being in business for a long time is not a core attribute.
• Highest quality, fastest turnaround, lowest “total” cost, best website, and on and on. Unless you can very confidently demonstrate that this is critical to deriving 80% of your profits, don’t fool yourself. Usually these attributes are just the cost of admission to do business.
Identifying the business core is best done with an external focus. Are there a small number of customers that provide 80% of the profitability? Or, perhaps there is a particular type of casting that makes up the 80%. Perhaps there is one particular market segment, or better, a niche within a market segment, that provides 80% of the profits. Possibly you might identify a set of competencies, such as unique casting design capabilities, combined with process capabilities, as the true core. Historically, geography – say, a 200-mile radius of the foundry -- has been important in defining a foundry’s core business. However, the chances of maintaining a core business based on geography today are decreasing, quickly.
It is intellectually challenging for most companies to accurately define the core business. But, once that objective is completed, it’s amazing how much easier it is to find, prioritize, resource, and manage growth in adjacencies.
Adjacencies — Adjacencies are potential new business areas that in some way build upon and leverage the core. Ideally, pursuing growth in an adjacency also strengthens the core by making it even more unique. Strengthening the core is also a desirable and often realized outcome of well-chosen adjacencies.
Following are some adjacencies categorized by type of adjacency that can be fertile ground for foundry businesses.