PART I
Your growth ambition
THE “GROW OR GO” DYNAMICS we have just outlined represent an unforgiving environment for large companies. The odds of sustaining performance and growth over the long term are indeed long ones.
The first part of this book addresses the fundamental questions you face as a leader when you are defining your company’s ambition for long-term growth: Should we concentrate on growing the businesses we have? Build an institution that is capable of driving growth well into the future? Consolidate our industry? Diversify? Sell our company in the next few years?
Your answer will naturally shape your company’s agenda in many ways: your investment priorities and spending levels; your target markets; your decision to diversify or focus your business portfolio; your hiring; your organization structure; your use of leadership time; and your use of M&A, to name just a few.
Growth is a tricky topic, so it’s important that your company should have a view on the best way to think about it. We all know intuitively that growth is good. It creates healthy companies, opens up opportunities, excites talent, and rewards shareholders. But do we know how to achieve it?
Previous attempts to explore how companies can grow have depended largely on anecdotal evidence. Pankaj Ghemawat, a professor of strategy at IESE and Harvard Business School, notes that “It’s hard to assess the empirical validity of growth books because none of them focus on presenting data.”
1 We have done our utmost to buck this trend; indeed, if anything, you may conclude that we may have provided too much evidence to support our claims. But we have tried to organize the book in such a way that readers who want a full account of our analysis can find it, while others who prefer to take in our main conclusions quickly can do so too.
What we will show in this book is that performance is granular, by which we mean driven by growth in the sub-segments and categories of industries in which a company competes as well as by the revenues that it acquires through M&A activity. We will also show that these drivers are generally much more important than market-share gains in determining how fast you grow.
This seemingly counterintuitive finding has important implications. A typical management team needs to change the way it thinks about company resources, not least its own time. It needs to pay more attention to which businesses the company is in, and particularly the sub-segments in which it competes.
There are four chapters in this part of the book, each intended to guide you as you think about your company’s growth ambition.
• In chapter 1, “A granular world,” we show that when you are searching for growth, analyses of industries and megatrends are usually pitched at too high a level to offer you any help. In order to identify growth opportunities, you need to get well below the industry level. We define five levels of granularity and show where the most valuable insights are to be found.
• In chapter 2, “Understanding your company’s performance,” we show that choices about where to compete account for nearly 80 percent of the differences in top-line growth among companies. We introduce a methodology for breaking down the sources of revenue growth into the three core components of portfolio momentum, market-share gain, and M&A—what we call the growth “cylinders.” We then examine how companies perform in terms of each one.
• In chapter 3, “Firing on multiple cylinders,” we demonstrate that most companies need to fire on more than one of these growth cylinders over time if they are to achieve excellent growth performance. We look at the relationships between growth cylinders, revenues, and shareholder returns, and compare the impact of different growth cylinder strategies at several companies. This enables us to formulate guidelines for defining exceptional, great, good, and poor growth performance.
• In chapter 4, “A granular company,” we combine the concept of firing on multiple cylinders with the idea of granularity to create a powerful tool, the growth MRI. Its purpose is to enable you to analyze your growth performance at the right level of detail.
NOTE
1 P. Ghemawat in “The growth boosters,”
Harvard Business Review, July 2004, pp. 35-40, a review of three books: Chris Zook’s
Beyond the Core, Ram Charan’s
Profitable Growth is Everyone’s Business, and Adrian Slywotzky and Richard Wise’s
How to Grow When Markets Don’t.