Switching Gears To Growth From Cutbacks
Correction Appended Many corporate leaders are trying to reignite growth in their companies. Yet they often face barriers in doing [...]
August 1 2004 by Chief Executive
Many corporate leaders are trying to reignite growth in their companies. Yet they often face barriers in doing so, according to Mike Brewster, leader of the organic growth practice at Marakon Associates, a management consulting firm. Following are excerpts from a conversation:
Q. Is growth suddenly hot again?
A. It’s clearly come back into vogue as a topic after a few years of focus on cost reduction and focus on mergers and acquisitions.
Q. Why is achieving organic growth so hard?
A. If you look at the failure rates of innovation at consumer-oriented companies, you see how hard it is to come up with genuinely new ideas. For a lot of companies, it’s hard to control because they depend on intermediaries like retailers, who have become increasingly fickle and demanding of many of their suppliers. It’s also hard because competitors are fiercely eroding your advantage wherever they see it. The rate of copying of innovation is rapidly increasing.
Q. If a company has been in a defensive cost-cutting position and wants to go on the offensive, what has to change in its culture or leadership?
A. A fair amount. When you look at companies that are good at growing organically, there are a number of things they’re very good at. They’ve got to be really good at understanding what their consumers need and want, and more specifically, building an understanding not just of what consumers say they want but what consumers actually buy. We call that the integration of consumer attitudes, consumer behaviors and consumer economics. A lot of companies know one of those dimensions but not the other two.
Q. They also have to risk capital, right?
A. Yes, investing in growth in the short term is hard. Growth hits the profit-and-loss statement in the short term. There’s always going to be a trade-off between investing now and the performance that’s required to meet external expectations.
Q. Which American companies have done well in going for growth?
A. Companies like Procter & Gamble are a case in point. The transformation they’ve gone through is from being a company that was trying to grow on many fronts to a company that has narrowed down to build on its core brand propositions. They’re getting greater focus on the way they invest for growth. They’re also seeking to create a greater culture of growth inside the organization, largely focused on innovation.
Q. Who else is doing well promoting growth?
A. At 3M, Jim McNerney has been trying to focus the organization. It has the opposite problem that a company like P.&G. has because 3M has too many innovations. He wants them to focus on a few big innovations so that they can get the biggest bang for their buck.
Q. Which companies are not succeeding with growth?
A. Hewlett-Packard has struggled to get it right since the merger with Compaq in a difficult environment. The major airlines also have struggled to get growth out of their businesses. It’s not just that the industries they are in are difficult. In both computing and airlines, there are exemplars who are delivering great organic growth. Compare H-P with Dell. And in airlines, compare United and American with Southwest.
Q. What specific internal skills must a company have to grow?
A. Being able to stay close to the customer and getting great customer insight is hard at large organizations. Staying close to the customer gets delegated to the marketing department or gets delegated to the sales department. Slowly, the ethos of focusing on the customer gets detached from the company’s strategy process.
Q. Can the ways companies organize themselves hurt growth?
A. Yes, organizational structures in many companies create blind spots to growth. Growth lies in between the cracks in the structure and is therefore difficult to get at.
Q. What’s an example of a blind spot?
A. A lot of financial-services organizations have broken up retail businesses into the mass market versus the affluent segment. They’ve broken up product offerings into deposits, checking accounts, credit cards and so on. Yet all banks have been seeking to maximize their share of the customer’s wallet. There’s one customer out there and one customer’s wallet. Yet the organizational structure of banks breaks that wallet up. That creates opportunities for banks that combine those dimensions. Wells Fargo is a good example. They’ve come in with offers that mimic the way customers think about their wallets and get more organic growth. They’ve produced new bundles of products.
Q. Have the Sarbanes-Oxley Act and other new regulations discouraged innovation?
A. They have certainly shifted attention toward corporate governance, controls, risk management and so on. To some degree, that attention has probably come at the expense of great execution on organic growth. But companies tend to be risk averse, and some of that precedes Sarbanes-Oxley.
Q. Many people who have risen to power at companies have been oriented toward control. Does that discourage growth?
A. There is a mindset challenge involved in getting growth. Some companies see themselves as being in a mature market with limited growth horizons. But as John Sunderland, chairman of Cadbury Schweppes, puts it, “There’s no such thing as mature markets. There are only mature management teams.”
Correction: August 8, 2004, Sunday The Armchair M.B.A. column last Sunday, about a return to corporate growth after years of cutbacks, misstated the surname of the Marakon Associates consultant in charge of the firm’s organic growth practice. He is Mike Baxter, not Brewster.