What is the Best Way to Grow in 2010?

We are tentatively emerging from the recession as corporate profits, consumer demand and business confidence begin to trend upwards.  As a result, companies are starting to consider new investments in capacity, marketing and R&D.  Despite these encouraging signs, the economy remains vulnerable to credit scarcity, record levels of consumer debt and higher interest rates.

Given macroeconomic uncertainty, companies can not afford to be reckless with their 2010 growth strategies.  How can firms reignite their growth engines yet minimize business risk?  A systematic 3-step approach would help.

Know your growth profile…

Surprising as it sounds, many companies don’t understand the basic sources and drivers of their growth.  There are many legitimate reasons for this including employee turnover, lack of data and management bias which favors some strategies over others.  To understand how your firm grows, it helps to consider some key questions such as: what markets/segments are growing?  Where are the profit pools (e.g., products or services)? And, what is your competitive position in these markets?  Understanding your growth profile is crucial to knowing which markets and consumers to focus your efforts and resources against.  

Stick to your knitting…

Understanding how to grow is the next big question.  In general, firms that concentrate on a single, proven growth strategy-and move down the experience curve-will usually outperform those that flip-flop. Most companies will employ one of two growth themes at any given time.  The “Business Builder” seeks to beat the competition with ongoing investments in products, marketing and services.  Successful practitioners of this strategy (e.g., P&G, Apple, and Nike) usually take a deliberate approach to building competitive advantage by continuously improving their value proposition and brand.  On the other hand, serial “Acquirers” like Cisco, Oracle and Arcelor Mittal use M&A deals to build scale, add capabilities and enter new markets, preferably on favorable economic terms.  Acquirers typically expend significant effort and capital to seek out, acquire and integrate the “right” businesses.   However, given the different capabilities and balance sheets required, few companies can regularly and successfully employ both strategies to grow.  

A McKinsey study of the European Telco industry supports the notion that sticking to your knitting yields the highest growth rates.  The research showed that firms which understood their sources of growth and followed proven strategies that targeted those areas tended to outgrow their peers.  However, to realize this potential, the firms must understand:  1) the historical impact of each strategy on growth; 2)  how core competencies link to the best growth strategies and; 3) when not to follow the strategic moves (or folly) of target competitors. 

Should circumstances change, companies should be prepared to change their strategies to exploit unique opportunities.  For example, business builders could pursue M&A deals when the price is right or competition is weak.  According to McKinsey, firms that adjusted their growth strategies to exploit exceptional opportunities and market conditions tended to outperform their peers.

Execute with Excellence

A great strategy marred by poor execution will usually result in wasted capital, failed careers and market setbacks.  A wealth of research confirms that execution excellence correlates with higher market share along with lower costs, higher customer satisfaction and improved morale.  Some proven measures to improve execution include having: clear and articulated goals & strategies, sufficient resources on hand, empowered & skilled employees, timely initiative tracking and effective project management.

 For more information on our work and services, please visit the Quanta Consulting Inc. web site.


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