Growth
This document includes instructional slides and templates covering the following areas:
Growth challenges Traditional strategy thinking (e.g. Porter’s Five Forces) Modern strategy thinking (e.g. Blue Ocean Strategy) A growth strategy project initiative (project approach, design, frameworks & analytics, deliverables) Competitive Advantage Case examples Lower Cost Differentiation
Cost Differentiation Leadership Broad
Cost Differentiation Focus Focus Competitive Scope Narrow CONTENT
Growth Challenge Traditional Strategy Thinking Porter’s Five Forces Modern Strategy Thinking Blue Ocean Strategy Blue Ocean Examples Growth Strategy Project Project Approach Project Design Analytics & Frameworks Deliverables
1 All companies are faced with the challenge of achieving sustainable growth
The Challenge – Sustainable Growth
Not many companies achieve significant growth
• Fortune 500 median revenue growth rate between 1963 and 2003 is 6.3% in real terms and 10.2% in nominal terms • Real revenue growth fluctuates more than Return on Invested Capital (ROIC) ranging from 1 to 11%
Most difficult for large companies
• Large companies struggle to grow – Excluding the first year, companies entering the Fortune 50 grow at an average of 1% above inflation over a 15 year timeframe • Only 1/3 of the Fortune 500 are able to sustain top-line growth above GDP and generate returns above the S&P500 – 90% of them concentrated in 4 sectors (FSI, HC, Tech, Retail)
Those that do, find it difficult to sustain
• High-growth rates decay very rapidly • Companies above 20% sales growth typically slide down to 8% within 5 years, and down to 5% by the 10 year marker
Source: “The do-or-die struggle for growth”, McKinsey Quarterly, 2005 November 3 2 Growth is commonly inhibited by a lack of breakthrough ideas, balancing cost-out and margin trade-offs, and execution challenges
Growth Challenges
Lack of execution follow Current Few breakthrough growth Growth at the expense of through for growth Situation offerings identified profitability initiatives
Focus is on existing markets Benefit trade-offs are not Lack of committed financial and demand (e.g., line made (e.g., the right mix of resources extensions, substitutes) attributes)
Consumers are increasingly Strategic Pricing and cost structure Metrics and rewards based sophisticated and hard to are driven by competition on current operations Issues please
Opportunities are defined by Structure and processes to Organizational structure is internal/operational develop and manage growth not in line with new business capabilities do not exist
The Create customer value Align value proposition Effectively execute Resolution (Value Innovation) with operations/organization strategy
3 Successful companies balance the competing demands of optimizing existing core businesses while building new ones
Framing the Growth Challenge Horizon 3
Horizon 2 Create viable options for future growth Horizon 1 Build emerging Profit businesses
Extend and defend the core business Time
• Core business of the company • Build new business and streams of • Seeds of the future businesses • Critical to near-term performance, revenue that will transform the industry cashflow and profits • Extend current business or move in • New ideas backed by investments • Some growth potential, but new directions • Could take form of research, typically will flatten over time • After a few years, these businesses alliances, pilots, minority stakes • Lay foundation for future growth should be accelerated to replicate • Eventually take hold (10 year horizon) Description success like the core
Current Manage for profitability Drive ventures to take root Seed growth options Continuing innovation Replicate the business model Test business model Situation Efficiency optimization
Managing for Strong Operational Managers / Business Builders / Visionaries / Growth requires… Leaders Entrepreneurial Unconventional Thinkers Value Creators
Source: The Alchemy of Growth, Baghai, Coley and White, 1999. 4 However, many companies are inconsistent in managing short and longterm thinking and investment to create growth-enabled organizations
Barriers to Growth 3 2 Horizons 1 Common Barriers
• Core business underperforming, lack ideas in the pipeline Under siege • Need to earn the right to grow by putting the core business back on track
Losing the right • Obsessive focus on new business without developing thecore, spreading the organization and management thin to grow • Basic performance improvement in core required
Running out of • Strong focus on core business, but no focus on next big idea; businesses could mature, position could be threatened steam • Start journey toward growth
Inventing a new • Due to external triggers (regulatory change, technology), company must transition out of future core business to new space
Generating • Good core business with a lot of new ideas, but lack initiatives to translating ideas into ideas but not real businesses (Dot.com) new businesses
Failing to seed for • Have strong core and new businesses to drive returns for several years, but lack the future institutional capabilities for innovation
Source: The Alchemy of Growth, Baghai, Coley and White, 1999. 5 Faced with challenges to grow profitably, we work clients to identify their path to value creation and innovation
Paths to Growth Growth Opportunities
Increasing Expanding Value from Business Current Scope Business
Improve/Change Value Proposition Expand Into New Segments / Categories
Solidify Customer Relationships Develop New Products/Brands
Improve Pricing Develop New Formats/ Channels
Penetrate markets with existing products Expand Geographically Build, Buy, Ally Optimize Product Mix
6 Traditional Strategy Thinking
7 Traditional concepts of growth strategy are based on internal analysis and interpretation of the marketplace
Common Growth Concepts
Competitive Advantage
Protect Build Protect and Low Cost Differentiation selectively Position Strong refocus
Broad Cost Differentiation Focus on current Leadership Manage Manage Invest Target for for Medium to Build earnings earnings business and Narrow Focus capabilities Build Target Divest Harvest Weak selectively
Low Medium High
Competitive Scope Competitive Define Competitive Position Competitive opportunities by McKinsey, General Electric, Shell M. Porter, Competitive Strategy relative competitor position
Competitive Advantage Dominant Natural Harvest Look internally and Low Cost Differentiation Strong Development + 50 % to competitors, as Question Stars Selective Marks opposed to Favorable Development
+ 5 % customers, for Unfavorable Reorientation Cash Dogs growth options Marginal Reorientation Divestment Cows
Infancy Growth Maturity Ageing - 10 % Growth
Competitive Position Competitive 10 1 0.1 Maturity Relative Market Share Arthur D. Little Boston Consulting Group
8 Traditional approach to growth strategy is based on the teachings of Michael Porter—namely Porter’s Five Forces framework
Traditional Strategy Thinking – Porter’s Five Forces
1. Potential new competitors
Threat by new competitors
4. Suppliers 2. Competitors in the 5. Customers industry
Suppliers Rivalry among Buyers’ negotiation negotiation power existing companies power
3. Substitution products
Threat by substitution products
9 Porter’s Five Forces assesses the attractiveness of an industry along each competitive force to determine the correct competitive strategy
Porter’s Five Forces Competitive Advantage
Threat of New Entrants Lower Cost Differentiation Barriers to entry: Economies of scale (including shared resources) Cost Differentiation Product differentiation (proprietary) Broad Leadership Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Cost Differentiation Narrow Government policy Focus Focus Expected reaction of incumbent Competitive Scope Competitive
Bargaining Power of Suppliers Intensity of Rivalry Bargaining Power of Buyers
A supplier group is powerful when: Intense rivalry results from: A buyer group is powerful when: It is dominated by a few companies and is more Numerous or equally balanced competitors It is concentrated or purchases large volumes concentrated than the industry it sells to. Slow industry growth relative to seller sales. There are no substitute products. High fixed or storage costs The products represent a significant fraction of the The industry is not an important customer. Lack of differentiation or switching costs buyers’ costs or purchases. Its products are important to the industry. Capacity augmented in large increments The products are standard or undifferentiated. Products are differentiated or suppliers have Diverse competitors It faces few switching costs. built up switching costs. High strategic stakes It earns low profits. It poses a credible threat of forward integration. High exit barriers It poses a credible threat of backward integration. The bought product is unimportant. It has full information. Exit Barriers Pressure from Substitute Products L H Search for products that can perform the same Take offensive or defensive actions to create a function. defensible position against the forces: Low, Assess buyers’ propensity to substitute. Low, risky Positioning the firm so its capabilities provide the stable Focus on those that: L returns best defence returns Are improving their price performance trade-off Influencing the balance of forces through strategic compared with the industries products. moves Require low switching costs. High, Anticipating shifts in the factors underlying the High, risky Are produced by industries earning high profits. forces H stable and responding to them
Entry Barriers returns returns
10 Headline message Porter’s Five Forces - Template
INDUSTRY COMPETITIVE ASSESSMENT
New Entrants COMPETITIVE STRATEGY • Bullet point 1 • Bullet point 2 • Bullet point 3 • Bullet point 4 Competitive Advantage
Lower Cost Differentiation
Cost Suppliers Internal Rivalry Buyers Differentiation Broad Leadership • Bullet point 1 • Bullet point 1 • Bullet point 1 • Bullet point 2 • Bullet point 2 • Bullet point 2 Cost Differentiation • Bullet point 3 • Bullet point 3 • Bullet point 3 Narrow • Bullet point 4 • Bullet point 4 • Bullet point 4 Focus Focus Competitive Scope Competitive
Substitutes
• Bullet point 1 • Bullet point 2 • Bullet point 3 • Bullet point 4
11 Modern Strategy Thinking
12 The modern strategy thinking of Blue Ocean Strategy focuses on enabling innovation, value creation, and effective execution
Modern Strategy Thinking
Growth Focus
Start with customer needs Look beyond traditional Value Identification markets, industries and competitors Understand what the Create multi-horizon portfolio customer values Value Creation Develop growth platforms Prioritize initiatives for “market mining” Select and develop growth option Effective Execution Align operating model to Consumer Market deliver value and fair value Concept Execution
Need Trends Value Costs Venture Launch Organizational alignment Eliminate Reduce Raise Create Funding / Resource Allocation Measurements Growth Platform Value Innovation Accountability Sustainable Growth Structure Infrastructure Culture Value Alliance Management M&A
Source: C. Kim, R. Mauborgne, Harvard Business Review (1997). 13 Modern thinking moves away from a traditional focus on competition to “blue oceans” of opportunity
Shift to “Make Competition Irrelevant”
Industry conditions are given Industry conditions can be shaped Industry compete in existing market space create uncontested market space
Companies must build competitive Make competition irrelevant Strategy advantages to beat competition
Exploit existing demand Create and capture new demand Market
Make the value cost trade off Break Break the value cost trade off Resources
Align the whole system of a firm’s Align the whole system of a firm’s Organization activities with its strategic choice of activities in pursuit of differentiation and differentiation or low cost low cost
Maximizing the offering’s value within Offering buyers the total solution that Offerings industry boundaries transcends the industry
Source: C. Kim, R. Mauborgne, Harvard Business Review (1997) 14 Value is created from more than just “meeting customer needs”
Portfolio Positioning
Pioneers 14% of launches (Need beyond buyers 38% of sales 61% of profits cognition)
Migrators (Need known but not articulated by the buyer)
86% of launches 62% of sales Settlers 39% of profits (Need identified) (Company sampling)
Deliver Product Service Platform Platform Platform
Source: C. Kim, R. Mauborgne, Harvard Business Review (1997) 15 Growth platforms look beyond current industry and company definitions to identify innovative offerings that change the industry
Portfolio Positioning
Innovation Capabilities Path Unknown
Horizon 3: Change the Industry Breakthrough Market offerings Capabilities Must Be Developed
Horizon 2: Build New Businesses Newness to Company Capabilities Exist Horizon 1: Build Fundamentals
Today, H0 Satisfied Unmet Unrecognized Consumer Needs
16 A variety of creative techniques are used to gain customer insight
Insight Generation Analytics
Journaling-- diary of observations, mental connections made between ideas, interesting areas to explore further Anthropological Delphi Interviews-- business leaders from non Immersion competing organizations provide insight into a Company’s top issues, potential solutions and partners Lead User Ethnographic Research-- observations of the Research Journaling Company’s customers in their normal TL Idea purchasing/using habitat Exchange
Anthropological Immersion / Mystery Shopping-- Delphi project resources ‘become’ the customer by mirroring Interviews their behavior
Thought Leader Idea Exchange-- web based tools Ethnographic used to share ideas within the Company and Research potentially with external thought leaders Current Emerging New Lead Consumer Research-- observations of how early adopters or experts might be adapting a product Industry Trends Discovery to fit specific needs
17 Value is created from more than just “meeting customer needs”
Blue Ocean-Value Identification Evolution of Value Curves + Traditionals
Value Innovator Value
- Eliminate Reduce Raise Create
Which of the attributes Which attributes Which attributes should Which attributes should that our industry takes should be reduced be raised well above the be created that the for granted should be well below the industry’s standards? industry has never eliminated? industry’s standards? offered?
Source: C. Kim, R. Mauborgne, Harvard Business Review (1997) 18 Cirque Du Soleil achieved breakthrough growth in a declining industry and revolutionized the venue driven entertainment market
Blue Ocean Example-Cirque Du Soleil
Ringling Bros. and Barmum & Bailey
Smaller Regional
Buyer Value Circuses
Price Animal Fun & Unique Refined Artistic Music Shows Humor Venue Environment & Dance Star Aisle Thrills & Theme Multiple Performers Concessions danger Productions
Result: Productions seen by 40M people in 90 cities around the world, and in less than 10 years achieved revenues that took the incumbents 100 years to attain.
Source: C. Kim, R. Mauborgne, Blue Ocean Strategy 2005. 19 [yellow tail] wines created a “blue ocean“ by creating three new selling propositions and de-emphasizing traditional attributes
Blue Ocean Example – [yellow tail]
Result: Casella sells more bottles in the US than all French and Italian imports combined, and also more than all Californian wines together
Source: C. Kim, R. Mauborgne, Blue Ocean Strategy 2005. 20 Nintendo transformed its position in the console gaming industry by offering a unique value proposition toward games and service
Blue Ocean Example-Nintendo Wii Buyer Value
__ - Club Speed Humor Violence Interactivity Game price Graphic quality Number of games Intellect. challenge Product / Games Service
Result: 14 competitors pulled out of the gaming market during the 1980s/90s (including Atari) and Nintendo recently innovated the console gaming market with Wii.
Source: C. Kim, R. Mauborgne, Blue Ocean Strategy 2005. 21 Headline message Blue Ocean-Value Curve Template
+
Competition Company e u l a V
_
Eliminate Reduce Raise Create
22 Growth Strategy Project
23 Our approach helps clients think creatively about opportunities and grounds them in formulating strategies they can act upon
Strategy Development Approach
Analysis and Insights Generation Growth Options & Strategy Development Growth Strategy Execution Design
• Project Start-Up • Visioning • Strategy • External • Option Refinement Assessment Generation • Transformation • Internal & Evaluation Roadmap Assessment • Strategy Development • Insights & Formulation • Business Case Hypothesis Generation
• Posing the right questions. • Posing the right questions. • Defining activities supporting • Making sense of incomplete facts. • Making sense of incomplete facts. targeted changes. • Seeing beyond the facts, trends, etc. • Seeing beyond the facts, trends, etc. • Creating the business case. • Understanding the critical issues. • Understanding the critical issues. • Preparing the organization for change. • Generating unconventional insights. • Generating unconventional insights. • Mobilizing the organization for successful execution.
Collaboration / Acceleration / Execution
24 A typical Growth Strategy project has 3 stages
Growth Strategy Project Design
Analysis and Growth Options & Growth Strategy Insights Generation Strategy Development Execution Design
• Determine need for growth • Identify and prioritize growth • Evaluate and recommend • Perform external assessment alternatives and platforms strategic growth options - Market/industry trends - Customer insights • Validate growth platforms • Detail growth platforms and - Insights about future through executive review design realization program - Competitive dynamics - Market attractiveness • Select growth alternatives for - Competitive position • Perform internal assessment further evaluation (~6 8) - Ability to execute - Capabilities/ barriers - Company attractiveness - Growth concepts - Economics / Business Case - Company insights • Develop implementation plan • Develop baseline value curve - Financial and human • Generate ideas/New attributes resource commitments Key Activities • Finalize criteria for selecting - Action plan (including barrier growth options removal plan)
25 A host of tools, analytics, and frameworks could be leveraged creatively during a Growth Strategy project
Growth Strategy Project-Analytics & Frameworks
Analysis and Growth Options & Growth Strategy Insights Generation Strategy Development Execution Design
External Assessment Project Customer Analysis Strategy Refinement Definition & and Profiling Scoping Market Analysis Strategic Definition Problem Formulation Competitive Analysis Organizational Design Performance measures Leading Practices Strategy Formulation (e.g. Balanced Scorecard) Economic Value Initiatives Definition Drivers Visioning and Scenario Planning t
r Key Success Factors
a Future State (Target) t Definition S Transformation Roadmap
t
c Insights, Hypothesis Gap Analysis Roadmap Development e
j Generation &
o Strategic Guidelines Risk & Risk Mitigation r Option Generation,
P Evaluation & Prioritization Definition Internal Assessment Change Management &
Strategy Formulation Communications Final Presentation Resource Core Competencies, Mobilization Strengths, Weaknesses Business Case Target Portfolio Analysis Setting Business Case Value Chain Analysis Benefits Definition Revenue / Cost / Business & Financials Profit Drivers Development Performance & Metrics
26 Some project deliverables could include…
Growth Strategy Project-Deliverables
Growth Mission: Articulation of the direction that Client will pursue to reach growth objectives
Growth Platforms: Outline of areas or categories that will provide the focus for growth initiatives
Breakthrough Offerings: Identification of at least one new breakthrough product/service that fits within identified platforms
Go to Market / Product and Market Strategy: Description of service offerings, pricing, channel and sales model
Financial and Human Investment Decisions: Outline of investments that will be made to support growth initiatives
Growth Goals/Value Proposition: Articulation of the bold goals that Client expects based on the expected value proposition from growth initiatives
Barrier Removal Plan: Outline of necessary changes to existing organization processes that would serve to “incubate” overall growth
Opportunity scans for M&A and pre deal strategy formulation
27 GLOBAL
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