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Growth Strategy Project Initiative (Project Approach, Design, Frameworks & Analytics, Deliverables) Competitive Advantage Case Examples Lower Cost Differentiation

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Growth Strategy Project Initiative (Project Approach, Design, Frameworks & Analytics, Deliverables) Competitive Advantage Case Examples Lower Cost Differentiation 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 Define Competitive Position 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 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 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
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