Marketbusting Strategies for Exceptional Business Growth
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A R T I C L E www.hbr.org MarketBusting Strategies for Exceptional Business Growth by Rita Gunther McGrath and Ian C. MacMillan Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 MarketBusting: Strategies for Exceptional Business Growth 12 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications Product 9408 MarketBusting Strategies for Exceptional Business Growth The Idea in Brief The Idea in Practice You can’t outperform rivals if you compete Redefining your unit of business, boosting performance on key metrics, and improving custom- the same way they do. To be king of the ers’ performance are just three market-busting strategies. Consider these additional moves: jungle, not copycat, you must spur substan- fers’ competitiveness. Participating lend- tial new growth—quickly, profitably, and Work faster. You’ll need less working capital ers—not consumers—pay transaction fees safely. and use assets more effectively. to LendingTree. During 2001–2002, the com- How? With deceptively simple moves. Rede- Example: pany’s sales skyrocketed 74%. fine your unit of business—what you bill American Home Mortgage Holdings is one customers for—to reflect what customers of the most rapid service providers in the Improve your customers’ cash flow. You’ll value. Then boost your performance on key mortgage lending industry. By integrating make them more profitable and efficient, metrics. Mexican cement company Cemex its systems with large refinancers such as and they’ll do more business with you. shifted its unit of business from cubic yards Fannie Mae and Freddie Mac, it can make Example: of cement to delivery window: the right deals and move cash in record time. By Software giant SAS, by adjusting its deci- amount of concrete delivered when needed. originating and selling mortgage loans sion-support applications in response to Then it reoriented its information systems, through its Web site, it gives customers 24- customers’ needs for improved operations, logistics, and delivery infrastructure to im- hour access to interest rates and product helps customers make better decisions prove truck utilization—a key metric for de- terms and enables them to lock in interest faster. And with low employee turnover livery businesses. For instance, it developed rates, obtain credit reports, and prescreen rates, its employees develop long-term re- digital systems enabling real-time adjust- their own qualifications. Result? More refi- lationships with customers, discovering ments to trucks’ destinations. nancing deals sealed more quickly. how to best help them. Results? A 98% cus- Also improve customers’ performance. tomer-retention rate and projected growth Reduce your assets. You’ll improve perfor- UPS handles shipping and repair for laptop of more than 20% in 2005. mance on key metrics related to asset utiliza- makers—freeing these customers from em- tion—such as economic value added (EVA) ploying expensive maintenance staff, and Reduce your customers’ assets. They’ll and return on assets (ROA). getting laptops back in owners’ hands be more loyal to your firm and boost your VED. quickly. The service enhances notebook Example: profitability. makers’ productivity and lowers their costs. Quanta Computer serves many notebook- Example: And it delights PC owners. producing customers as a contract manu- GE’s locomotive division decided to change facturer and design partner. It thus uses its Market-busting moves catch rivals off its unit of business and sell haulage con- assets invested in manufacturing more ef- ALL RIGHTS RESER guard, leaving them scrambling to catch tracts, not locomotives, to railroads. This en- fectively than any one company could do TION. up. The payoff? Dramatic, sustained abled railroad customers to take locomo- A in-house. Quanta’s 2002 sales exceeded $4 OR growth—even in mature or commoditized tives off their balance sheets—streamlining billion—a stunning figure for a relatively re- ORP businesses. Once-regional Cemex, for ex- their assets and delighting their CFOs. cent start-up. ample, generated $7.17 billion in revenues in 2003 and is now the world’s third-largest Improve consumers’ personal ready-mix concrete business. OL PUBLISHING C productivity. When you make something complex more convenient for consumers, they reciprocate by buying more or paying you more. BUSINESS SCHO D R A Example: V Mortgage broker LendingTree makes the process less onerous for consumers. Through Web-based technology, it links consumers to networks of mortgage providers—giving consumers more choices and improving of- OPYRIGHT © 2005 HAR C page 1 A company can’t outperform its rivals if it competes the same way they do. Reconceive your business’s profit drivers, and you can change from copycat to king of the jungle. MarketBusting Strategies for Exceptional Business Growth by Rita Gunther McGrath and Ian C. MacMillan If company leaders were granted a single wish, their own unit of business or key metrics. Once their most frequent request would surely be we started to look at new growth through this for a reliable way to create new growth busi- lens, we found success stories in industries that nesses. Business practitioners’ overwhelming had been written off as hopelessly commod- interest in this subject, which we as academics itized or strategically unattractive. In a few share, prompted us to undertake a major cases, the companies we studied succeeded so study of successful growth moves initiated by well at redefining their profit drivers that they established companies in several industries. had transformed their industries. We looked at a wide range of strategic ap- proaches to growth—everything from low- Building a Better Model risk, incremental changes to high-risk, disrup- It’s hard to imagine two businesses more ma- tive ones. In the course of our three-year study, ture than ready-mix concrete and reinsurance. we became intrigued by an approach that lay Both industries have been around for more somewhere between those two extremes. At a than 100 years, and competition in both has high level, this strategy is about redefining devolved: The companies offer standardized profit drivers. At a practical level, it involves products and play by well-established rules. making several deceptively simple moves: Yet in both industries, we identified compa- Some companies reconfigured their unit of nies that were enjoying sustained and impres- business—what they bill customers for—to sive growth because they had redefined their more closely match the customers’ needs. profit drivers or changed their unit of business Some companies focused on different key and key metrics. metrics than their competitors did, and, in Let’s start with concrete. The problem with doing so, created a better business design. Still ready-mix concrete is that it’s highly perish- other companies helped customers change able; it begins to set when a truck is loaded, OPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. OPYRIGHT © 2005 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. C harvard business review • march 2005 page 2 MarketBusting and the producer has only limited time to get maintain out-of-date legacy computer systems it to its destination. In Mexico—as in many as well as control and accounting procedures. other rapidly urbanizing countries—traffic, This maintenance responsibility ties up capital weather, and unpredictable construction labor and hampers competitive effectiveness. make it incredibly hard to plan deliveries accu- Swiss Reinsurance Company (Swiss Re) rec- rately. So a construction contractor might have ognized an opportunity to help insurance com- concrete ready for delivery when the site isn’t panies solve this problem. The solution was in ready or, worse, expensive work crews at a a product called “administrative reinsurance,” standstill because the concrete hasn’t arrived. or Admin Re. With this offering, Swiss Re Lorenzo Zambrano, who became CEO of changed its unit of business. It now handles the Mexican company Cemex in 1985, decided the administration of the life insurance and that there had to be a better way to run this health insurance policies no longer sold by its business. Cemex, like all traditional cement clients. Swiss Re administers the policies using companies, sold concrete by the cubic yard. proprietary business processes, sometimes But Zambrano’s customers didn’t particularly with help from administrative partners. value cubic yards of concrete. They rightly con- This new service has freed up capital and sidered concrete a commodity product. What human resources for Swiss Re’s clients, while they did value (and what Zambrano had the also allowing them to eliminate legacy com- good sense to start selling) were deliveries—in puter systems. These benefits show up in the other words, the right amount of concrete de- insurers’ key metrics—the numbers that ana- livered just when it was needed. To figure out lysts use to judge the insurers’ performance. how to accomplish this goal, Cemex staffers The benefits flow back, in turn, to Swiss Re. In studied how FedEx, pizza delivery companies, the seven years since it started to offer Admin and ambulance squads worked. Eventually, Re, the company has taken on 4.5 million pol- they developed digital systems that allowed icies, making this service one of its fastest- Cemex to adjust, in real time, where trucks growing business lines. were bound. They learned to optimize delivery patterns across a whole region; customers who The Language of Growth unexpectedly needed concrete could be served, Before we get into the how of reexamining often by shipments that had unexpectedly your unit of business and the associated key been postponed by other customers. metrics—or those of your customers—let’s Cemex can now deliver concrete within make sure we’re clear on what we’re talking hours—sometimes even minutes.