Profitable Growth

The point of coalescing insights into strategic direction is to generate profitable growth. Ford Motor Company President and CEO Alan Mulally realized that was his charge when he took over the leadership reigns at Ford in 2006 as it posted a $12.6 billion loss. Implementing his One Ford Plan, he has steadily driven the American auto manufacturer back into profitability. Mulally explains, “Business is about profitable growth and creating value. So everything, every input that you get, the filter that it goes through is, what’s the plan to profitably grow the business?”37 Starbuck’s CEO Howard Schultz echoes this approach when he says, “When you look at growth as a strategy, it becomes somewhat seductive, addictive. But growth should not be—and is not—a strategy . . . as we return the company to growth, it’ll be disciplined, profitable growth for the right reasons—a different kind of growth.”38

Building pipelines of continuous, profitable growth is the lifeblood of any business. Therefore, it’s important to understand the potential levers for growth as well as the pitfalls that can stall it. Research was conducted on 500 companies to better understand what causes successful organizations to stop growing and struggle financially for extended periods of time. The study found that 87 percent of stall points, a term for the start of a prolonged financial decline, are caused by factors that are within management’s control. A staggering 70 percent of these stall factors result from choices about strategy. The effects of these stall points can be devastating. The researchers reported that, “On average, companies lose 74 percent of their market capitalization as measured against the S&P 500 index in the decade surrounding a growth stall.”39

As the results show, your ability to craft, communicate, and execute sound strategy will determine the firm’s financial results. It’s one thing to ask a manager to reduce costs by 15 percent. She will readily come up with a laundry list of ways to reduce costs. It’s an entirely different thing to ask a manager to profitably grow the business 15 percent. She will most likely be stumped or trot out the same old line-up of tired tactics. When senior leaders are tasked with growing a business, many quickly turn to the acquisition of other companies. Mergers and acquisitions capture many of the headlines in business publications, but do they capture profitable growth? While some companies have become experts at identifying M&A candidates and then successfully blending the new business into the existing one, it’s not necessarily the norm. Multiple studies over the past 20 years have shown that the majority of acquisitions actually destroy their own shareholder’s value.40

To spur your thinking on organic growth, it’s helpful to have an understanding of the range of potential pathways to increase profits. A tool I’ve developed to help leaders explore their growth options is the Strategy Spectrum. The Strategy Spectrum visually lays out the full gamut of levers for creating new value for customers that can stimulate profitable growth. There are six levers that comprise the Strategy Spectrum: [1]

Beginning with the current business model, items are placed into each column representing the business as it operates today. Then new items borrowed from other companies and industries are used to complete the columns. The key is to play with combinations from the various columns to generate new ways to profitably grow the business. Table 1.4 is an example of the Strategy Spectrum as it might be applied by a financial services firm.

Playing with the elements from the different columns, one combination would be to provide financial education to teenagers at high schools during lunch to educate them on finances using a mobile app. Another example might have the firm offer debt reduction to trade laborers using mobile units at job sites to provide financial relief via videos.

The Strategy Spectrum offers a graphical way to explore the range of options available in stimulating profitable growth for a business. As you develop the Strategy Spectrum, it’s helpful to pull in people from various functional areas and outside the company to offer different frames of reference and a greater variety of menu items. If your company primarily provides products or hard goods, consider what types of complementary services could help them more effectively or efficiently complete their jobs to be done (e.g., truck manufacturer offering maintenance and logistics services). In the same token, if your company is a service provider, think about the services your customers need with the products to fulfill their needs (e.g., internet search engine selling mobile phones) and populate the Strategy Spectrum with those ideas as well.

Another tool for exploring new ways to profitably grow is the Value Mining Matrix. The Value Mining Matrix considers customers and the jobs they need fulfilled. As you’ll recall, these are two of the primary elements of the value proposition discussed earlier. In this exercise, customers and jobs are used to catalyze thinking on methods for creating new value. Customers are thought of as current, those you’re actively marketing to, selling to, serving, or supporting today. Or, customers are thought of as potential, meaning groups or types of customers you’re not actively marketing to, selling to, serving or supporting

What

Who

Where

When

Why

How

Investment

Business people

Colleges

At night

Education

Kiosk

Insurance

Teens

Airport

Weekends

Advice

Offices

Estate planning

Trade laborers

Retirement

communities

Graduations

Financial relief

Mobile app

Financial

education

Retirees

High school

Lunch

Wealth creation

Videos

Debt reduction

Kids

Mobile units

At work

Business growth

One-to-one

meeting

Real estate

Travelers

Mega churches

During school

Investment

opportunity

Group

seminars

Business planning

College students

Big box stores

While traveling

Security

TV

today. These potential customers may be influences, decision makers, or end users that may find value in what you’re able to provide.

The job axis views customer jobs that need to be fulfilled as either existing today (current needs) or emerging. Emerging jobs would consist of future needs that customers would find value in having fulfilled by your organization. The jobs to be done may not be identified, talked about or even noticed by your customers, but often manifest themselves as the problems, pains, or challenges they face. While “Voice of the Customer” programs are helpful in gaining a deeper understanding of their reactions to current offerings, they may not elicit the deeper insights about their real needs. These deeper insights can often be gleaned by simply observing your customers in their day-to-day activities and noting the issues, problems, and challenges that arise. Creating a list of their “jobs to be done” is an effective way to begin the Value Mining process. Figure 1.7 is the Value Mining Matrix with an example in each quadrant.

Starting in the lower-left quadrant, an example of a company finding new profitable growth by fulfilling an existing need for current customers is CVS Caremark’s MinuteClinic. Their current customer

Value Mining Matrix

Figure 1.7 Value Mining Matrix

base had a need for an existing service, which was quick, convenient care for non-emergency medical conditions. This job was not being fulfilled adequately by physicians, who require appointments that are often not convenient or soon enough for patients. By offering the MinuteClinics in their store locations, CVS Caremark was able to drive profitable growth by serving current customers with an existing job to be done (quick, convenient medical care).

In the lower-right quadrant, new profitable growth comes from potential customers with an existing need to be filled. The example here is from Lego, the manufacturer of plastic bricks in sets of branded series. Lego was able to tap into the existing need for an entertaining toy that helps to promote children’s spatial skills. The company chose to focus on young girls, who had been less engaged with the brand than boys. The Lego Friends series provides young girls with the opportunity to build, socialize, and create with female characters in settings such as horse stables and campgrounds.

In the upper-left quadrant, Netflix provide an example of a company generating growth by serving current customers with an emerging need that was previously unfilled. The need was to find new television programs that can be consumed in a binge format instead of waiting a week to watch the next episode. The convenience of being able to stream the original content on different devices provides current customers of Netflix with both new content and new access to entertainment.

Finally, in the upper-right quadrant, Amazon.com’s cloud services has tapped into potential customers with the emerging unfulfilled need of hosting content in a conveniently accessed medium. By providing on-demand computer services via the cloud to other businesses ranging from Netflix to NASA, Amazon.com has generated profitable growth by helping new customers get a job done.

Too often, ideas for growth are seen from a product point-of-view, instead of a need or job to be fulfilled perspective. The Value Mining Matrix shifts your focus to both current and potential customers and existing and emerging jobs to be done can offer new avenues for profitable growth. As ideas fill the four quadrants, it will become apparent that they may require different time frames to bring to market. Once you’ve generated the ideas, you can begin to place them into one of three time horizons.41 Horizon 1 consists of ideas to grow the business during the next year as you extend and defend your current business. Horizon 2 is comprised of ideas to generate profitable growth in the next two to three years by changing an element or elements of your business model. Horizon 3 includes ideas for growth beyond three years that may require new capabilities or a new business model to carry the organization into the future.

Growth Horizons

Horizon 1: First year; extend and defend current business.

Horizon 2: Years two and three; modify parts of the business model.

Horizon 3: After three years; consider new business model.

  • [1] What: Offerings (products/services) 2. Who: Potential target customers 3. Why: Customer need or job fulfilled 4. Where: Channels to access offerings 5. When: Time of access to offerings 6. How: Activities
 
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