MANAGEMENT
SPECIAL Invest, Create, Perform: Mastering the three dimensions of growth in
the digital age
Growth
winners think about growth in new ways and pursue it across multiple
dimensions.
Growth isn’t just about building value; it’s
fundamental to long-term business survival. Consider this: almost half of the
100 largest companies on the New York Stock Exchange 30 years ago that enjoyed
strong shareholder returns but did not post top-line growth had been acquired
or delisted 20 years later.
Despite such compelling
statistics, we find that many companies continue to focus on controlling costs
as a way to drive earnings. When controlling costs dominates the corporate
agenda, it sucks the oxygen out of any growth plan. Conversely, we’ve found
that companies that have a clear agenda for organic growth and pursue it
systematically outperform the competition.
How companies actually
capture that growth, however, has changed drastically with the rise of
technology and advanced analytics. Digital has changed the nature of growth by
rapidly accelerating the pace of business, expanding the scope of competition,
and often introducing new business models seemingly overnight. Companies that
are most successful at driving growth are those that can execute across multiple
dimensions and inject speed, agility, and analytics into their corporate DNA.
The new world of multidimensional growth
Achieving above-market
growth relies on taking advantage of tailwinds and reducing exposure to
headwinds. Better allocation of resources or driving acquisitions and
divestitures to be in the right place explains more than 75 percent of the
variance between high and low performers. But that’s just part of the story. A
look at the share-price performance of 550 US and European companies over 15
years reveals that for all levels of revenue growth, those with more organic
growth generated higher shareholder returns than those whose growth relied more
heavily on acquisitions.1
Given this new dynamic,
we wanted to understand better how businesses think about driving organic
growth and what the top growers actually do to achieve it. To that end, we
surveyed almost 600 executives at leading companies around the world. We found
that companies are active across three broad growth dimensions:
·
Investing. These companies squeeze funds out of various
sources (e.g., admin) to double down on existing high-growth activities. An
example of this approach is Zara, which found a winning model in its
rapid-fashion program and grew by relentlessly investing in it.
·
Creating. Winning companies build value by designing and
deploying new products, services, or business models. Adobe, for example, has
grown rapidly by developing its Creative Cloud services and establishing an
innovative new model in which customers get access to all Adobe products for an
ongoing fee.
·
Performing. These businesses continuously optimize core
commercial capabilities in sales, marketing, pricing, and customer experience.
Capital One epitomizes this approach by using advanced customer data to
identify microsegments of customers, tailor products to them, track trends, and
test products.
For executives managing
a complex landscape of competing priorities and pressures, this
three-dimensional framework provides a simple way to assess approaches to
growth and identify the capabilities needed to follow through on them. While 60
percent of respondents singled out one primary dimension for growth, all of
them had a baseline of activity across each dimension. But overindexing on a
single dimension means that companies could be leaving growth opportunities on
the table by not paying enough attention to the other options.
This point is suggested
in the survey. Each dimension can enable above-market growth,2though with varying
effectiveness. Thirty-five percent of Performers grew faster than the market
average, compared with 31 percent for Creators and only 19 percent for
Investors. Among the companies with the most significant growth, however, 44
percent execute across multiple dimensions, though not necessarily
simultaneously. They dial up or down on each dimension based on their goals.
“You’ve got to be working the core while you build the new growth
opportunities,” says Neil Smit, CEO of Comcast. “I think a lot of times my job
is knowing when to pull the right levers at the right time.”
Amazon is a helpful
illustration of this effect in action. The global e-commerce company succeeded
originally as a technology-driven company that optimized processes and
out-executed its competitors. But its continuous growth has been supported by
driving investment into new categories from fashion to electronics using the
same business engine, while also creating new revenue streams through products
like Echo and Fire, new services like Prime that is now core to their retail
business, and new businesses like Amazon Web Services.
This isn’t to suggest
that multidimensional companies drive growth equally through each dimension. In
fact, the data suggests that growth leaders rely on a single core dimension but
actively engage another one or both, with results varying based on how much
weight a business gives to each. Some 35 percent of companies that are dominant
in the Investor profile but also proficient in other profiles are high growers.
For multidimensional Performers, it’s 34. The strongest growers were
multidimensional Creators, 43 percent of whom grew faster than the market.
“While best-in-class
performance is our foundation for success, we are diligently investing in other
relevant growth opportunities, such as in e-commerce markets,” affirms Jürgen
Gerdes, member of the Board of Management of the Deutsche Post DHL group
(responsible for Post, eCommerce, Parcel). “Most recently we have tapped into
the creator profile with very successful digital innovations, such as our
messaging service SIMSme and our innovative electric vehicles, called the
StreetScooter.”
Building the capabilities that drive growth
Capturing those growth
opportunities, of course, requires specific capabilities, and the best growers
are clear and purposeful in developing them. Results of the survey revealed
some common themes:
·
All growers need a set of
‘table stakes’ capabilities. Our
survey showed that top growers, regardless of their profile, had to hone a
handful of capabilities just to be in the game. These table-stakes capabilities
include resource allocation, branding, and mind-set.
·
There are also
differentiators needed to excel, which vary by growth dimension. The best growers beat their peers by
differentiating themselves through their capabilities. Distinctive Performer
capabilities include sales and pricing as well as customer experience; for the
Creator, it’s data, analytics, product/service design, and customer insights;
the Investor outperforms on data and analytics as well as customer experience.
Across all dimensions, the most significant gaps between top growers and their
peers were in data and analytics (81 percent of growers have them), developing
products and services (75 percent), and company processes, such as agile work
environments, cross-functional collaboration, and colocated teams (71 percent).
While adoption of advanced analytics is limited, those companies that use it outgrow
their peers.
·
Companies are looking to
creation of new products or services to drive future growth. Regardless of where their growth came from in the
previous three years, companies expect creation strategies to be a major
contributor to growth over the next three years.
As companies consider
driving growth across each dimension, they need to be clear and purposeful
about building the capabilities and practices that will help them move with
greater speed and precision.
1. Invest
The simplest way to grow
is to put money where growth is already happening in existing products,
services, or business models. In retail, that might mean investing in offers
that increase profitable foot traffic; in direct-to-consumer businesses, it
could mean increasing advertising through an already successful channel; in
B2B, it could mean allocating sales force to a fast-growing region.
Investing more in
existing growth plays requires money, of course. Activating the Investor
dimension is based first on a relentless search for efficiencies to unlock
funds for growth priorities. Those efficiencies can come from paring down
administrative costs, renegotiating agency contracts, or moving funds from
poor-performing areas of the business.
As Comcast expanded
into business services, for example, CEO Smit realized that its network
buildouts were highly profitable. But teams had trouble getting capital unless
they could secure three new customers ahead of time to justify the investment.
The data showed, however, that once a “hyperbuild” was completed, many more
customers followed. With this insight, Smit made it a priority to secure
capital from other sources in the business and pour it into network buildouts.
Business flourished, growing at an estimated 15 percent year over year,
allowing Comcast to move from serving small and medium-size businesses to
enterprise customers.
For this approach to be
effective, companies need to accurately identify where the growth is occurring
within their existing portfolio and aggressively reallocate. The usual
practice, however, is to make allocation decisions based on spending levels
from the previous year. In a study of more than 1,600 companies in the US, we
found a high correlation (0.92) between the budget a given business unit
received in one year and how much it received in the next.
High growers, in
contrast, actively reallocate to invest in current growth based on clear data.
One B2B telecom company, for example, used analytics to pinpoint attractive growth
markets by dividing a town into grids and analyzing SMB performance by market,
segment, and customer. It then focused its commercial efforts on untapped
areas, increasing subscribers by 10 percent and EBITDA by 7 percent. Some 75
percent more high-growth companies, in fact, have analytics and data
capabilities,4and 73 percent have
analytics embedded in their processes.
Improving the
allocation process is about speed as well. Annual budget cycles aren’t good
enough anymore. Fast growers actively track the performance of their spend and
rebalance allocations monthly or even weekly.
2. Create
Companies that are
strong on the Creator dimension work at the frontiers of change to develop new
business models or identify white spaces, whether they’re in emerging customer
needs, unserved segments, or adjacent markets. They analyze data and extract
customer insights that will help them to identify new opportunities. In fact,
55 percent more Creator growers than nongrowers rely on customer insights, and
79 percent say that business decisions are based on customer insights. In
addition, top growers excel at product and service development, aligning
innovation with strategy, and applying design principles.
In practice, strong
Creator companies are adept at pulling in multiple sources of data on customer
demand, from macrotrends to marketplace analyses to ground-level performance
metrics. They don’t rely simply on focus groups or surveys, but use both
advanced analytics tools and agile approaches to get a more accurate picture of
their customers.
One car-rental company,
for example, used advanced data-mining techniques to analyze its database of
driver profiles and trips to identify distinct groups of customer archetypes.
The team then pulled in external data from a variety of sources to build a
scoring model to identify drivers in a given city or neighborhood who fit one
of the ten archetypes the business had developed. They then tailored offers and
communications to each of those segments. Within one year, the company grew its
customer base by more than 10 percent and increased its revenues by almost 20
percent. That focus on customers along the Creator dimension plays out in
strong capabilities for delivering personalized offers and communications. The
best companies, in fact, are able to drive a 10 to 30 percent uplift in revenue
and retention through personalization.
Creators don’t just
rely on data, of course. To really understand their customers, they use design
thinking—customer empathy, ethnography, in-person observation—to identify and
act on unmet needs. Alberto-Culver, a beauty-care business focused on hair
(acquired by Unilever in 2011), followed this approach when it turned to its
customers to find new growth. It established My Beauty Café, an online
community dedicated to hair care and beauty regimens. It learned that women
struggled to feel “fresh and rejuvenated” on the days when they didn’t
shampoo—a significant group of people, since half of US women don’t wash their
hair every day. Community members contributed to every step of developing a
product to address this issue, from initial ideation and concept refinement to
sample testing, packaging, and advertising.
Alberto-Culver made
headlines when it launched a new hair-care range, TRESemmé Fresh Start Dry
Shampoo. The new range quickly became one of the ten best-selling products in
the overall styling category in the US mass market.5
Notably, companies that
are strong Creators are more agile than their peers, with 58 percent of the best
growers adept at collaborating across functions and 54 percent continuously
innovating to cut down time to market. They embrace digital, which has made
testing and learning quick, inexpensive, and much less risky. Rapid prototyping
targeted to a specific audience can test the viability of a product or service
before significant resources are committed. This capability allows companies to
“pull forward” their portfolio of initiatives and make better-informed bets.
Agile practices are
enabled by “war rooms,” small teams of people across the business (including a
campaign manager and people from creative, digital media, analytics,
operations, and IT) who collaborate to address specific customer segments or
opportunities.
3. Perform
In our experience, as
much as two to five basis points of incremental revenue growth is hidden in
existing commercial processes at large companies. Those businesses that best
activate the Performer dimension build competitive advantage by continuously
optimizing their commercial operating model.
Advanced analytics has
opened up new opportunities for improving commercial performance in almost
every area, simply by providing ways to analyze more data faster and speeding
up decision making. Standard market-research processes that often take weeks or
months are giving way to near-real-time dashboards that allow leaders to
understand if an investment is working as opposed to whether it has worked.
Some 73 percent of high-growth companies focusing on the Performer dimension,
in fact, distinguish themselves by making it easy to act on insights generated
from analytics. They also outpace their peers in sales and pricing
capabilities, particularly when it comes to acting quickly and at a granular
level. We found that 75 percent of them can make granular changes to pricing
and 68 percent can do so quickly. Pricing simulators allow businesses to merge
data on price sensitivity with analyses of switching behavior to predict how a
product might lose or gain market share as prices rise or fall.6
The scale of data and
the analytics tools to process it have opened the door to advanced automation.
When it comes to sales, for example, 40 percent of sales activities could be
automated using technology that already exists, and that could rise to almost
half once machines improve their ability to understand and process language.
One large telecom business has built out a sales automation program that now
accounts for more than 20 percent of the company’s annual profitability.7
Effective automation
isn’t just about processing things better or more quickly, of course. When done
well, it can greatly improve customer experience, a core capability along the
Performer dimension. In fact, those companies with customer-experience
capabilities are twice as likely to be top growers. Some 77 percent of these
companies have teams dedicated to interacting with customers to complete a
discrete task (such as opening a bank account), and 78 percent say they always
prioritize customers over short-term costs.
One large retailer
harnessed these Performer capabilities to capture almost $300 million in
incremental sales in just five months (and a total of $870 million in 18
months). It analyzed and assessed organic growth opportunities across its full
set of digital assets (e.g., site, e-mail, display, search, mobile, social),
then launched 100+ campaigns in six months targeting specific customer
behavior, such as customers who browsed but didn’t buy. Using test-and-learn
approaches to relentlessly optimize their communications, they scaled the
successes to capture full value. In this way, they were also able to reduce new
campaigns in six months while reducing campaign cycle times by 75 percent.
While there is no
single formula for delivering growth, there is a single overarching trait:
having a growth mind-set and pursuing it with vigor. In conversations with
executives who have a track record of growth, we have been struck by how often
and consistently words like “obsession” and “focus” emerge as the hallmarks of
what it takes to change the growth trajectory. As Smit told us, “You have to
align the whole organization on growth. They have to live and breathe it.”
By Kabir Ahuja, Jesko Perrey, and Liz Hilton
Segel
http://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/invest-create-perform?cid=other-eml-alt-mip-mck-oth-1703
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