Formulating Profitable Growth Strategy*

For businesses to survive, growth is an imperative, not an option . Often, the most straightforward way to increase shareholder value is top-line revenue growth, which is also usually less painful than alternative methods of value creation (such as cost reduction or changes in ownership structure). However, for all its positive implications, achieving growth is a complex and difficult task. Only a small minority of companies succeed in their attempts at sustained growth.

For companies selling into mature, or even worse, declining markets, profitable growth can be a particularly tall order. Finding creative ways to increase the size of the pie, rather than new ways to cut up the old one, is the challenge facing many of today's senior managers who want to avoid a zero-sum game with competitors.

We see two emerging school of thoughts in formulating growth strategies. The first one is very much market-based, whereby a company would identify the available opportunities in the markets that are related to the business and then think through about the development and/or acquisition of capabilities that are required to capture those opportunities. We call this the Opportunistic Approach . The second one is what we call the Growing from the Core Approach , whereby a company would first identify what they are good at and then try to leverage these competitive advantages to capture ?adjacent business opportunities? that a company can pursue to strengthen its core and grow its revenues. This second approach focuses on locating and expanding the strongest assets of a company's core businesses, which is often suited for companies whose core businesses don't operate at their full potential .

The question is then, which one is better? Our view is that neither one is better than the other. In fact, our experience in helping several companies reveal that growth strategies should adopt a hybrid-approach. That is, we hold the view that although a company should always be ready to capture the ?next waves of opportunities?, it should never go too far away from what they are really good at. Stretching your competencies too much will break apart any organization, no matter how strong and solid it is. What we know for sure is that growth strategy formulation must be based on a fact-based and rigorous process, although management wisdoms of the senior management team play a lot of role in making the final growth strategy decision.

That being said, the development of growth strategies usually involves three generic phases, which can be tailored into different company situations: (1) growth strategy identification and profiling, (2) core capabilities assessment, and (3) growth strategy evaluation and selection.

Phase 1: Growth Identification and Profiling

A rigorous growth strategy identification and profiling process is a prerequisite to ensuring the optimal strategy design. This first phase usually begins with an industry overview and trend analysis which identifies the critical drivers within a particular industry, which provides focus to strategy development sessions.

It is not uncommon to have a group of 10-15 individuals generate over 200 growth ideas during the course of a productive scenario planning session. Once the ideas have been generated, an affinity mapping technique is applied to eliminate redundant and similar growth strategies. The iterative nature of the technique encourages a broader characterization of markets and results in a set of emerging and distinct growth strategies. Each growth strategy candidates then should be profiled in detail, including the potential financial impact and execution options.

Phase 2: Core Capabilities Assessment (CCA)

A Core Capabilities Assessment (CCA) is critical to the development of a robust strategy. Its impact on growth strategy selection cannot be underestimated; successful growth strategies effectively leverage a company's core capabilities. Capabilities can be defined as any potential source of competitive advantage and, for example, may include competencies (skills and processes), assets and special relationships.

At the end of the assessment, you should be able to precisely answer questions such as ?what are the company's most differentiated and strategic capabilities?? and ?what are your most critical product and service offerings?? For the CCA to be realistic and credible, it is important to get different perspectives on the business. To this end, the assessment should involve customer assessment, self-assessment, competitor case studies and secondary research.

Phase 3: Growth Strategy Evaluation and Selection

Following the identification and profiling of potential growth strategies and an objective analysis of the client's core competencies, the next phase in the growth strategy development process is the evaluation and selection of the growth strategies. The evaluation of growth strategies is usually based upon two sets of metrics: (1) a fundamental attractiveness of the specific target market segment, and (2) its ?fit? with the client's business. Taken together, these two sets of metrics answer the questions How attractive is the market in each area? and How well does this growth platform fit with our company? By evaluating growth strategies against a common set of metrics, inherent biases are reduced and objectivity is maintained.

Once the criteria have been identified, weight factors must be applied. Here, a combination of external perspective (often provided by the consultant) and internal perspective (provided by the company's business leaders) is critical to developing a balanced view on the relative importance of each criteria.

At the end of the day, however, the selection of a growth strategy is not a mechanical exercise of choosing the strategy with the highest combined market attractiveness and company fit score. Typically the chosen strategy assumes a portfolio approach to growth which results in the adoption of several strategies that synergistically complement each other.

*www.markplusinc.com