July 6, 2011
OPEN Forum Message
Company Culture
Can you recognize signs that your company's culture isn't working? Get advice from the experts on what to look for–and how to fix it.
Learn more
Profitable growth. That is the phrase that nearly everyone in every company uses to describe what they are trying to achieve. It’s hard to find. It’s even harder to get. Why?
When someone has it, they don’t want to let it go. But that’s not the only problem. Growth is hard to find because so many of the older, well-established markets are barely growing at all.
U.S. Population growth may be up or down 3 percent each year, and yet, these days 3 percent growth in most market segments is hard to get. So far this year, the economy hasn’t grown at that rate. Latest forecasts are that it may not grow at 3 percent until 2012—and that is only 3 percent growth we are talking about.
I recall many companies shooting for 6, 8 or 10 percent CAGR (Compound Annual Growth Rate). There are not many of those around these days.
So where do you go to find profitable growth?
The first reaction of most managers is to try taking share from competitors. But how does that work? To be honest, it doesn’t work very well unless you have a compelling competitive advantage in cost, quality, service or innovation—or a superior relationship. Trying to take market-share, especially in a mature market, is like an evenly matched game of tug of war. You win a little, then a competitor retaliates and you lose a little. Back and forth it goes.
The next reaction is to look for growth by entering new markets. They may be new to you, but they are the markets that belong to current incumbents, and they will not welcome you into them. In fact, be prepared for a bloody battle—and incumbents protect their business.
Another idea is to seek more and more customers, in more locations, offering more product variations. That’s called proliferation, and it may lead to some growth in revenue, but the complexity it creates will probably lead to higher (hidden) costs and lower profits.
Is there nowhere to get profitable growth?
Yes, there are in fact three ways to get profitable growth. One is to innovate (not copy or proliferate). Come up with a new, good idea and commercialize it and launch it well. If innovation works, you can sometimes carve out a new position in a market and if you continue developing that innovation, you might hold onto it for a while before the knock-off artists come along.
A second is to shift the mix of your current offerings toward the more profitable categories, sold to the more successful customers. Obvious? Maybe, but I bet you don’t regularly review a “mix and margin” report by customer and by category of product or service sold. Some things are not so profitable. Others are handsomely profitable. Sell more of the latter and less of the former.
A third way to find profitable growth requires that you do something too few companies and management do these days: think. Concentrate and really think hard. Then compare notes with your associates, and think some more.
Think about why you got the most recent “win”—an order, a contract, a market position—with your current good customers. It might seem obvious, but it’s usually not. Take some quiet time and think. Then discuss your conclusions with others to make sure you arrive at the right reasons for past success. Then do it again, and again! Sounds simple, but few do this.
Thinking is hard work. It demands that you set aside convenient misconceptions about why you won. Don’t kid yourself. Get down to the bottom and identify the real root cause(s) of your success. Was it features? Was it quality or service? Was it price or programs? Was it all of those together? Or was it a relationship that made you a more trustworthy supplier? If and when you figure this out, you will have found the largest source of profitable growth—and it’s already in the field you know and with the same group of customers you know.
Finally, to find profitable growth, “hook your wagon to the stars.” Find the best customer companies in your industry and devote yourself to being their best, most preferred supplier. Then let their growth drag you along with them.
Now wasn’t that simple? But thinking about it doesn’t make it happen. You have to act on those thoughtful conclusions and build a track record of doing things right and well consistently.
Check your balance, review recent transactions and pay your bill on the go.
