In the past several months, I have been in four meetings with four different businesses when the discussions took exactly the same turn.
We were talking about new ways to grow. However, they didn't want to talk about new ways. They wanted to know how to turn their ideas into reality.
The companies were very different. One was a conglomerate, another made appliances, the third was an insurance company and the fourth was a manufacturer for communications and data communications systems. And they all faced the same challenge: they had no shortage of new ideas, but they faced internal barriers in finding ways to make them happen.
At the communications company, a real nerve was struck with this turn in conversation and statements like these gushed forth:
We often know where to go but not how to get going...
We are always running growth on a "shoe string" budget. We never have a full complement of the resources we need. They are scattered about...
Antibodies to growth abound around here...
So what are the organizational characteristics that get in the way of growth? After exploring this issue with dozens of executives we have seen a consistent pattern of behaviours that conspire to restrain growth. The highlights of these patterns fall into six categories:
Tightly held corporate beliefs
There were very strong beliefs at the conglomerate, but only one was written down. They shunned businesses that could have large potential liabilities or are characterized by lower profit margins and high fixed costs. They revered their high debt rating. Finally, they could never accept a minority position in a venture.
These combined to significantly constrict the range of growth opportunities that see the light of day. What are your beliefs that could be doing the same?
Business planning practices
Many do very good budgeting and reasonable short-term planning. But the short-term plans often fail to capture longer-term growth gaps.
The planning process is annual - limiting the window into which growth opportunities can be brought forward. How many great ideas make the September-to-October window before next year's budget is frozen? Many must wait for the next budget cycle.
Approaches to new product development
Product development processes are managed for budget adherence more often than for fast time to market. Worse, they are "re-programmed" to constrain expenses so that earnings targets can be hit. Slow product development processes are the enemy of innovation - driving organizations to seek big hits and foregoing the many more, smaller opportunities that often exist.
Human resource management
Senior compensation is linked positively to short-term performance metrics - the very metrics that are negatively hit in the short term as new product ideas and businesses run cash negative in their beginnings. At larger companies, frequent job rotations prevent managers from achieving depth in a given field. Combined with limited succession planning, this results in key people not finishing what they start or starting what they finish.
Financial and investor management
Rigid adherence to certain performance metrics (e.g., EPS, ROA, EBITDA, EVA) that are driven deep into the organization and can limit investment and development opportunities. Capital allocation is often focused on short-term core development vs. longer-term innovation. More than one executive said funding a big acquisition was much easier than a small investment in organic growth.
Culture
At several companies, senior management is too fragmented to deeply understand innovation, corporate staff doesn't have experience and people feel saying "no" is easier than bearing the risk being wrong.
Finally, the needs of the legacy business for protection and long life can kill potentially disruptive innovations.
The internal barriers to growth are like a multi-headed serpent. How to fight it? There are key steps for removing these barriers.
In last year's letter to shareholders, Jeff Immelt, the chairman and CEO of GE, said that at GE they have chosen to treat growth as a business itself. Everyone is responsible for growth, and success is measured. This starts with different views of organization, measurements, processes and culture.
Companies such as GE, that are overcoming internal barriers to growth, are finding high leverage in:
Tasking business leaders with the job of growth. Delivering quarterly results is for management-in-training - delivering growth is for leaders.
Opening the "corporate lens" wider to seek growth opportunities that originate from outside their own organization and to be willing to participate with minority interests, but majority talent participations.
Slowing down the movement of people so their achievements can be realized, before they are rewarded with a promotion.
Moving people from business units through corporate on assignments so the business units are understood at the centre.
Adapting longer-term metrics for growth initiatives that are tracked separately from those of the legacy business.
Protecting a selection of growth initiatives from financial re-programming as long as they remain on schedule and relevant.
Remember, you do not have to be the best at growing. You just have to be better than your competitors.
GEORGE STALK JR.
George Stalk Jr. is senior partner and managing director of Boston Consulting Group of Canada Ltd. and adjunct professor of strategic management for the Rotman School of Management at the University of Toronto.
