CHAPTER 1: Driving Corporate Growth with the Right Disciplines
Despite its centrality, driving corporate growth is paradoxical—everyone recognizes its importance, yet it is easy to get it wrong. The result is that every day, in offices and conference centers, in meeting rooms and airports, anxious executives in well-established companies worry deeply about how they are going to lead strategic growth in their organizations. CEOs worry about how to deliver the growth they pledged to their boards, CFOs worry about how they will appease a growth-hungry stock market, and COOs and their direct reports worry about how they are going to deliver the growth targets that were promised at the last stockholders’ meeting, while still retaining corporate efficiency. Our argument is that their worries are well grounded. The time-tested, comfortable approaches to everyday management don’t work well in dynamic, rapidly changing, and therefore cruelly uncertain environments. Consequently, while many companies invest in growth initiatives, the results are uneven.
Why So Many Good Companies Fail at Growth
We’ve all heard many cautionary tales about well-managed and successful companies that stumbled disastrously when they tried to pursue opportunities for growth. Revlon’s 2006 introduction and almost immediate abandonment of Vital Radiance cosmetics (a $100-million-plus flop), Michelin’s 2008 withdrawal of the PAX run-flat tire system, and even fabled General Electric’s exploration of new financial products are just a few examples of smart companies whose processes for managing growth seem to have let them down badly. But failing to grow is not an option. Today’s core business is highly unlikely to be an engine of growth for tomorrow. Accordingly, investors will see companies without a compelling approach to growth as nothing more exciting than a ten-year bond.
For over two decades, the two of us have been studying why so many well-conceived, carefully planned growth programs go wrong and why so many good companies just can’t seem to get traction from their growth initiatives. We’ve also gained experience with companies that are getting it right and enjoying the growth and prosperity that ensue. In our many years of working with companies such as Nokia, Air Products and Chemicals, 3M, DuPont, IBM, and many others, we’ve distilled practices that allow managers to choose better strategic growth projects, reduce the risk of these projects, and either execute them with relentless success or discontinue them at very low cost. This book is the result.
Our core thesis is that companies that use conventional methodologies to pursue exceptional growth are doomed to be disappointed. They will simply not be able to accomplish growth that allows them to break out of the pack and deliver exceptional results. Consider how IBM learned, painfully, that its one-size-fits-all management style was crippling its growth efforts and how the company needed to operate differently
How IBM Learned to Use the Right Initiatives to Drive Growth
In April 2001 we were sitting with a few folks from the strategic planning office at IBM. As you’ll remember, IBM was virtually given up for dead when Lou Gerstner was appointed CEO in 1993 and began what he later would describe as a transformation effort. Throughout much of the 1990s, the company focused on ripping out costs, fixing individual businesses, and generally getting its house in order. But that clearly wasn’t going to be enough to restore Big Blue to its former glory as the most desirable of the blue chips. Despite sincere efforts, growth projects stalled, and Gerstner wanted to get to the bottom of it.
Strategy chief J. Bruce Harreld later recounted in a keynote address how the change came about:
In the early summer of 1999, we had decided to go after a new business area. So in September, there is Lou Gerstner sitting in his office on a sunny afternoon and he sees a line drawn through the project on the budget. It turns out that the executive in charge had said, “due to our current cost pressures, we decided to cut back on those activities we decided to invest in in June.”
Lou wrote this note, in frustration. “I have had it,” he said. “This is a bunch of crap for this big business unit to believe that this little thing is going to have any material impact on their results for June. I want you, you and you [the colleagues who were at our meeting in 2001], to understand what’s going on here. There is something systemically wrong with IBM and how we manage that we can’t embrace and stay with new investments for growth.
What they found echoes the conclusions from our own research. Essentially, the techniques that IBM was using to manage its bottom line and drive efficiency—techniques that were working well for the core business—were smothering the new growth ventures. IBM executives started to explore new disciplines, new techniques, that could help the company nurture small growth initiatives without losing sight
of its core business operations.
As Harreld later put it: “We needed different management systems with businesses at different stages of maturity. The new businesses, the growth businesses, needed to be protected and needed a different kind of management style. They weren’t like our mainframe business.” The insight learned at IBM through many painful experiences is that you can’t manage growth programs using conventional approaches.
This single insight profoundly changed the way the company funds, structures, and plans growth projects, to the point at which IBM’s emerging business opportunity (EBO) program has become a global exemplar for how a large organization can capture new opportunities for growth.
Different Sources of Growth
In this book, we’ll show you why conventional approaches are often lethal to innovative growth projects and how you can supplement these approaches. Exceptional growth can be driven from three places. You can grow your core or radically improve the performance of the core by using conventional management tools. You can create new growth platforms (sometimes called adjacencies), or you can invest in strategic options that have the potential to become future platforms. As you move more and more into new platforms and strategic options, the discovery-driven tools we describe in the book become more important. Success depends on how you create an engine for growth from your capabilities and assets and properly direct it toward new spaces, using the disciplines that make sense—conventional tools if you know a lot and what we call discovery-driven tools if you don’t.
Breakout growth is not only about launching bold, new initiatives. Many good growth programs begin first with incremental growth, which creates investment in learning where big new opportunities lie. That’s the point at which many companies go for breakout growth. Many breakout opportunities don’t look that way at first—they are the result of combining things until you finally do have a winner (Procter & Gamble’s Swiffer cleaning systems would be an example). There are, of course, many companies out there making what they hope will be breakout moves. What they often find out, painfully, is that they are using the wrong tools to do it and are therefore taking on risk far beyond the potential payoff. Worse, they are learning less than they could otherwise.
In this book, we show you how your company can achieve ambitious growth targets without the hugely expensive and uncontrolled gambles that could compromise your firm. We show you the practices and disciplines that allow you to break out from the pack by an astute, disciplined, and highly aggressive strategy that massively enhances your firm’s growth potential while barely increasing your risk. Discovery-driven growth principles are unique: by employing them, you can go for aggressive growth targets and not risk massive downside losses.
The techniques we discuss are appropriate for new growth initiatives: new ventures, new businesses, new product lines, new franchises, new locations, new markets, joint ventures, strategic alliances, and even potential mergers. The cornerstone of these disciplines is discovery-driven planning. Through discovery-driven planning (DDP), organizations set up bold plans to pursue futures they frame, to learn where their true futures lie, and to test their assumptions about those futures at the lowest possible cost. With DDP comes a host of other practices and disciplines that we’ve developed, tested, and studied over the years. We’re confident that if you apply them, your growth programs are likely to be less risky and more fruitful than they would be with conventional methods.