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Developing An Effective Growth Management System
Developing An Effective Growth Management System
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Abstract: Many tactical management techniques can grow a business in the short term. But to grow a business consistently year after year requires a management team to focus on five fundamental growth practices establishing strong core values, superior processes, outstanding market intelligence, an effective strategic planning process and a commitment to growth. This report explains the derivation of these growth practices, the current use of them by Inc. 500 winners and how to start implementing the growth practices in your own company.
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Contents
I. II. EXECUTIVE SUMMARY FUNDAMENTALS OF GROWTH MANAGEMENT Strong Core Values Outstanding Market Intelligence Superior Processes Effective Strategic Planning Organizational Commitment 1 1
III. WHATS WORKING FOR THE INC. 500 Methodology Findings IV. GETTING STARTED Define the Overall Objectives of the Growth System Determine the Starting Point: Gap Analysis Design Growth Management Programs Measure Performance Monitor and Adjust
V. CONCLUSION VI. RESOURCES Books, Articles, Organizations VII. APPENDICES Gap Analysis Worksheet
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I.
EXECUTIVE SUMMARY
Growth is a relative measure one thats based on how fast your competition is growing. Although your company might be growing by more than 20% each year, if your competitors are growing by more than 30%, youre lagging in comparison. A company can grow by excelling in a few select areas: having superior products, focusing on a niche market, establishing strong customer relationships, or hiring and retaining great people. But how does a company sustain growth year after year, as products grow older, markets become saturated, customers change, and people turn over? According to Inc. Consulting research, an organization striving to grow consistently must develop a systematic approach to five management practices: Establishing strong core values; Implementing superior processes; Collecting outstanding market intelligence; Developing an effective strategic plan; and Committing to growth.
Inc. Consulting identified these five practices by analyzing the published research of experts on organizational growth and soliciting feedback from the owners and managers of recent Inc. 500 companies. The research and feedback clearly show that these practices are the keys to profitably growing a business.
II.
Inc. Consulting reviewed current thought on the subject of growth management (see Resources, page 11) to determine which practices had the greatest impact on growth. While each of these secondary sources presented a slightly different outlook and action plan for growth, many identified the same key growth drivers (see Figure 1 at right for a summary). Inc. Consulting used a quantitative ranking system to identify the most effective practices (allocating 4 points to the most effective, 1 point to the least effective). The growth drivers with the highest ratings are discussed below.
Aggregate Ranking
Strong core values are the highest ranked and most frequently mentioned contributor to well-managed growth. The phrase core values refers to a companys value system, its culture, and its methods for attracting and developing its people. Core values are what a company stands for that cannot be compromised for financial or short-term gains. Strong core values help a company build a loyal group of employees who are highly committed to achieving corporate goals. Most successful growth companies are focused: they know which business they are in as well as which businesses they are not in, and they have very clear, ambitious goals for the companys future. These companies have a strong identity and direction and understand the unique ways in which they create value for their
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customers. Most important, the identity and focus of a successful growth company represents more than just a mission statement contrived by the CEO and displayed on a plaque in the lobby. They are deeply embedded in the corporate culture and shared by all employees. In their best-seller Built To Last, Jim Collins and Jerry Porras explain that core values are at the heart of a successful and growing company. Their research indicated that visionary companies those that relentlessly prospered through multiple products, leaders, economic cycles and technology trends have enjoyed financial returns 15 times greater than the stock market average. Visionary companies continue to grow and prosper because they are built on a set of values rather than simply a great product or service. According to Collins and Porras, visionary companies see the product as a vehicle for the company rather than the company as a vehicle for the product. In The Next Level, former Inc. Consulting Managing Director James B. Wood emphasizes that core values answer the question who are we, as a company? Core values provide context for work beyo nd the tangible inputs and outputs of the business, and get at the companys heart and soul. Core values go beyond the material aspects of delivering the product/service to customers, and address the meaning the business has in the lives of its employees, its customers and the world.
Visionary companies those that relentlessly prospered through multiple products, leaders, economic cycles and technology trends have enjoyed financial returns 15 times greater than the stock market average.
Core values ensure that the company will remain strategically focused and committed to the things that it does best. Without this clarity, the actions of a company can dissolve into nothing more than an incompatible list of projects that take the company in no clear direction or, worse yet, in several different, competing directions.
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An organizations capacity for gathering market intelligence can also impact its ability to obtain capital funding. For venture capitalists and other potential investors, understanding the market opportunity for the new product or service a company is proposing is one of the most important considerations when deciding whether or not to invest. Companies seeking capital for growth often face the following questions: Does the company understand its market? Does the company understand its current and future competitors? Is the market large enough for all competitors? What is the companys competitive advantage and how sustainable is it when compared to the capabilities of other industry participants? Among the best sources of market intelligence are customers themselves. This intelligence can only be captured if a company has a solid relationship or partnership with its customers, however. This is sometimes referred to as customer intimacy. Focus groups, telephone surveys, on-site customer observation, and customer advisory panels are several tools companies can use to solicit feedback from customers on interest in new products or services, customer service deficiencies and the overall perception of the company in the marketplace.
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We are generally too busy to spend time with our customers. People in our company rarely get involved with professional development. The CEO is isolated from other CEOs in our community and industry. Corporate strategies are driven from internal sources technical, product development, operations, sales, or historical budgets. Customers are viewed as interruptions of our work. We do not have any mechanisms to gather customer feedback from employers that have the most customer contact. We havent done market research in years. We can not define who our customers are. We do not have a marketing department or person in charge of marketing.
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10. We feel that we know better than the customers what they want. 11. When the going gets tough, we get tough on the sales people.
Source: The Next Level, p. 60.
Growing companies achieve customer intimacy by creating relationships and partnerships with their customers rather than by perceiving them simply as users or consumers who buy products or services. These companies view customer acquisition as a lifetime cultivation process rather than as an isolated sales event. By creating close, ongoing relationships with customers, these companies have been able to grow faster than the competition. In short, they understand the following key elements of customer intimacy:
Knowing WHO your customers are. An account list that is easily downloaded from
the companys computer does not constitute customer knowledge. Rather, customer knowledge involves knowing what drives each client organization, what they buy, who the key personnel are within each organization and what they are trying to accomplish. Knowing exactly who customers are involves developing a personal relationship with them, as though they were the only customer the company has. The norm at high growth companies is to look at customers individually, while slow or no growth companies only look at markets (groups of customers).
Knowing WHAT your customers want from you, and WHY.
High growth companies know exactly what their customers want from them, and why they want it. This knowledge extends beyond the exact product or service the customer is buying, to the understanding of why the customer is buying the product or service and how it helps achieve the customers objectives. Does the customer buy the product or service because of its price, the service provided as part of the purchase, the synergies of the buying and selling organizations, or the recognition that your company as a supplier brings to the
An account list that is easily downloaded from the companys computer system does not constitute customer knowledge.
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customer? By knowing the answers to these questions, an organization develops a deeper understanding of its customers and is more likely become a partner in their growth. Intimate knowledge of customers needs can also enhance a companys product or service development efforts. First-hand knowledge of what customers future needs will be gives a company the opportunity to develop solutions ahead of its competitors. Knowing exactly what customers needs are, and responding to them in a timely fashion, are the keys to developing and retaining loyal customers.
Knowing HOW to deliver better value than your competition. Once a company
knows exactly who their customers are, what they want and why, they must determine how they can deliver better value than the competition. The secrets to success of high growth companies are the processes they have established to deliver better value to their customers. Processes such as sales, order processing, customer service, and product development all offer opportunities to provide greater value to customers. Product development in particular can be a crucial way to demonstrate value to customers since it is the means by which customer wants and needs are translated into products or services. Growth oriented companies are fanatical about delivering value to their customers. To explain this fanaticism, one CEO relates how his information technology staffing company helped one of its customers get tents, food, and entertainment for an event when the customers supplier wouldnt handle the job. Entertainment and catering services went far beyond the customers expectations, but by helping out with the event, the staffing company developed a stronger customer relationship that has since generated more engagements for its people and revenue for the company.
SUPERIOR PROCESSES
The American Heritage Dictionary defines a process as a system of operations and a series of actions, changes, or functions that bring about an end or result. A processfocused organization, therefore, has two distinguishing features:
A systematic approach to performing activities.
The mindset or culture in a process-focused organization knows that what is being accomplished is not an event, but a process. Organizations that utilize a process approach establish a systematic manner for accomplishing their objective, rather than attacking each objective separately as if it were one of many disjointed events. Since processes are the fundamental activities that the organization performs to satisfy customers, an organization that takes a systematic approach to building a business, in effect, has developed a continual process for satisfying its customers. This systematic, process-oriented approach to building a business is what differentiates an organization that will grow over the long term from one that is expanding in the short term. Where one company may look at succession planning as an isolated event that it should review regularly, a process-focused company will establish a process to develop and build its future leaders. Similarly, the event-focused company sees succession planning as a management function, while the process-focused organization considers it to be a fundamental mechanism for ensuring that the company is developing capable leadership for future growth.
An infrastructure that emphasizes processes rather than specific functions. There
are many immediate and tangible benefits that come from focusing on processes. Since almost every dimension of a business can be defined in terms of a process, it provides a cross-functional view of where value is being created in the organization. Organizations that are process based typically have developed a continuous methodology for improving efficiencies and reducing costs. A process-oriented infrastructure (shown in
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Figure 3) allows a company to break down functional barriers that typically exist between departments and identify opportunities for improvement across all business areas. The largest opportunities for improvement are usually distributed across functional boundaries rather than within one specific function (e.g., design, manufacturing, or shipping). A process focus also provides a view outside the company, into the companys interactions with customers and suppliers, where many of the greatest opportunities for improvement can often be found. Defining a process can also enhance teamwork and problem solving since a cross-functional team will typically be used to review each process. Defining a process incorporates the use of technology, people, assets or other resources from different functional areas, enabling companies to review all aspects of the business if problems arise. In addition, by involving a cross-functional team in the identification and resolution of any issues across the process, a company can more effectively foster a team environment.
Figure 3:
Process-Oriented Infrastructure
CEO
Order Entry
Design
Mfg.
Shipg.
Process
Benchmarking of processes also provides an organization with the ability to measure its performance. It is difficult to measure the success of a particular department within a company, since each departments success is often linked to the success of other departments. With a process view, a business can compare its overall process performance to that of other companies, and gauge performance that way.
Figure 4:
Ten Benefits of Strategic Planning 1. 2. 3. 4. 5. Forces the company to define its future direction in terms of measurable results. Ensures that the company maintains a strategic focus. Allows time for contemplation and reflection. Prioritizes the issues that must be addressed to achieve corporate goals. Guides effective decision-making and validates allocation of time for each manager and employee. Allows the company to be proactive rather than reactive and anticipate the right opportunities. Provides a tool for monitoring progress. Creates a means of communication for the entire company.
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Strategic planning helps develop priorities that are clearly 9. Gets everyone moving in the right direction. understood by management and staff. The company 10. Facilitates cross-functional connections establishes assumptions about its future activities and growth between departments. and lays out the steps and performance measures to make it happen. If realities change or targets are not achieved, an Source: The Next Level, p. 158-161. effective strategic planning process builds in regular checkpoints usually quarterly to evaluate and adjust the plan.
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Overall, strategic planning ensures that the proper activities are taking place at the right time to move the organization consistently toward its goals. Without planning, the company runs the risk of operating in a reactive stance, responding to its environment rather than designing and working toward its future.
As one Inc. 500 CEO said, Were going to grow or were going to die. This describes the type of commitment companies make to achieve growth.
FINDINGS
Each company in the Inc. Consulting survey identified practices that contributed to his or her companys growth. Figure 5
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summarizes these key growth practices. Survey participants then ranked the importance of several practices, which are highlighted in Figure 6, and summarized in the key findings below.
Figure 6:
Growth Factors
People Focus: Attract and retain talented employees Have a clearly defined incentive compensation system Maintain strong cultural values Accomplish more through teams Have clearly articulated mission, vision, and values statements Market/Customer Focus: Have a clearly defined value proposition Have strong relationships/partnerships Know competitors strengths and weaknesses Product/Service Focus: Provide products/services superior to competitors Planning/Strategy Focus: Regularly track and monitor performance Have a strategic planning process
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3.5
3.0 3.0
3.2 3.0
provide
the
Human aspects of business (hiring, motivating, culture, core values) were the most frequently mentioned factors contributing to growth. This finding corresponded with the secondary research reviewed in the previous section, which considered strong core values to be a best practice for growth. Inc. 500 company leaders attributed their phenomenal growth rates to the ability to build and sustain a strong organization. Hiring and retaining good people, motivating employees with clearly defined compensation systems, and encouraging teamwork were rated as important or very important for growth. These companies, selected for the Inc. 500 because of their rapid growth, considered their own performance on these dimensions much better than average. Survey respondents also focused on developing and maintaining a strong, value-based culture in their organizations. While less tangible than an incentive compensation system, a corporate culture based on clearly articulated core values was considered an important growth factor, presumably because of its positive effect on employee morale and retention.
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conditions, focusing on the customer, having strong general marketing skills, getting to market fast, offering customers a clearly defined value proposition, and simply being in the right market or industry were cited as contributing to growth. For over 30% of respondents, pleasing the customer ranked as one of the top three factors fueling growth. Keeping abreast of competitors strengths and weaknesses was also rated highly. Many companies find it difficult to maintain an external focus when they are growing rapidly. Continuing to keep the customer a top priority, for example, is a challenge for all growing companies, even the proven high-growth performers in the Inc. 500. When a company is small, every customer is important and it is relatively easy to provide customers with a high level of attention. As the company grows, however, it becomes very difficult to provide the same level of attention to an expanding customer base. If customer relationships begin to suffer as a result of poorly managed growth, that growth may begin to slow as customers defect to more attentive competitors. Maintaining a high level of market intelligence, as mentioned in the previous section, is a cornerstone of effective growth management. Without a thorough understanding of customers and the market in which it competes, a companys ability to create a compelling value proposition for its customers is left up to chance.
IV.
GETTING STARTED
Outlined below is Inc. Consultings five-step approach for preparing for growth and developing a growth management system.
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companys goals and desired outcomes are. These objectives provide motivation and direction for the next stages of system development.
4. MEASURE PERFORMANCE
To measure the success of your growth strategies and programs, develop metrics for each of the practice areas and periodically check the companys progress against those metrics. Among the possible tools for measurement are: Strong Core Values Cultural Survey A Cultural Survey is a questionnaire that asks respondents to rank the companys performance on a variety of elements that contribute to its culture. For example, employees could be asked whether they agree, disagree, or have no opinion regarding several statements, such as:
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In my job, I know what the expectations for performance are; Teamwork is effective in this organization; I believe the managers in this company are effective decision makers, etc. The Cultural Survey should be administered before improvements are undertaken to establish a baseline measurement. The survey can then be given periodically to see if improvement programs are creating the desired results and strengthening the companys culture and values. Superior Processes Process Benchmarks: Once a company has identified its core business processes, performance indicators should be developed and tracked for each process. These indicators should be benchmarked against other companies or departments that exhibit strong performance of similar processes. For example, a company could measure the performance of its customer service processes using a customer satisfaction survey or by logging the number of customer complaints or warranty returns. These measures can be tracked over time to measure improvement within the company, and compared to similar statistics at other companies that are well known for customer service excellence. Market Intelligence Number of Customers/Markets Analyzed: The company should determine the current depth and breadth of its market intelligence (i.e. count the number of competitors, customers, or market opportunities for which the company has comprehensive, updated information). Success can be achieved by adding to this knowledge base through customer interviews or surveys, trade research, peer collaboration, focus groups, etc. Strategic Planning Strategic Plan Effectiveness: As James Wood stated in his book, The Next Level, [strategic] planning forces you to define the future direction for the company in terms of measurable results. Strategic plan effectiveness can be determined by comparing actual performance results to the corresponding goals set during the planning process. Commitment to Growth Commitment Survey: The purpose of a Commitment Survey is similar to that of the Cultural Survey mentioned above: to provide an aggregate measurement of management and employees current and future level of commitment to business growth. Commitment to growth can also be measured on an individual level by incorporating it into performance reviews; 360-degree reviews, for example, provide multi-source (downward, upward, and lateral) feedback for managers and employees from management, direct reports, colleagues, and others.
V. CONCLUSION
Relying on a breakthrough product or simple good luck is not enough to fuel long-term, sustainable growth. Growth can be more manageable and easier to control when viewed as the result of strong core values, superior processes, comprehensive market intelligence, an established strategic plan, and a committed management team. Inc. 500 companies
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provide evidence of the success that can be achieved. By establishing a growth management system that integrates these fundamental practices, companies will be better prepared to stimulate and effectively control the growth of their business.
V. RESOURCES
Books
Collins, James C., and Jerry I. Porras, Built To Last, HarperBusiness, New York, 1994. Doorley, Thomas L., III, and John M. Donovan, Value-Creating Growth, Jossey-Bass Publishers, San Francisco, 1999. Fogg, C. Davis, Team-Based Strategic Planning, AMACOM, Boston, 1994. Gertz, Dwight L., and Joao Baptista, Grow to Be Great: Breaking the Downsizing Cycle, Free Press, 1995 Hammer, Michael, and James Champy, Reengineering the Corporation, HarperBusiness, New York, 1994. Lockridge, Richard K., After Reengineering: Organizing for Growth, Chilmark Press, Lexington, MA, 1994. Peters, Tom and Robert H. Waterman, Jr., In Search of Excellence, Warner Books, New York, 1988. Treacy, Michael, and Fred Wiersema, The Discipline of Market Leaders, Addison-Wesley Publishing Company, Reading, MA, 1997. Wood, James B., The Next Level, Perseus Books, Reading, MA, 1999.
Articles
Porter, Michael, How Competitive Forces Shape Strategy, Harvard Business Review, March-April 1979. (reprint # 79208) Collins, James C., Aligning Actions & Values, Leader to Leader, 1996. Collins, James C., and Jerry I. Porras, Building Your Companys Vision, Harvard Business Review, September-October 1996.
Organizations
Inc. Consulting: www.inc.com/consulting Harvard Business School Publishing: www.hbsp.harvard.edu James Collins: www.jimcollins.com
Inc. 500 Survey Note: 52 companies from the 1999 Inc. 500 list participated in this survey. These companies ranged in size from just under $2 million in revenue to almost $500 million. Three out of four companies were from the service sector. From 1996 to 1998, the average yearly growth rate for these companies was 1,164% and the average number of employees was 104. Although the computer-related industry had the greatest number of participating companies, representatives from industries such as transportation and environmental engineering provided a balance for the survey.
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Appendix 1:
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