IS YOUR GROWTH STRATEGY FLYING BLIND?

MEHRDAD BAGHAI, SVEN SMIT, PATRICK VIDUERIE (MAY 2009)

-Presented by Group 2

 What many CEOs lack Granularity Today possible to target finer market segments

and the sources of growth (growth momentum, M&A, market share gains) Lack in firms to use the ocean of data to look for best markets of growth. Belief in traditional aggregated data. Need of new strategic direction to: 1. To allocate the resources 2. Deploy people 3. Review results, important in economic downturn

Granularity of Growth
World a granular market due to 1. Global expansion of markets & impact of

technology 2. Challenges in these markets tending firms to go for new ways of understanding it. Granularity + Economies of Scale Competitive advantage Only need to master this balancing act. Idea in practice: to grow your business follow a. Identify micro segments b. Invest c. Restructure your organization

Growth is granular but most companies arent

Organizational form in 20th century-

Multidivisional company Coined by DuPont, effectively used by Sloan in GM. Effective in employee management, performance management and decision making. Unearthing hidden growth strategies(exhibit). Cost of innovation & new changing information technology (Amazon, Ping An)

Building Granular Understanding

When companies take Granular Approach: They make smarter decisions regarding: R&D Investments. Target Markets. Marketing or Advertising Mix.

Building Granular Understanding

Granular Approach can be taken up by firms by examining two major things in greater detail:
Market Potential. Company Performance.

Building Granular Understanding

Market Potential: Building granular understanding isnt simply assessing segments & markets at lower levels of aggregation. Three distinct categories of growth: Mergers & acquisitions. Market share gains. Portfolio momentum.

E.g.: Construction equipment & service company.

Building Granular Understanding

Company performance: Growth MRI The concept of this approach is the relationship between shareholder value creation & three growth components. Net Growth Rating: This offers best correlation with shareholders value creation.

Building Granular Understanding

Growth MRI: It exposes the relative performance of each part of the business by benchmarking its net growth rating against a relevant industry threshold. This enables companies to identify areas of strong and weak growth and quickly point to priorities for investment or divestment.

Managing Business in a Granular Way

Granular Management can lead to changes in

how business units are grouped It Influences how many layers of management are needed & which functions are shared or devolved to BUs People & Process issues are more important than structural challenges Reallocating Resources Assembling a Big Leadership team Reviewing Performance

Granular Management
During a downturn, granular mgmt. can

leverage advantage in three important ways: Cut cells discriminately and free up capital so that high performing pockets can be spared Pounce on acquisition opportunities that the downturn creates Take advantage of competitions weaknesses

Reallocating Resources
Goal target pockets of higher market momentum

& increasing company growth rate Principles: It must be derived from insights about where growth pockets will be & not where they are now
eg: GE CEOs announcement of future investments Use of zero budgeting to unfreeze & correct past misallocations
Zero budgeting will free up resources, allow

investment in rapidly growing areas and boost underlying market growth M&A

Assemble a big leadership team

Inner circle in not well positioned generally Allot executives who can lead product clusters,

geographic slivers or special initiatives Will lead to focus, build sense of ownership, personal involvement with subordinates Understand how individual goals fit with the companys strategic priorities Measurement approaches growth MRI

Growth MRI
Components of organizational growth M&A Market Share Momentum of markets Chart depicts companys performance in these

categories broken down in 5 regions and 16 BUs

Reviewing Performance
CEOs need breadth of vision and also a clear

view down through the organization This needs periodic operation reviews Key questions about cell performance, resource allocation, market potential, exit decisions need to be addressed Thoughtful applications of granularity and tools like growth MRI can save time & resources as well as improve the quality of discussion

THANK YOU