Growing a Business Successfully Requires a Look in the Mirror
Achieving sustainable growth in any business can often be challenging. A recent study of growth, published in the Harvard Business Review, of 10,897 publicly held companies over a 43-year period showed only the upper quartile of firms achieved an inflation-adjusted growth of 11.8 % per annum. Of the top quartile of firms, only 15% were able to sustain a top growth performance over 30 years. Firms in the three lower quartiles experienced little to no growth at all. It didn’t matter what their growth strategy was–growth was not sustainable for most firms.
The study also concluded that most companies’ growth problems were “self-inflected.” Specifically, many firms approach growth in a “highly reactive, opportunistic manner.” They sense the surge in market demand and throw resources at it to ride the wave. But most firms fail to consider the impact of this short-term growth on their infrastructure… their systems, processes, facilities, organization and suppliers. This reactive approach will extract a heavy price at some point… poor execution, service problems, a bloated cost structure, burned-out staff, and lost clients. Future growth will also suffer.
All growth is not good.
I remember working with a trust company that had a reputation for quality in maintaining records and servicing retirement accounts for small banks and credit unions. They had an opportunity to step into the big leagues and take on similar services of a large regional bank with a few thousand employees. The president of the trust company was an incredible salesperson—and she won the mandate. Unfortunately, after just a few months into the transition, statements were not going out in a timely fashion, and there were problems with the quality of information. It turned ugly, and the situation escalated. Eventually, the recordkeeping was de-converted back to the regional bank after substantial monetary loss, dissatisfaction of account holders, and reputational damage.
It seems no one really evaluated the trust company’s ability to scale their services or whether the technology was adequate to meet the new requirements. The organization made the wrong decision about growth—because they weren’t prepared for it and made bad assumptions.
A growth strategy is needed.
The most successful growth companies take a more strategic approach to how they grow the business and see this as a longer-term initiative. They are clear about how they wish to grow, and they establish benchmarks as part of their growth objectives. The strategy is a filter to individual growth opportunities the firm considers over time. The growth options are many including product differentiation, tapping into new or adjacent markets, expanding penetration within current markets, organic growth or strategic acquisitions, and countless other options.
To assist companies in navigating their growth strategy, among the many choices they have, we suggest obtaining answers to three questions when considering growth opportunities over time:
1. Is this growth opportunity consistent with our value proposition where we have competitive advantage, and do we clearly understand the customer’s requirements and preferences?
Many companies have drifted from their core business to get into other industries or jump on the latest trend. This has often proven to be a strategic mistake for firms like Kodak, Blockbuster, Sears, and many others who neglected the opportunity to improve their core offerings before seeking greener pastures. The most successful firms build out from their core to create scale and differentiation that appeals to their customer segments, and they consciously avoid opportunities that take them off target. Some successful companies based on the research are Walmart, UPS, Southwest Airlines, and Publix.
These firms seem to recognize that better financial results come from a more measured approach to growth over a sustained period versus explosive growth over a short period of time. They also believe in preparing for growth over time, which is separate from a specific growth opportunity they may be considering.
It is worth reviewing your value proposition which should serve as the anchor for aligning the needs of your customers with your firm’s ability to satisfy those needs. So, knowing the customer is critical, and to me that means really understanding how they experience the company at all the touch points that matter to them—from sales, contract negotiation, onboarding, service delivery, billing, etc. Those customer impressions will be continually compared to competitors—so there’s a need to constantly improve them.
Be alert for opportunities that seem to fit with your value proposition but also confirm that you have a full understanding of the requirements and preferences of the prospective customers. In the example of the trust company, the opportunity seemed to fit with the value proposition, but there was incomplete knowledge of customer expectations and the scale of work.
Sustainable growth seems to come from firms that leverage what they are good at—and by listening to customers, they find a way to take their services to the next level. Salesforce is a perfect example! They have listened to customers and captured their insights to rapidly enhance the software and thereby increase its usage. This certainly delights customers and enhances loyalty. Meanwhile, customers are charged a subscription fee based on usage, and as a result, Salesforce enjoys a very consistent and growing revenue stream.
2. Do we have a clear understanding of current capabilities in relation to executing the value proposition and have we identified any gaps that may impact our ability to grow?
This is frequently underestimated by firms chasing growth as they make assumptions about readiness that are not tested and often create downstream problems with execution. Again, a long-term view of growth requires an honest assessment of current capabilities. A firm should conduct a critical evaluation of its “operating model” and its ability to support the kind of growth anticipated in the future. Such an evaluation should be comprehensive and address key processes required to deliver products and services, organizational roles and responsibilities, the technology infrastructure and tools, operational constraints and many other factors needed for success. The diagnostic work can seem daunting, but it doesn’t have to be.
A useful framework for scoping this assessment was developed by Prof Andrew Campbell, in the Ashridge business school in the UK, who coined the acronym POLISM to capture all the essential elements. POLISM stands for Processes, Organization, Locations, Information, Suppliers and Management systems—the definition of an operating model. Each of these topics could represent a workstream that needs to be evaluated considering the firm’s growth objectives. Prof Campbell’s book called the “Operating Model Canvas” maps out a process for gaining insights from the current senior team and subject matter experts to enlighten the way forward—and transform the operating model as needed. This type of change program will take time and should be properly defined, prioritized and integrated with the firm’s long term strategic and operating plans.
3. Do we have the right staffing, skills and availability, to deliver on our value proposition and support our growth objectives?
It is critical to prepare the workforce for growth as well, and not assume that added volume of work or changes to the nature of work can just be absorbed without adequate preparation. This is particularly important in the age of scarce resources and staff attrition where a long-term strategy will rely on continuity of skills and experience. It starts with early and ongoing communication about the strategy and the preparation activities that will follow. Early engagement of staff in the change process will lead to greater commitment.
It is also important to look at the nature of jobs themselves—where workforce skills and experience are particularly important for growth. The elements that need to be present in the mind of the job holder are the significance of the role, the skill variety required, whether it is a “whole” job or just a fraction of a role, the degree of autonomy the worker has and the amount of feedback the person obtains from the job itself. Research in the 1970’s confirmed that jobs having these core dimensions drive job satisfaction. A well-designed job is internally motivating and provides an organization with a much more adaptive workforce, a critical element in being ready for growth. It also improves staff retention.
To recap:
- If organizations take a more strategic approach to growth by having a strong value proposition that is compelling to customers and prospects,
- Continue to improve and innovate in areas where they have a distinct advantage,
- Strengthen their operating model to consistently perform well and be more scalable,
- Create a workforce that possesses the right skills and motivation to exceed customer expectations…
The chances of success are very high because the company is now positioned for sustainable growth, which has been demonstrated by many market leaders. You may want to approach the challenge in the following three steps.
- VALUE PROPOSITION WORKSHOP: We recommend spending a few days formally examining a company’s value proposition, insuring it meets the evolving needs and preferences of their customer segments. A workshop is a great way to quickly build understanding and cooperation across business lines and functions about what is most important to customers—and how the firm can address their “pains” and “gains” better than anyone else. This will result in a value proposition profile for each customer segment that can then be tested in the marketplace.
- OPERATING MODEL WORKSHOP: We have designed a two-day workshop to examine a firm’s operating model in relation to its value proposition—to identify strengths and weaknesses and prioritize the changes needed in the operating model to facilitate growth. The approach we take is holistic. We assemble a carefully selected group of stakeholders to evaluate the operating model through a series of structured exercises—following design principles and the POLISM framework. This allows for analysis of specific conditions from multiple perspectives with increased collaboration. It includes a review of the “customer value chain” and how well it is performing and whether it is scalable. In the end, we identify a short list of key projects that can have the greatest impact on the value proposition and readiness for growth—with the least amount of time and risk. We conclude by summarizing the project charters and assigning accountability. This is an ideal way to begin a transformation program before major investments in time and resources are made.
- JOB DESIGN AND CHANGE MANAGEMENT: We work with management to assess the effectiveness of current job design and identify areas to adjust the nature of work—to make the work itself more internally motivating—while preparing job holders for expanded responsibilities to support growth. We employ the “Job Diagnostic Survey” (a research-based instrument) to conduct the initial assessment along with interviews and observations of work processes. We then prescribe the steps needed to achieve optimal design in key areas of the firm that will be impacted by growth.
Good “change management” practices are also a must. We recommend using the ADKAR model which focuses on changing one person at a time. ADKAR stands for Awareness, Desire, Knowledge, Ability and Reinforcement. Following this model throughout the journey will help employees transition through the needed changes in the organization.
Our firm, J Francis Consulting LLC, can provide support to management in the pursuit of a long-term growth strategy. We will coach teams in the proper use of the ADKAR framework.
About the Author
Joseph Spadaford has over 40 years of experience in the financial services industry, leading large operating departments and businesses through strategic change. He applies the disciplines of operational excellence, design thinking and digitization to his transformation work and currently heads a consulting practice that specializes in coaching executive teams going through business transformations.
Joseph is a CPA and has broad expertise in risk management and operational controls from serving as an Audit Group head at First Chicago and Citibank. He holds a BSBA in Accounting from the University of Dayton (UD) and an MBA from Adelphi University in Banking and Financial Markets. He has also served as a Trustee at UD and President of its National Alumni Association.
