If business is driven by growth, how did we get to this current low-growth reality?
Prior to the 1980s, you won in business by having the best product and the greatest market share. To grow company, you invented great product, launched it and then sold it aggressively.
In the 1990s, innovation in business design began to make an impact as new way of succeeding. The challenge was not just inventing next-generation products, but also inventing the next-generation business design.
Despite this shift towards the importance of business design, there were still plenty of opportunities for growth based on product innovation in the 1980s and 1990s.
In the 1990s, companies didn’t need to focus on creating new types of growth. They focused instead on research and development to come up with new products, and many increased their international sales. There were also lots of acquisitions. But in many industries, all three of these pathways have now hit wall.
This ‘hitting the wall’ effect alerted us to the next major issue facing management teams. The traditional growth model (inventing great products, international growth, and acquisition) was running out of steam. Product properties were harder to differentiate.
Everyone became global. Markets became saturated and traditional sources of growth simply weren’t as abundant as in the past.
Taken as whole, this left management with the challenge of recognising and admitting that traditional growth moves were drying up, and with the challenge of developing new ways to grow.
If we have moved beyond products, do we simply need to put greater emphasis on service?
Service is an important part of the new growth opportunity space, but it is only one component of broader repertoire. Other methods include new solutions based on process changes, component integration, transaction integration, value-added outsourcing, new infrastructure, and new information to help customers improve the returns and reduce the risk levels of their business.
Are managers equipped to deal with downturn?
Many are not. Yet downturn can provide huge opportunity if managers use it to enable their company to improve its relative position in their industry.
But, when downturn hits most managers resort to hunkering down and to making 10 percent across-the-board cuts in cost. What they could be doing instead is investing more in areas that are critically important to them to differentiate themselves more strongly, whether that be customer relations, or brand-building, or creating digital presence in the marketplace.
For example, during the big downturn in 1991, Intel invested heavily on number of fronts. One of them was brand building. With “Intel Inside” becoming well-known message during that period, the company was able to bounce back much more strongly when the recession changed to more bullish times.
So now different sort of growth is called for?
Yes, but one that is not based on ‘dotcom’ type speculation, and one in which the incumbent companies actually have significant advantage. Product innovation has given way to what we call “demand innovation” – that is, identifying the next-generation needs of your customers (especially needs relating to improving their economics) and using your company’s hidden assets to address those needs profitably, in process that creates new opportunities for growth for you and your customer.
The first thing companies can do is to map and anticipate the next-generation needs of their customers. Clarke American, large cheque printer, researched and addressed the needs of its network of bank customers. Fewer people were writing cheques (depressing the growth rate of Clarke American’s core product), so the company turned itself into provider of customer management services and grew its revenues from $280 million to $470 million in the past six years.
Second, and just as important, is identifying your company’s hidden assets so that you can address these new growth opportunities profitably.
Your hidden assets might be your unique customer access, installed base, technical know-how, value chain position, or unique window on the market.
John Deere, for example, is well known for making tractors, lawn mowers and other equipment. Capitalising on its authority with landscape professionals, it was able to launch highly profitable and rapidly growing new distribution business – John Deere Landscapes.
If you connect the needs of your customers with your hidden assets, you have the foundation for creating new value for customers and new growth for your investors.
This new approach to growth is based on changing the conversation you have with your customers, studying your customers through an economic lens, and finding the opportunities to improve your customers’ economics. Because of the key role of hidden assets, it is hard game for start-ups to play. They’re good at the product game, but less strong in the economic improvement game.
Where does this leave R&D?
In some industries R&D has been gathering dust for decade. Many companies had huge research budgets in the 1990s with little to show for it. The R&D mix needs to shift to processes, services and programmes that improve customers’ economics, rather than just being focused on improving product functionality. Companies need to supplement pure technology research with research on the demand side, developing better understanding of the customer’s economics and how those economics are changing.
Does it matter where you are geographically located?
No, the ideas and the opportunities are not defined or limited by geography. In Europe, for example, all the preconditions exist for creating this type of new growth. There are mature product markets, customers looking for help in improving their economics, and companies that are well established and which have lot of hidden assets that can be put to work to solve customer problems.
What can companies actually do to start this process?
You can begin by asking where senior managers spend their time and what they talk about among themselves and with customers. Are they spending enough time talking to and listening to the right customers in the marketplace?
At the French company Air Liquide, the origin of many of its highly profitable new growth ideas was its customers in the US semiconductor business. Texas Instruments, for example, asked its suppliers for help in managing many of its difficult processes (especially in the arena of chemicals management) and said they would reward them for programmes that worked effectively. Air Liquide listened, responded, and built great new business in doing so.
Few CEOs include talking to customers as standard part of their calendar. However, the most successful ones do.
If CEO takes an honest, hard look at his or her business and thinks about how their company may need to change, the answer begins with identifying the best customers and spending time with them, talking about their toughest problems.
Those conversations lead to the opportunities that have enabled growth innovators to grow at 10 percent or more, while their industries are growing at two or three percent.
In terms of culture, it’s not just the CEO spending time with customers in non-ceremonial conversations, but most layers of management spending time with customers. The deeper and more multi-level your relationship with your customer, the better you’ll be able to identify and understand their unmet needs.
Research on new growth shows that no company is too big to grow. In fact, we have moved from thinking of company size as growth inhibitor to thinking of size as multiplier of growth opportunities.
Consider General Motors. Its in-vehicle services business OnStar addressed unmet needs for safety, security, convenience, and communication. The OnStar business now generates more than US$1 billion in revenues every year and is growing rapidly.
There are many other examples of large
