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Tuesday, March 15, 2011

Growth through Focus: A Blueprint for Driving Profitable Expansion

Rather than seek increased revenues and profits by expanding products and markets, companies should follow a seven-step strategy for achieving more with less.

strategy+business magazine
by Sanjay Khosla and Mohanbir Sawhney

Illustration by Philippe Lardy
Faced with economic headwinds, many global corporations are struggling to grow their businesses profitably. … [Many] business leaders continue to seek growth by extending their existing product lines and brands, as well as by entering new geographic regions. After all, growth is supposed to be about “more” — more products on the shelf, more categories, more brands, and more markets.
Capabilities value contribution to strategyImage via WikipediaHowever, this approach is exactly the opposite of what business leaders should do to drive increased revenues and profits. … We have found that “growth through less,” or more precisely “growth through focus,” is the best prescription for growth, regardless of the economic environment. …
Growth through focus is not as easy as choosing what strategic bets to make. Rather, it requires the leadership team to follow a systematic approach that spans everything from strategy and vision to execution and measurement. We propose a framework that consists of seven steps that an organization must go through in its quest for growth through focus. Our framework is grounded in three key ideas: focus in strategy, simplicity in communication, and empowerment in execution.
Growth and the Winemaker’s Logic
To understand the logic behind growth through focus, consider what winemakers know about getting the best out of grapevines. … To improve the quality of grapes, winemakers carefully prune grapevines and remove excess bunches of grapes to reduce yields. The remaining bunches ripen more fully and ultimately produce more concentrated wine.

…To improve the quality of growth, business leaders need to cut back on marginal products, brands, and markets so that they have a better chance of winning in their chosen areas of focus. …
The logic of growth through focus also suggests a very different view on planning and leadership. Many companies tend to make long-term strategic plans, but they often have a short attention span in execution. … We recommend the reverse: Plan quickly and then stay the course for a long time, as long as five years. Leaders should resist the temptation to change strategies too often.
Seven Steps in Growth through Focus
Our experience suggests that growth through focus requires the organization to progress systematically through a set of seven steps: discovery, strategy, vision, people, execution, organization, and metrics. Taken together, they represent a powerful formula for driving profitable growth.

1. Discovery: Figure Out What Works
… The first step in the growth journey is to discover what is working well and where the company is already winning. These pockets of excellence help identify focus areas for growth. An effective way to uncover what works is to conduct a series of workshops with the top leaders from the company. …
… In addition, great insights often come from engaging with suppliers, creative and media agencies, and consultants who have worked with the company for a long time. On the other end of the spectrum, it is also important to listen to people who push back — and to manage dissent. As the process goes on and the framework and vision are agreed upon, debate on the strategic framework should cease and the emphasis should switch to execution.
2. Strategy: Focus through Lenses
The discovery process produces a set of success themes. In the second step, these themes need to be clustered and prioritized to define the focused bets that the company should make. …
Once you find out what works, you can focus on it and scale the success to other markets, products, and brands. …
3. Vision: Find a Simple Hook
Once the focus areas have been defined, the findings need to be summarized in a compelling yet simple vision. The vision serves as a rallying cry for the organization to align its efforts behind a clearly understood goal. …
To make the vision compelling yet easy to understand, we recommend creating a “hook.” The hook should be kept consistent over time and across customer touch points. It can be a color, a number, an acronym, a phrase, or a symbol. …
Once a vision is chosen, it needs to be launched with a bang through a seminal event designed to inspire the team. …
In communicating the vision, pictures are often worth a thousand words or PowerPoint slides. Simple visuals that depict the “from–to” journey can serve as powerful communication tools. …
4. People: Unleash the Potential
Once the vision and strategy have been defined and powerfully communicated, the next step is to find the right people and to place disproportionate resources in their hands. The right people need to be placed in all functions — supply chain, R&D, marketing and sales — to ensure that you have the skills to win. …
Once new leaders are appointed, they need to be given the freedom to operate within the strategic framework so that their potential can be truly unleashed. Leaders should be challenged to act as entrepreneurs within large companies that have traditionally been perceived as process-driven and bureaucratic. …
5. Execution: Clarify and Delegate
With the discovery, strategy, vision, and people in place, the next challenge is execution. This is the most important step in the journey, and it is also the most difficult. Execution has two key elements. First, everyone needs to be clear about who will do what, to avoid ambiguity about roles and responsibilities. Second, decision making needs to be moved closer to customers and consumers so that the people responsible for results have the operating freedom they need. …
To accelerate execution, we recommend a strong bias for action. Business leaders should demand a dramatic reduction in internal documents and meetings. … For the most part, we suggest a “no PowerPoint” policy in presentations; meetings are often far more productive if they focus on discussion based on pre-reading. Numbers may help tell the story, but too often, we find that numbers become the story and the big picture gets lost.
6. Organization: Build Collaborative Networks
Growth initiatives rarely fit within organizational silos of function, geography, and business unit. Rather, they need to be managed by creating communities and networks across the company, formal as well as informal. …
This approach of matching skills with priorities and connecting communities to get the best mix of global and local ideas, within a clearly defined strategy, has a powerful effect in leveraging scale and expertise.
7. Metrics: Manage Numbers and Tell Stories
As the execution and organization processes get under way, it is important to keep score. Scorecards should be objective, and they should be kept simple. Overly complex metrics take attention away from the measures that really matter and can obfuscate execution priorities. …
Managing growth requires a focus on numbers, but numbers alone are not enough. Storytelling is a powerful tool for propagating the culture of winning in the organization. … Leadership should make it a point at every large internal meeting to put successful people on the stage to share their stories with their colleagues. Success stories become part of the culture, and successful people become heroes in the eyes of their peers and managers. Moreover, highlighting the achievements of successful teams creates “positive shame”; the teams that are not on the stage feel strong peer pressure. This positive pressure is far more effective than the “negative shame” that would be created if the less-successful teams were berated in reviews.
Avoiding the Traps
With any transformation initiative, there are pitfalls to avoid and hurdles to overcome on the way to success. Here are a few to keep in mind in implementing growth through focus.
One common pitfall is to seek to build scale before fixing underlying problems. …To convert potential into actual revenues and profits, however, you first need a business model that works. You must have the distribution reach, the supply chain, the manufacturing capabilities, and the right products before you can scale the business. …
Another potential trap in implementing growth through focus is neglecting or mismanaging the parts of the business that do not fall within the core focus areas. This is the “tail” of your business — … Simply cutting off the tail can be disastrous, because the decline of the tail is often faster than the growth of the core. Further, the non-core businesses often have fixed costs that are linked to the core businesses. Finally, cutting and divesting can have a huge demoralizing effect, because people often have strong emotional ties to some of these businesses.
What you need is a clear plan to manage the tail. We find it helpful to cluster the non-core businesses into two buckets — “milk or divest” and “local jewels.” The two buckets need very different management approaches. The first category includes businesses that do not make money and have no hope of making money, despite repeated promises of future turnarounds. These need to be divested over a defined time frame. … Local jewels are successful local businesses that can be retained in the portfolio but managed at arm’s length by local teams, leaving the global teams to focus on the core businesses. … These businesses should be left to determine their own destiny but should be held accountable for revenues, margins, and cash flow.
Too often, when companies rationalize and focus, they slash expenses across the board. Two areas that take the brunt of cost cutting are people-related expenses (recruitment, training, travel) and brand advertising. However, talent and brands are the two most valuable assets for driving growth. We recommend increasing investments in hiring and developing talent, even ahead of the company’s needs. We also recommend increasing investments in building brands. The good news is that the growth-through-focus approach yields significant cost savings through elimination of management layers, reduction of overhead, and elimination of marginal businesses. Focus frees up resources that can be used to invest in the future.
Once a strategic direction has been established, it is important to stay the course until the strategy has been fully implemented. … In our experience, the transformation process takes as long as five years to play out. …
Finally, keeping a positive tone is vital to the success of growth through focus. … The energy that comes from winning is infectious. It inspires people to achieve goals that they have never before considered possible. Leaders should act as evangelists and cheerleaders, spreading the positive energy and making sure the teams are having fun at winning.
… To win in your businesses, you must harness the power of focus. By following the seven steps in our blueprint, business leaders can drive profitable growth even in difficult economic times.

Building Scale for Focus: A Tale of Two Acquisitions

Growth through focus involves a reduction in the number of products, categories, brands, and markets that the company should focus on. But it also demands an increase in the scale of the businesses that the company chooses to focus on. Scale can be generated by building on the brand and product assets that the company has in its portfolio through organic growth. However, organic growth may not be enough to get to the required scale, particularly when the company is betting on markets or categories in which it is not a market leader. Further, in some emerging markets, building distribution networks from scratch is a Herculean task. This is where acquisitions play an important role in the growth-through-focus approach. They can help the company acquire scale in its chosen domains. The acquisition strategy should be driven by the focus strategy, and a clear logic should link the acquisition to the strategic framework for growth….
The focus lenses chosen in the second step of our approach can be used to identify and prioritize acquisition targets. …
—S.K. and M.S.
Reprint No. 00034

Author Profiles:

  • Sanjay Khosla is president of Developing Markets and Global Categories for Kraft Foods. He has more than three decades of leadership experience in global consumer packaged goods companies and has lived and worked around the world.
  • Mohanbir Sawhney is the Robert R. McCormick Tribune Foundation Clinical Professor of Technology and director of the Center for Research in Technology and Innovation at Northwestern University’s Kellogg School of Management. He has coauthored five books and many articles on marketing, technology, and innovation.
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