If you are in a position of accountability for the growth of your firm, recent tidal shifts will make you want to stop and take note. Three recent moves – the sudden reversal of oil prices, the strengthening of the US currency, and the weakness in the BRIC economies – have flipped long-standing narratives on their backs. The US consumer is not back yet, even with job growth putting pressure on services, restaurants and retail. Industries with what seemed like unstoppable growth are coming under pressure and the change is happening at record pace. What is running well can reverse course in a matter of weeks.
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The latest headlines are showing that retail (Target), energy (Whiting Petroleum) and export dependent firms (McDonald’s, P&G, and Caterpillar) are all under immense stress, causing them to reassess their current positioning and strategy.
When being raised by the tide of secular growth, firms are able to add capacity, extend geographical service areas and improve core systems. Building your company while you are looking into sales growth makes all investments look better and the cost of debt negligible. When these tides reverse, however, there is a double bind because there is momentum to investment, yet once costs are added to a firm’s run rate, they are much harder to remove. In other words, it takes time and effort to build growth plans, fund them and begin to bring on capital and equipment. Once this cycle has begun, there is real momentum to complete it, and commitments are not easily undone. I have had personal experience “un-growing” firms and it is very painful sitting across from superb individuals that you have invested in and advising them that you need to let them go.
Having worked with executive teams in a dozen different business models in more than twenty countries, I can tell you that this is not an issue of being smart or aggressive. The key to working these issues well and not succumbing to losses of talent and capital is preparation. Having real growth programs ready to go when the pressure comes on is a matter of doing the right thing at the right time in advance of the need. To be clear, what I am talking about is:
- Having well tested, validated programs in the pipeline ready to scale.
- Corporate Development staffs with pipelines of good strategic acquisitions ready for execution when the purchase price is right.
- Having strong, flexible and resilient leadership and subject matter experts that can rise to the challenge.
These kinds of programs come under the category of carefully placed small investments growth options that can be activated when one of your core value engines come under fire.
Take the recent results from 3M, a multi-decade top performer. They recently reported a revenue decline due to currency issues, but because of robust innovation, they were also able to report growth in all segments.
The list of firms that do not recover when they have taken a hit to their core revenue engine is long, with many recognizable Dow names. Once proud organizations, Kodak, Nokia, Lucent, and Hewlett Packard are all shells of their former dominant selves.
These are the times that firms will quickly find out if they have established innovation systems that deliver, or if they need to send people home with their boxes. It is no small thing to have an innovation system that is able to deliver at scale, and some of the best periodically get surprised, but usually at much lower levels of impact.
How to get there? Here are 10 areas that will go a long way toward serving the core operation when the tail wind turns to headwinds. Please note, these are each large categories in their own right. Use this as a qualitative assessment and a nudge to think about your “growth options” development, and how you might improve it.
- Make innovation systematic: is there a regular cadence to your innovation process? Do people recognize that there are regular investments made in growth programs?
- Make innovation strategic: is there a specific system for choosing the best portfolio of risk and reward? Is it reviewed like the strategic asset it is?
- Make sure customer voice is regularly renewed. Many times senior leaders are leading to the customer as they knew them years ago, not who they are now.
- Make innovation a full team event – this makes it incredibly important that all key decisions and directions be informed with the full voice of the firm – sales, ops, R&D, finance and legal – so that the best decisions are made.
- Make sure the best talent works on innovation – when innovation is done by “R&D” there is an unhealthy distance that buffers the best operational minds from the most impactful programs. Paying up for the best talent and putting them on cross-functional programs with effective governance is a huge lever.
- Systematically build vision into the firm. The best firms invest in activity that lead them to consider adjacencies and breakthroughs in areas other than their core business. Why do you think FedEx is watching Uber?
- Do not allow carbon copies (mini me’s). When building start ups in your firm, guard against burying them before they have had a chance to get out of early struggle. Have a culture of making it good before you make it big – rewarding innovators for removing risks that would derail your business case.
- Move quickly from generalities to specificities. You know that value is built in niches and work to dominate and solve a specific problem described by a use case, not a wandering generality. You know the most irreplaceable resource is time.
- You ruthlessly watch your market space and are very aware of substitution threats. I once worked with a group that systematically excluded a substitute product from its market share calculations. The effect of this was to allow a start up firm to grow a $1B firm in their backyard.
- You view the main responsibility of senior leaders, after modeling operational excellence, to personally guide the firm to new areas of growth. Business resilience is a key metric in our compensation package and is evaluated on robustly developing strength based on diversity and freshness of customer and product.
In addition to my speaking and consulting work, I do reserve time to work with C-level leaders and subject matter experts through private, executive coaching relationships. If you’d like to learn more about how I can help you guide your organization to clarity, action and growth, please email me to schedule a 20-minute introductory session.
