Growing Questions: Strategic Answers

In the midst of a recession impacting most businesses and likely to persist, managing an operation can be especially daunting. And, the daily search for

Randy Ahlm

In the midst of a recession impacting most businesses and likely to persist, managing an operation can be especially daunting. And, the daily search for glimmers of hope yields little clarity as headlines are scanned, e.g., GE Reports Lower Than Expected Earnings But Beats Estimates, Unemployment Claims Lower Last Month Though Still Growing, Oil Prices Surge on Demand, and Oil Prices Fall on Oversupply. Trying to assess company prospects amid the news onslaught can be dizzying for any business leader who endeavors to determine how growth can be fostered under turbulent economic conditions.

Accordingly, conversations with executives invariably give rise to four key questions:

  1. What events trigger a new or updated growth plan?
  2. What is the best approach for taking advantage of the economic conditions?
  3. Should we consider expansion or acquisitions?
  4. How much time and effort are required to create a growth plan?

Addressing the first question, trigger events for developing or updating a business growth plan are tied to the pace of change impacting a company’s markets, customers and competitors. Simply stated, creating and/or updating development strategies is appropriate whenever market turbulence is noted. Plan-precipitating occurrences might include new competitors entering the market, existing competitors adding new products or changing their pricing strategy, changes in customer behaviors, or technology advances. While each alone can cause economic turbulence, such factors in tandem can create chaos across entire markets.

Endless new products, global competition, and technological innovations contribute to the challenge of apparently relentless change confronting many companies. Some clients have reported that the mere attempt to ride out rapidly changing conditions precludes worrying about growth. Yet, such circumstances can provide the most opportune occasion to develop and/or update growth strategy.

Companies that take advantage of a business downturn are far more likely to operate successfully when the economy recovers or turbulence subsides. In his new book, The Upside of a Downturn, Geoff Colvin reports that 47 percent of top-performing high-tech companies fell out of that group in the last recession, while 13 percent of lowest-ranking enterprises became top performers.

The recent approach taken by retailer Bed, Bath and Beyond (BBBY) is instructive. After targeting the 100 stores that competitor Linens and Things was promoting most strenuously, BBBY implemented a forceful campaign. According to a Wall Street Journal article by Credit Suisse retail analyst Gary Balter, the company matched Linens’ deals and discounts dollar for dollar, issued a multitude of coupons, and generally increased it’s advertising by 20 percent. Subsequently, Linens În Things went out of business, while Bed Bath & Beyond sales rose 2.8 percent, compared with a drop of 13 percent for the home-furnishings sector.

Regarding the second question, a more straightforward response is warranted: the best approach to developing growth strategy is to build from the business core. Every company has key assets, capabilities, customers, selling channels, and market territory that comprise its core and should provide a growth-plan foundation.

For his book Profit from the Core, Chris Zook examined over 8,000 companies and identified those with a 10-year record of at least 5.5 percent annual growth. He found that nearly 80 percent of thriving companies had focused on strengthening their core business to develop a clear market-leadership position. An example is made of Dell, which focused on its core business of Îmaking to orderÌ and Îdelivering direct to customersÌ as key to market dominance in the field of personal computers. Predictably, the company has lost ground in moving away from its core and distributing products through more traditional retail outlets.

The third question concerning expansion is one that preoccupies many business leaders Û If only they could develop a new product, add a few customers, acquire a competitor, or go global, their problems would be solved. Though all are avenues of potential growth, the most successful companies identify opportunities closely adjacent to their core business.

Zook’s research indicates that chances of an endeavor’s success are three times greater if adjacency is less than one step from the core, versus more than three steps removed. Those odds reflect the observation that the farther a company moves from its customer base, battling new competitors with different cost structures and unfamiliar distribution channels, the more remote becomes likelihood of success.

Serving as a prime example of that phenomenon is Quakers Oats’ acquisition of Snapple several years ago. Since Quaker already produced Gatorade, such a move on the surface seemed like an easy way to acquire a similar beverage and expand. What the company soon learned was that Snapple relied on a direct store-delivery model to get its products into delicatessens, restaurants and gas stations, while Gatorade distribution primarily was effected through large centers not structured for the type of distribution that made Snapple grow. In time, Quaker sold Snapple for a fraction of the acquisition price.

Determining whether an expansion strategy entails close-to-the-core adjacency requires quantitative analysis and qualitative assessment against the key dimensions described above. The process relies on input from key personnel, customers, and suppliers, plus the application of business experience to determine a move’s distance from the core.

Finally, addressing the question of time and effort required to create a strategic growth plan is where the proverbial rubber meets the road. Business management demands much day-to-day decision-making and crisis management; thus, finding time to develop a fresh approach and dedicating key managers’ efforts can be a significant challenge. Most managers already were working long hours before the recession, and many now have smaller staffs than ever before.

While strategic planning requires dedicated application, quality of input is the key to success. Allotting appropriate time and effort involves balancing the level of analysis with available information and resources. Under rapidly churning conditions of economic turbulence, an 80 percent solution often is the best. Of chief importance in such circumstances is to define and adhere to a structured process for developing and implementing the growth plan, as well as a system to monitor triggers for updating it.

A growth strategy Û though it entails hard work Û is essential for any company serious about growing its business. Rather than an overly complex plan, a successful enterprise requires leadership team involvement and alignment, along with feedback from customers and suppliers. Companies that incorporate such measures are more likely to emerge from the downturn in a stronger position.

Randy Ahlm is principal of Minneapolis-based RCA Consulting, a growth-strategy consulting firm that serves manufacturing and service companies throughout North America. He brings to his role four years’ experience as president of Cretex Concrete Products North Inc. in Maple Grove, Minn., and seven years overall in the construction industry Û, [email protected].