Creating a Culture for Growth
Robert M. Tomasko
[This article was originally published in the First Quarter 2000 Forum, the journal of the Grocery Manufacturers of America]
At a dinner I had not long ago with a headhunter, he remarked: "Good managers know how to cut: they trim costs, reengineer, and restructure. Great managers, though, they're the ones who know how to grow."
Later that evening, mellowed by a large meal and a few drinks, our discussion returned to growth, and his mood turned from philosophical to pragmatic as he whispered: "Fortunately for the executive recruiting business, the great ones are still pretty hard to find."
Getting beyond ECR
Maybe so, but that hasn't stopped many consumer package goods companies from putting growth at the top of their strategic planning agendas. The past decade has been a time of cost cutting, supply chain rationalization, activity based costing, and a whole alphabet soup of acronyms: EVA, ERP, ECR, DSD, and EDI. While the industry is the most efficient it has ever been, it is also beginning to heed the admonition of former-PepsiCo CEO, Wayne Calloway: "You can't save your way to prosperity." When everybody cuts costs to the bone, the playing field is re-leveled and new sources of competitive advantage must be sought.
Growth may be today's trendy mantra, but exhortations in annual reports and executive committee meetings are not enough to manifest it, especially among battle-scarred teams of fad-weary managers. As businesses start to move from talk to action, many are revisiting the traditional drivers of top-line growth. It seems like a good time to review what's worked and what hasn't.
The most common growth strategies
Not long ago I helped an editor of Fortune evaluate the most commonly taken paths to growth. The growth strategies of over 200 top US companies were examined. In spite of differences in industry, size and management philosophy, most companies followed one or more of seven common approaches. Think for a moment about the elements of your growth strategy as you look down the Fortune list:
o Innovative new products
o Extensions of old products
o Buy market share (promotions, price cuts0
o New distribution channels
o Overseas markets
o Alliances and strategic partnerships
When the editor showed me the list, we both thought it included most of the usual suspects. But, digging a bit deeper, we started to wonder. These common growth strategies have been around for quite a while. How well have they worked?
Not too well, was the answer that came back, at least for most companies who use them, according to our review of the research.
o Growth through new products is a classic, but the sad reality is that few make it. Less than half of the new products introduced each year come anywhere near to meeting the expectations set for them. And far fewer are real market hits.
o Product line extensions often seem logical, but in an era of intense competition for shelf space and option-weary consumers, line extensions can be synonymous with cannibalization.
o Promotions are popular, but come with unintended consequences. They teach buyers to wait for the next sale, add costly peaks and valleys to the supply chain, and over-time erode brand loyalty.
o New channels are attractive, but going after them can lead to internal culture conflicts. How many of your deal-oriented sales staff speak fluent internet?
o The global market is another shining beacon, but one that signals danger as well as opportunity. Few products are really truly global, international business know how (among Americans, at least) is a scarce commodity, and most dangerous of all - a fixation on what may be abroad can distract top management from less risky growth in domestic markets.
o Alliances and joint ventures are trendy. But think back a few years: how many "partners" have come and gone in your favorite airline's frequent flyer program? Most alliances eventually flounder over the lack of shared, long-term objectives. After five or six years, more than half fold.
o It's hard to find any research study on acquisitions that holds great promise for them as a pathway to growth. Fewer than a quarter of the deals end up performing well enough to cover the cost of the capital that went into them. Often the best that can be said is that they were good moves for the sellers, or windfalls for the competitors lucky enough to be undistracted from the ills of post-merger indigestion.
These findings are sobering, but some comfort can be derived knowing that at least a handful of the companies pursuing growth along these lines were successful. What set them apart from the disappointed majority?
Separating winners from losers
As part of the research for my book, Go for Growth, I looked at many instances of success and failure at growth in companies worldwide. Two headline conclusions emerged:
1. There's no one best way to grow.
2. Growth strategies must be accompanied by the appropriate growth culture.
Turn your ear quickly from anyone who claims to have the one-size-fits-all formula for business growth. The world's just not that simple. Markets vary too much, and change to rapidly, for simplistic 6-step strategies.
Every company approaches growth from a different starting point and a unique set of accumulated capabilities (and liabilities). When most of the players in an industry execute similar strategies - either following the bandwagon or close variations on the theme-of-the-moment - competitive advantage becomes hard to come by. Competitors also then tend fixate on each other, and miss the real growth clues that abound in every market.
Having a good, customized growth plan is seldom sufficient. Strategies don't execute themselves, people do. Companies who seem to gain the most from the seven approaches above also have organization with a "growth culture" that provides energy and focus to drive the growth.
Just as growth plans can't be pulled off the shelf, corporate cultures are hard to replicate and recycle. Cultures are a by-product of all you do to organize and give a sense of direction to the business. They can't be manipulated directly, but they can be changed by changing what drives them, including:
o How influence, authority and information are distributed in the organization structure
o What performance measures used, and the rewards and sanctions that accompany them
o The personal values of key business leaders - past and present
o The quality and quantity of people with a growth-mindset throughout the organization
Five growth cultures
How many growth cultures are there? Hundreds, but here are the five that you're likely to see most often. Most others are hybrids or variations on these basic ways to grow by gaining competitive advantage.
o Rule Breakers - innovators who grow by changing the basis of competition
o Game Players - geniuses at acquiring share in growing markets
o Rule Makers - masters of market domination
o Specialists - kings of their particular niche
o Improvisers - survivors who stay afloat in turbulent markets by rolling with the punches
Rule Breakers exude innovation. They invent products or services bold enough to create new markets from scratch, or destabilize the entrenched competition in old ones.
In the 1970s their ranks included Apple Computer and MCI. People Express was a Rule Breaker before it over-reached; Southwest and Virgin are ones today. The dynamic French duo of Carrefour and Club Med invented new ways for consumers to shop and vacation (the hypermarket and the all-inclusive resort). Amazon and Peapod are among the dot-coms sharing many Rule Breaker attributes. Sony and 3M are classic Rule Breakers, ones that seem to have institutionalized a genius for spinning-out a constant stream of new products.
Rule Breakers follow the advice of Sun Microsystem's star guru, Bill Joy: "The goal isn't to win at someone else's game, but rather to change the game to one you can win." They don't react to the chaos in the market, they provide it.
Most Rule Breakers are born, not created through any process of organization restructuring. They're usually led by entrepreneurial autocrats, misfits who might have a hard time getting hired anywhere else. Employees who fit in are driven risk-takers, totally identified with their mission, and too rebellious to tolerate much cost discipline or administrative procedure.
Most Rule Breakers are corporate phoenixes - they burn bright, but don't last too long. They're often their own worst enemies, too fixated on their vision of the perfect product to bend to customer requirements. Many falter when others imitate their products.
Game Players are the masters of imitation. They excel at satisfying the customer desires that Rule Breakers are so good at creating.
Bill Marriott refuses to allow his company to roll out a new hotel concept that hasn't already been proven in the marketplace. "Almost everything I ever did was copied from somewhere else," boasted Sam Walton. Barnes & Noble is a Game Player, perfecting a retail format that Borders pioneered, just as Webvan is attempting to refine and roll-out the business model of NetGrocer and Peapod. MCI shifted from Rule Breaker to Game Player after the Bell System split. Sales-driven companies like Toyota and Xerox are Game Players. They live-or-die based on gaining or loosing a few points of market share.
Many consumer product companies have the Game Player's culture. To the outside world they are tough, energetic competitors. They're facile changemasters; they like to be liked, and are able to bend with the wind as the situation requires. Internally, they maintain a high spirited workforce of loyal team players with decentralized, incentive-rich organizations. Most of their leaders have come up through sales, marketing and brand management.
Like Rule Breakers, Game Players are prone to stumbles. Some give more attention to the "sizzle" than the "steak," attempting to fuel new growth by selling consumers too much of what they don't need. Some become excessively numbers-driven, and get caught up, as Bausch & Lomb once did, meeting sales quotas by shipping goods never ordered. Others unwittingly create profit-destroying gray markets, while some fixate too aggressively on destroying their competition that they forget that collaborating to make the market pie larger usually pays-off better than bitter fights over whose slice is bigger.
Smart Game Players sustain growth by giving as much attention to "share of customer" as to market share. They also realize they do best in markets growing faster than GNP. So as industry growth slows, alert Game Players morph to another growth culture.
Some companies combine an excess of cleverness with an abundance of good luck. They come to own their markets. They do more that just listen to customers, they create the industry standards that come to drive consumer behavior. Rule Makers don't just ride the trends, they spot and control the choke-points that allow them to shape the future development of the entire industry. Or, at least they try to.
Microsoft and Intel are today's star Rule Makers. Last decade's was IBM, and before that AT&T. In the era before Federal Express, ubiquitous fax machines and the internet, the US Postal Service dominated written communications.
Rule Makers are a breed apart from most companies. They tend to hire people early in their careers and then spend heavily to indoctrinate recruits into their ways of doing things. They cultivate a culture of intensity, self-reliance and elitism. Their strong sense of self confidence is often perceived as arrogance. Their products tend to be good, but their real core competence is control - they work overtime to control the behavior of their customers, suppliers, distributors and employees. While Game Players are often exhilarated by new trends in the market, Rule Makers first reactions are often ones of wariness and suspicion.
Sometimes it takes one to know one. Intel's Andy Grove summarized Bill Gate's as a person who "follows somebody's taillights for a while, and then zooms past." Rule Makers are seldom content with imitation. They prefer domination. Grove also warns Microsoft may face difficulties when "there will be no taillights left" to follow. The rigidity of the Rule Maker's culture makes them unlikely places for bold innovation.
Today Gates is challenged by both the internet and the courts. Eventually many Rule Makers stumble when they become the only clear winners in the market, and customers cease to benefit from a single standard-setter. Some Rule Makers are blindsided by fast moving Rule Breakers, but most fall victim to the myopia of their own cultures when they come to believe the can make no mistakes.
As markets mature, customer needs segment: class becomes more important than mass for some buyers, while others seek only the lowest price. The key to growth becomes specialization: create a niche and protect it.
Specialists are adept at creating market segments. They carefully observe trends others miss, have the courage to bring new technologies to old industries, un-fragment markets, or willingly take-in others' laundry (outsourcing). Specialists are masters at differentiation, whether on price, quality, service, product range or customization. They live and breathe cost cutting, and give production and operations executives the limelight that Game Players reserve for those in sales and marketing.
After they find their niche, they put a wall around it. They like unattractive segments. They avoid anything that smells of a mass market and eagerly tolerate difficult regulatory climates that keep others away. Some carefully avoid doing things that call too much attention to themselves. Specialists will reinvest and innovate in businesses others have given up for dead. And they often laugh all the way to the bank as they enjoy some of the highest profit margins in industry.
Specialists run the gamut from Pahlmeyer Wines and Batesville Casket to Exxon and portions of GE. Some, like Solectron, exist only to make products sold under others' names. Others are known as "the place to go" for their particular product: Hot Springs (for portable spas), NordicTrack, Rolex and Rolls Royce. Some are really micro-Specialists: Graphics Press exists to publish the books of only one author.
Specialists emphasize functional expertise. They often are dominated by technical experts and are more centralized and structured than most companies. Prudence and caution characterizes their efficient approach to business, though their conservative persona only hides a dedication to state-of-the-art products and technology.
Specialists thrive in stability. Their cultural opposites, Improvisers, survive (and sometimes) thrive in chaotic and uncertain markets by rolling with the punches, and making up for a sharp focus with speed, cunning and flexibility. Consistency is no virtue for an Improviser. As the telecommunications industry became increasingly unpredictable, MCI's CEO Bert Roberts' management philosophy reduced to: "If new ideas don't work, try something else." He summed up MCI's long term strategy as: "We run like mad, then we change directions."
Actually the last thing an Improviser wants is a long-term strategy. Long haul focus is uselessly distracting when everything is up in the air in the marketplace. It also blocks peripheral vision, one of the best sources of tactical opportunities.
Improvisers relish challenges, they are action-oriented realists. They are often impulsive, and know that bluffing is sometimes the best way to take advantage of a weak hand in the market. Their organizations change frequently, and Improvisers aren't shy about bringing in senior outside talent as needs dictate.
Many de-throned Rule Makers - General Motors, IBM and Kodak find themselves in need of the Improviser's tool kit. Apple Computer failed at Game Playing, lacked the discipline to be a good Specialist, but rebounded in the market as a successful Improviser.
© Robert M. Tomasko 1999, 2002
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