Building a Growth Engine During Turbulent Times has been saved
Building a Growth Engine During Turbulent Times
Authors: Mike Vincent – Director & Nkanyiso Hlongwa - Senior Manager
In a low-growth environment, businesses often focus on reducing the cost base to increase efficiencies and improve margins. Although this is necessary to keep the business performing, leading companies often use this period to position themselves for growth. CEOs of leading organisations firmly focus on driving new value creation and therefore sharpen their strategic focus on the opportunities in the future. These companies are carefully evaluating their growth plans to ensure that they grow faster than the imminent recovery. Based on our experience, achieving sustainable growth requires companies to design and deploy a Growth Engine – which is a systematic and repeatable organisational capability to achieve and maintain profitable and significant growth.
The business landscape is undergoing significant change
In a rapidly changing business landscape, CEOs need to constantly think about the key avenues to unlock growth in the future and how their companies can position themselves for success. Organisations need to think about new paradigms of future growth and recognise that what created the success today will not generate superior and sustainable growth in an increasingly turbulent future. This is a future where the intensity and frequency of market and competitive change makes sustainable growth even more important and elusive. In addition, advances in technology have transformed the playing field as new entrants and fast movers have the potential to leapfrog incumbents and redefine the competitive landscape.
In this dynamic market environment, shareholders require Executive teams to deliver more ambitious outcomes and executives are committing to higher stretch growth targets, with less-and-less defined knowledge on how they can achieve them. Furthermore, promising top-line growth is further complicated by shareholders’ relentless requirement that it be both predictable and sustainable. This expectation is in contrast with a market that is undergoing significantly more volatility and increased competitiveness. For example, the average tenure of an S&P 500 company has declined from an average of 33 years to a projected average of 12 years by 2027, driven partly by the rapid speed of technological developments .
As a result, organisations are under increased pressure to achieve more in a rapidly changing environment. To address this, organisations need to focus on driving sustainable growth in order to participate in the value creation from the changes in the landscape. Achieving this requires a new approach to drive external growth opportunities that ensure organisations are well positioned to grow sustainably into the future.
Growth platforms require structure and a dedicated focus
Companies can design and deploy a future-focused growth engine that is aligned to the corporate growth strategy, sanctioned by company leadership and dedicated to creating value on a sustainable basis. The four-step approach is as follows:
1. Understand the future megatrends changing the of business landscape, set a Growth Target and focus the growth strategy
When looking to create a Growth Engine, one cannot merely assume that past successes, processes and methods will stand a business in good stead for the future. Markets are changing in more dynamic ways than before and Executives need to understand that this unprecedented shift will shape their future. In this first phase businesses need to define their strategy by answering questions such as:
- What are the megatrends that will redefine / shift the business and markets of the future?
- What does the consumer and customer of the future desire?
- Which business models will most appeal to the markets of tomorrow?
- What are the major social shifts that will be part of the future of the world?
- What will be the growth industries?
- Where should you be investing your time and money today?
2. Follow a structured approach to identifying, prioritising and executing new revenue generating entities
As many CEOs are looking for investment opportunities to fuel future growth, it is critical that this ambition is supported by a strategic objective as well as internal processes and platforms to define and pursue new growth opportunities
Our experience has shown that companies need to:
- Clearly articulate the growth strategy
- Be clear on how the growth strategy supports the Group Strategy
- Ringfence the required capital to drive the growth strategy
- Implement a robust process and governance structure to ensure opportunities are progressed or killed quickly
- Define the appropriate framework and criteria for opportunity development and assessment
- Obtain commitment / buy in upfront from the leadership team and shareholders. This can be done through the thoughtful development of a mandate that is signed off by the key stakeholders
- Don’t constrain your growth team with existing business processes, but find efficient new ways to achieve the desired outcomes
- Define the investment and deal making governance process – typically conforming to corporate venturing principles
- Establish the growth engine organisation structure – dedicated team, roles and responsibilities.
Once all elements of the eco-system are correctly configured, the team capacitated and deployed, opportunities will be sourced, prioritised and converted via a customised stage-gate process.
3. Develop a robust portfolio of opportunities focused on strategic themes
A properly diversified portfolio helps capture most of a growth engine’s gains while reducing volatility. Diversification is the single greatest factor in determining long-term investment returns and avoiding the risk of “putting all your eggs in one basket.” When investing, the less diversified, the more risk an organisation is generally taking.
Using the Growth approach, a dedicated team is not only working on one deal at a time, but rather engaging in a continuous process of enriching a portfolio with opportunities that are both adjacent and transformative to the current core business. In this portfolio, opportunities are themed into strategic priorities (as identified in Step 1) and are constantly prioritised and converted into deals on a repeatable basis. This ensures the “engine” characteristics are in place to make the entire process sustainable and repeatable.
Implement via a phased approach that is focused on value creation
Phase I: Design
- This phase is primarily focused on creating a future-based strategy by defining the parameters and guidelines to support growth initiatives. This phase also defines some of the strategic choices available to the organisation and enables the Executive teams to understand the art of the possible.
Phase II: Build and Strengthen
- In this phase the engine is deployed by a dedicated team of strategic and entrepreneurial specialists.
Phase III: Maximising Value
- Once deployed, the team becomes completely focused on sourcing, prioritising and converting opportunities into tangible value.
Phase IV: Transfer/Support
- A growth engine cannot be operated on a fully outsourced model – you will need to take on much of the process knowledge, recruit key skills and take control of the entire lifecycle to ensure self-sufficiency.
Transformational growth does not happen by chance in an organisation. The reasons are varied in this regard, but typically funding “Business of Today” projects will always beat investing in “Business of Tomorrow” opportunities. This is logical, the returns are clear, and the risk is understood. The impact however is that you develop a highly efficient but perhaps a too narrowly focused entity that it not well positioned for the future.
Sustainable, future focused growth only happens when a dedicated team is deployed to operate as an engine for growth. This team provides unfettered access to unexamined opportunities, as well as the focus, discipline, infrastructure and market intelligence necessary for the discovery, evaluation, and commercialisation of new growth opportunities. Ideally the team should consist of dedicated internal company resources and external resources brought on at critical junctures during the growth journey.
The future should be a matter of choice and not chance. To get this right, a thoughtful, dedicated growth engine needs to be deployed to maximise the benefit.