Focus on Growth

Focus on Growth

How do businesses tapped out on cost cutting and with no room left to manoeuvre on price continue to grow their profits? The only way left is to grow volume and few managers know how to do so.

Growth Portfolio

Treacy's portfolio management approach to licking the growth problem requires that the portfolio ideally be based on five growth disciplines that "followed with care and dedication, can aid any enterprise in achieving steady, double-digit growth year after year". All five disciplines are the outcome of insights gained from a study of the growth habits of some 130 businesses, and all have an important role for the CIO.

The first discipline focuses on improving customer-base retention. One way to grow is to stop shrinking, Treacy says. Virtually every company loses between five and 20 percent of its customer base every single year, and has to replace that base before it can start to grow. "So the question becomes: How do we apply technology to know more about our customer and translate that to better value, to create sticky relationships by increasing switching cost, and to use the advantages of incumbency to hold those customers close to us?"

Here CRM- and BI-type applications can be relevant, he says, although CRM is a "broad and blunt instrument" that is easy to implement without gaining the specific effect you need in order to reduce customer churn: the devil is in the detail of its implementation.

The second discipline in Treacy's portfolio management approach focuses on market share gain. Market share gain is about both the strength of your value proposition and your market coverage strategy (how broadly you are able to get your proposition in front of people). Treacy says CIOs can play an important role in both of these areas, since corporations achieve a better value proposition by improving their operating model, and since the Internet and other electronic communications channels are changing the way customers reach markets and corporations reach customers and create awareness.

The third discipline involves making sure your corporation "will show up where growth is going to happen". By positioning the company in market segments that are growing, you can grow by just getting your fair share of a growing pie. "Markets segment by geography: China is growing faster than the US. And they also segment by customer segment, by product segment, by channel," Treacy says. "So this is a pure strategy, which sees you get positioned and repositioned constantly in a fast growing segment of the market so you grow faster." The CIO can help the organization to discern favourable market segments.

The fourth discipline is all about penetrating adjacent markets where the company's core operating capabilities can give you a real advantage - an approach that also forces the organization to think about building or acquiring additional capabilities to meet the competitive standards in such markets. "This is not just a segmentation focus," Treacy says, "but about literally moving into new businesses next door to the business that you're in. And the reason it's important to be next door is so that you can leverage your core advantages in the new business. This is good theory, but most companies that try it fail miserably. The success rate is fairly low on growing into it."

And finally, the fifth discipline focuses on achieving growth by invading new lines of business.

Balancing Act

Treacy says the five options have to be balanced and rebalanced according to the demands of the market, just like an investment portfolio. And like an investment portfolio, at any point of time, he says strategy is likely to be weighted heavily in favour of two or three disciplines.

He gives the example of Johnson Controls, a Milwaukee manufacturer of automotive systems with sales of $US22.6 billion in 2003, with three main businesses: manufacturing security and control systems; automotive interiors, which started out making car seats and is now involved in different elements of the automotive industry; and the lead-acid car-battery business, which the company believes in a similar way will grow to include everything under the hood except petrol. The company, which has a vision of taking many other components from windshield-washer bottles to radiators, manages growth the way other firms manage processes, Treacy says, by using a very disciplined approach to measuring performance against the objective. Those plans are adjusted as needed, and there is a detailed loop between measuring, evaluating and adjusting on the road to that vision.

With a growth portfolio embracing dozens of initiatives at any one point in time, some aimed at retaining existing customers and some looking to improve market-value process or market coverage, Johnson Controls does not have a strategy but a portfolio of strategies to drive growth, backed by a very clear vision.

Treacy says Johnson exemplifies a concept he calls "management discipline", which focuses on establishing both value leadership and customer leadership to set businesses apart and then lead them to growth in the future. It requires executives to manage growth as they now do costs.

It is all about how well you perform against a particular objective under uncertain conditions and other things you cannot control, Treacy says. Companies that have "performance disciplines" are able to consistently deliver results in uncertain times.

CIOs should make those choices with growth in mind, he says, and should constantly seek to drive innovation that can foster such growth.

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