Business Book of the Week

The alchemy of growth

by Mehrdad Baghai, Stephen Coley and David White Orion Business, pounds 20

THE COMPUTER industry is known for its ability to give those operating in it the thrills and spills of a roller-coaster ride. But even by those standards, the experience of the US company Compaq in the early Nineties looks extreme. A 25 per cent sales rise in 1990 became a 9 per cent fall in 1991 and operating income halved. The company slashed 12 per cent of its workforce and replaced the chief executive and co-founder, Rod Canion.

His replacement, Eckhard Pfeiffer, led a drastic restructure - reducing costs, speeding product development and extending the product line to compete with the "clones" of IBM-compatible personal computers that had transformed its marketplace. According to Mehrdad Baghai, Stephen Coley and David White, the three McKinsey & Co management consultants who are the authors of The Alchemy of Growth, Mr Pfeiffer was "earning the right and building his team's resolve to grow".

Citing his introduction of a "performance culture" making managers strictly accountable and highly rewarding high performers, they credit him with an impressive turnaround by the end of 1992 - so creating the conditions for a growth curve that saw sales rise 45 per cent and net income grow at 58 per cent a year between 1992 and 1996. The graphic story is seen as an illustration of how companies lose the ability to grow. "The right and the resolve to grow are preconditions for success in the pursuit of growth," say Baghai, Coley and White.

But it is not that simple. The authors cite Reynolds & Reynolds, a company facing increasing competition at the low-margin end just as it focused on more valuable products and systems. A new chief executive concentrated on a handful of customer markets and built "leadership positions" in them to stabilise operating income. Managers talk of this need to concentrate on several things at once as "keeping balls in the air".

But since the authors are management consultants, they have developed a concept, "the three horizons of growth". This is a "three-stage pipeline" seen as useful in allowing distinctions between the "embryonic, emergent and mature phases of a business's life cycle".

Horizon 1 involves extending and defending core businesses - and is seen as vital for generating the cash resources for growth. Horizon 2 covers building emerging businesses - the fast-moving, entrepreneurial ventures in which a concept is taking root or growth accelerating. Horizon 3 contains "the seeds of tomorrow's businesses - options on future opportunities".

The problem is that, though the three horizons pay off over different time frames, when they pay off has little to do with when they require management attention.Accordingly, the authors say, managers must deal with them all concurrently.

This is a typical consultants' attempt to mystify what is fundamentally obvious. Any manager who had the time to think would believe he or she had to pay attention to coming up with ideas at the same time as ensuring that existing business chugged along as well as possible.

But in throwing light on the mechanics of growth, the book is likely to prove highly valuable. Indeed, most people are so convinced that growth is "a good thing" that they have forgotten that not all growth is profitable.

The McKinsey team point to how Nokia in the Eighties diversified into a whole range of industries only to come unstuck. Significantly, the company's spectacular growth in recent years has come through concentrating on a particular market and coming up with innovative ways of serving it.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Guru Careers: Financial Director / FD / Senior Finance Manager

Up to 70k DOE: Guru Careers: We are seeking an experienced Financial Director ...

Recruitment Genius: Junior / Apprentice Sales Executives - OTE £50,000

£11000 - £50000 per annum: Recruitment Genius: This financial company offer ma...

SThree: Recruitment Consultant

competitive + incentives + uncapped comms: SThree: Did you know? 98% of our di...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen