Finance: The vision that will keep you growing

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The Independent Online
GROWTH IS a priority for almost every chief executive, yet growth is seldom achieved over the longer term. At any time, only one in five large companies is achieving double digit revenue growth; only one in 20 sustains even modest growth over the long term. Our research and discussions with more than 70 chief executives shows most companies fall off their growth curve sooner or later. Once stalled, it proves extremely difficult to get growth started again.

Being able to demonstrate the difficulty of growth is little comfort for the CEO. Failing to deliver growth frequently results in an early exit. Until recently Eckhard Pfeiffer, chief executive of Compaq, was a growth legend. When he took over in 1991 growth had stalled. Within two years rapid growth had been re-established and this continued through to 1998. But Mr Pfeiffer resigned in April this year as profits fell and the value of the company halved.

Growth may well be the chief executive's most important long-term issue, but he may not be able to pursue it immediately. When Lou Gerstner took over IBM in 1993 he aimed at survival. It was two years before he could implement a vision for growth. This pattern is not unusual; new chief executives have frequently moved first to improve performance. But the investment community increasingly expects chief executives to deliver short-term performance and tackle the growth issue simultaneously.

Delivering growth is a major challenge. Our research identifies three key components:

n A growth mindset that recognises the importance of growth and makes it central to everything the company does;

n A vision for growth, which articulates where growth opportunities exist and sets clear priorities;

n Organisation vehicles which can successfully take growth opportunities from ideas into the marketplace.

It is difficult to overemphasise the importance of the chief executive's influence on the corporate growth mindset. This starts with an unflinching conviction that growth opportunities exist, and the recognition of innovation (in thinking as well as in activities) as crucial to growth.

It is self-evident that to grow, a company must find growth opportunities. One might expect companies to examine all the opportunities available. But research and practical experience indicate the majority of companies restrict their search for growth, and most examine only the most obvious sources. Sothe majority of growth potential is never even identified, let alone realised.

The full growth agenda comprises four main areas. Firstly, conventional sources of growth come from new features on products or new technologies that improve the product (or service) or the way it is created. For example, Gillette's latest Mach 3 shaving system is a clear development from its two-blade razor range. Most companies try to find these opportunities, but often restrict themselves to a narrow set of the most obvious and incremental.

Secondly, the capabilities of the organisation are rarely given enough attention as sources of growth. The skills, knowledge and assets of the company can be used to create new offerings. Virgin has been successful at applying the assets of its distinctive brand and its skills at efficient operations to new market sectors from air travel to cola.

Thirdly, alliances and partnerships allow a company to attack growth opportunities it would not alone be able to consider. US pet chain PETCO gained an e-commerce capability by joining forces with Internet pet supplies portal Petopia. And Petopia gained PETCO's physical distribution capability and bulk purchase discounts. Only through partnership could each acquire the capabilities they needed for fast growth.

Fourthly, the largest growth opportunities are often where the company can create or exploit change. In mature industries there are major opportunities through challenging conventional wisdom. In car gearboxes, Torotrak has challenged the assumption that a car should have a small number of gears. Their Infinitely Variable Transmission technology gives an infinite number of gears, delivering better fuel economy and lower emissions. Perhaps the greatest opportunities exist where there is a radical change in the industry and major new growth opportunities emerge. Bus deregulation provided the platform for Brian Souter to create Stagecoach into a pounds 3bn company.

Once a company has a growth mindset and identifies a full portfolio of growth opportunities it still needs to implement its growth agenda. For this the company needs the flexibility to apply a range of organisational vehicles. A radical innovation like the Freeserve Internet service from Dixons requires a much more entrepreneurial and fast-moving regime, than the introduction of a new PC range.

For the chief executive the challenge of providing the leadership for growth is clearly demanding. Given the extent of this challenge, perhaps it is no wonder so few manage to stay on the growth curve.

The authors are on the Management Group of PA Consulting, the management, systems and technology consultancy. Next week: Why most growth opportunities fail

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