Finance: The curse of growth for CEOs

FEW COMPANIES achieve sustained growth. The death of sound growth opportunities is the modern curse of chief executives. Research indicates that from 3,000 or more business ideas generated, just one survives to become a successful product or service.

Why is implementing growth opportunities so difficult? Unfortunately, most die or are killed off (deliberately or accidentally) by the business. This is often avoidable: greater awareness of the risks of "infant mortality" (and how to mitigate them) would accelerate the business growth of almost every company.

In our research, we have observed four ways growth initiatives perish. First, death by natural causes. Sometimes a growth idea simply isn't good enough to make it in the market place. Despite the best intentions and rigorous testing, the new product fails to impress consumers or is overtaken by competitor response or other external events. So companies must pursue many growth initiatives expecting a high attrition rate.

Second, death by misadventure. Sound growth initiatives frequently fail because they are not given the priority, resources and infrastructure they need to succeed. As businesses (reasonably) configure infrastructure to the existing business, it will usually be the case that the existing infrastructure will be mismatched to the needs of the new initiative. Such initiatives peter out or stumble on ineffectively.

Third, through "murder most foul". It is naive to expect everyone to welcome an initiative. Any change that disturbs the internal balance of power risks the opposition of those who feel threatened. If they have sufficient influence, they may block the initiative, or they may try to undermine the initiative and the credibility of those who lead it. We know of a mid-cap company which launched a new division that grew rapidly, attracting great attention from top executives. Faced with losing their power, the existing divisional managers starved the new business of resources, and orchestrated a whispering campaign against its leaders. After months of squabbling the leadership team of the new division resigned to join a competitor. The company has been losing market share since.

Last, death by "heart failure". Crucial to growth is the importance played in any initiative by the drive, enthusiasm and commitment of the individuals involved. Working on new initiatives carries greater stress than normal, typically involving long hours, time pressure and a higher risk of failure, which breeds a sense of insecurity.

In the early stages, enthusiasm comes easily. But as time passes the early passion subsides. Key individuals, notably the initiative leaders, get tired and burn out. Few have the resilience to drive to the end of a poorly sponsored growth initiative. So they give up, draw back or lower their sights, with inevitable consequences for the initiative.

There are ways to avoid growth failure. Many companies use inappropriate organisational vehicles for growth initiatives. Most have formal new product development (NPD) processes. For incremental growth opportunities this can be effective. But for more radical growth opportunities, that rigidity may be terminal. A more entrepreneurial vehicle may be needed, such as a ring-fenced project team, or new business venture.

Success means choosing the right vehicle for the growth opportunity - weighing its level of uncertainty and risk. Most companies apply the same managed process to all their initiatives in the mistaken belief that control will ensure success. But creativity and flexibility are necessary for more radical or speculative initiatives.

In the early 1980s Steve Job created the legendary Macintosh development team at Apple. Realising that a successful Macintosh would inevitably destroy the Apple II (the company's main product), Job selected Apple's best engineers and took them to a new location across town to create something "insanely great". And to emphasise their revolutionary goals, he even hoisted a Jolly Roger.

A recent PA survey reveals increasing concern among CEOs about a perceived lack of entrepreneurial leadership talent in leading UK companies. This is a particular worry at a time when e-business is presenting unparalleled opportunities for radical growth. Many FTSE 500 companies are considering more strategic e-business growth initiatives. But without the capability to deploy the growth vehicles required to deliver them, most will fail. CEOs need to create an environment where growth initiatives have a better chance of survival than at their competitors and take incremental growth ideas to market alongside innovative and radical growth ideas. Such winning CEOs are rare, which demonstrates the scale and difficulty of the challenge.

Steve Tappin and Rob Anderson are members of the Management Group of PA Consulting, the management, systems and technology consultancy