Growth mode finding new ways to grow a company in today's tough climate isn't easy
by Jason Karaian
The challenge for all companies: finding the next new source of growth will be more difficult than ever before. Traditional sources of revenue growth — such as product enhancements, grabbing market share, or acquiring competitors — have been largely tapped out, says Adrian Slywotzky, a managing director at Mercer Management Consulting in the U.S. Slywotzky echoes other management gurus in calling this "a growth crisis."
In the hunt for growth opportunities, failure is rife. (See "Operation Backfire," at the end of this article.) According to research overseen by Chris Zook, head of the global strategy practice at U.S.-based consultancy Bain, only 13 percent of companies worldwide during the 1990s achieved "even a modest level of sustained and profitable growth." In today's hypercompetitive environment, he says he'd be surprised if that figure can reach 10 percent.
Yet that hasn't stopped companies from whipping up investor enthusiasm with magnificently ambitious growth plans. Zook notes that the average company sets a public target of revenue growth at twice its industry's rate, and earnings four times higher. Where will all that growth come from?
In many cases, finance might have the answer. That's why we caught up with the CFOs of three very different companies, all renowned for their ability to tap into new avenues of growth: Logitech, a small start-up founded in 1981, made a name for itself as a maker of computer mice for PC manufacturers before expanding into the retail market to sell a vast range of accessories for computers, gaming consoles and entertainment systems; Giorgio Armani, the Italian fashion house which since its founding in 1975 has grown revenue organically to €1.3 billion ($1.7 billion) through shrewd customer segmentation and brand control; and French hotel group Accor, which revolutionized its industry in the 1980s with a smart investment aimed at budget travelers and today is seeking to rekindle that innovative spirit.
Zook contends that the underlying strength in companies like these is in their ability to combine high growth and low risk by moving systematically into "adjacencies" — products, services, geographies, or customer segments that are highly related, or adjacent, to the company's core business. Other consultants offer variations on that theme. Richard Wise, another managing director at Mercer, for example, says that a successful growth strategy in his view is one that adds to, not detracts from, a company's core business. "The idea is not to abandon the pillars of growth, but to add to the playbook," he says.
Attempting to produce new growth via adjacency moves is not without risk. Chris Zook, director of the global strategy practice at Bain, estimates that almost all of history's biggest business blunders were caused or made worse by growth strategies gone awry.
Swissair, for one, built a strong, if unglamorous, reputation for punctuality and efficiency since its founding in 1931. In the mid-1990s, a new management team launched a global growth initiative that involved investments in several regional airlines — Belgium's Sabena, Ukraine International Airlines, and South African Airways, to name a few — and a clutch of travel-related ventures like airline caterer Gate Gourmet and airport retailer Nuance.
Was it distraction that caused Swissair's punctuality and baggage handling to worsen, hurting business, and its investments in the world's more marginal airlines to prove an additional drag on its finances?