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Growing faster than the market: Three questions the C-suite should ask

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  • Leaders who are most successful at driving growth in their organizations are deliberate, persistent, and disciplined in the way they go about it.

 

Growing a business is a matter of do or die. Companies with high organic growth also return a better stock price.

But growth is getting tougher in the face of new market dynamics: rising consumer expectations, increasing competition, and digital disruption. That has turned growth into more of a contact sport, rewarding businesses that can spot opportunities at hyper granular levels and then capture them quickly.

Most business leaders understand the need to change, but making it happen is easier said than done. In our experience, those leaders who are most successful at driving growth in their organizations are deliberate and disciplined in the way they do it. To help instill that approach, top growth leaders are methodical in asking and answering three crucial questions:

  1. Where is my growth going to come from?
  1. How do I grow now and tomorrow?
  2. How do I set up my growth engine?

 

Let’s take a closer look at these questions:

Where Is My Growth Going To Come From?

There’s no point optimizing your growth engine until you’re clear about the opportunity you’re going after. That means investing in sound analysis to identify where the growth is today and where it will be tomorrow, whether that’s in your current sector or an adjacent one. Top growth leaders, once armed with a realistic picture of their company’s growth situation, take care to set their priorities in the corporate mission, knowing growth initiatives can easily misfire if they aren’t anchored in strategic business priorities. In some cases, companies will articulate or refine their corporate mission and vision in line with what they learn about growth in their industry.

Leaders map a view of their growth initiatives across two dimensions:

  • Scanning for growth opportunities. This involves understanding how your industry and category is structured, how customers navigate it, where the profit pools are, and what trends are emerging. Then you figure out how your portfolio stacks up against it all.
  • Getting granular with customer segmentation. Our research on revenue growth at large companies suggests that executives should “de-average” their view of markets and develop a granular perspective on trends, future growth rates, and market structures. Insights into subindustries, segments, categories, micro markets, and even pockets of growth within existing large accounts are the building blocks of portfolio choice and a critical factor in making sound decisions about where to compete. In the past few years, the use of advanced analytics to track behavior and preferences has made it possible to segment markets down to the level of individual customers. By pursuing mass personalization at scale, companies can lift revenues 5 to 15 percent while also improving the efficiency of their marketing spend and reducing acquisition costs.

 

How Do I Grow Now And Tomorrow?

Every growth journey is different, but there are three broad fronts: Invest, Perform, and Create.

Investing in growth is something companies can start doing immediately by diverting funds from activities that are not performing efficiently or effectively into the right opportunities.

Performing optimally in commercial functions allows companies to generate new revenues from growth in the medium term. And

Creating new offerings and business models custom-designed to satisfy unmet needs more completely, quickly, and flexibly than before enables companies to build a pipeline that fuels growth far into the future.

The best companies use a combination of these three approaches to drive growth quickly, and reinvest released funds into future opportunities to support longer-term growth.

 

Invest: Put your money where the growth is

Large companies can capture significant incremental revenue through a relentless search for efficiencies and then reallocating those resources to promising new initiatives or proven winners. Research shows that “dynamic reallocators”—companies that reallocate at least 49 percent of the previous year’s budget—achieve a compound annual growth rate of 10 percent in total return to shareholders (TRS). By contrast, “static allocators” that simply adjust last year’s spending achieve TRS growth of just 6.1 percent. Within 20 years, the dynamic reallocator will be worth twice as much as its less agile counterpart—a lead that is likely only to increase as digital disruption and geopolitical uncertainty make nimble reallocation even more important.

Central to this Invest approach is a thorough and rigorous approach to rooting out savings and a disciplined method of funneling funds to short- and long-term growth opportunities. Successful growth leaders have robust metrics and processes for identifying areas where they can squeeze out cost and a clear idea of where to invest every incremental dollar they find to drive growth.

Companies with the right mind-set can release tens or even hundreds of millions of dollars for reinvestment in a matter of months by optimizing their commercial functions. Savings can be captured from many sources, such as general and administrative expenses, but marketing is a prime candidate. Many companies can save 10 to 20 percent of their marketing budgets by making processes leaner and more efficient, paying the right price for a given service (and paying only for what they really need), and figuring out who does the work. By breaking open the black box around agency fees, for example, companies can save money and improve agility and quality. By optimizing consumer promotions and engagement (CPE) through better targeting, simpler programs, and better measurement, they can save 10 to 30 percent of their marketing spend.

Tracking marketing return on investment (MROI) helps companies identify underperforming marketing spend that can be reallocated to activities that deliver a better return on investment. Advanced analytics allows companies to measure the impact on customer behavior of offers and messages across multiple channels by combining media-mix modeling with digital-attribution modeling.

 

Perform: Optimize your commercial capabilities

Great growth companies constantly optimize their commercial capabilities in marketing, sales, pricing, and promotions. This approach helps to get much more growth from existing capabilities while also generating more revenue that can then be invested in growth opportunities.

Customer experience (CX) is one potent driver of growth. Successful CX enhancements can increase sales, facilitate cross-selling, and boost revenues by as much as 15 to 20 percent. Similarly, reducing the complexity of CX—for instance, by optimizing online self-help features such as FAQ pages so that customers don’t have to make unnecessary calls to call centers—can free up savings in cost to serve on the order of 15 to 50 percent.

Introducing automated algorithm-driven dynamic pricing is another important source of growth. Companies can achieve sustainable price increases without damaging customer satisfaction by focusing resources on specific groups, such as more-profitable customers.

Similar growth opportunities exist in sales. Adopting omnichannel sales and analytics can be a crucial enabler of growth for B2B companies that understand when and when not to use digital. These companies achieve five times more revenue than their peers, eight times more operating profit, and twice the return to shareholders. Adopting new digital channels can reduce the cost to acquire a new customer and the cost to serve an existing one, changing the commercial efficiency of the future channels that can be reinvested into current or new opportunities. From research and experience, three traits have emerged that should be core ingredients of every company’s optimal human-digital blend: speed, transparency, and expertise.

 

Create: Innovate by design with the customer at the center

To build things that customers want, a business needs to out-innovate its competitors—not just uncovering unmet customer needs to find profitable white spaces but also using technology to enter new markets or go to market in new ways.

New sources of growth come from redesigning business models, creating something new, and exploring disruptive services. New business models don’t have to be complex; they could involve tapping into new sales channels to reach different customers, for instance, or introducing new services to support an existing product.

When exploring new opportunities, winners go beyond standard focus groups and surveys and pull in data on macro trends, marketplace analyses, ground-level performance metrics, and a host of other sources. Thanks to digitally enabled techniques such as social listening, sentiment analysis, digital ethnography, and online-consumer cocreation, research into unmet needs is more effective, more flexible, and faster than ever before. Companies can assemble an online focus group of B2B buyers in as little as ten minutes. Mobile ethnographies can be completed in a weekend; quantitative surveys can be fielded and analyzed in days.

Having equipped themselves with a deep understanding of customer purchase journeys, leading companies employ design thinking to create new products and services that will address unmet needs, reach unserved segments, or support entry into adjacent markets. At a time when consumers can choose from the best products that global marketplaces have to offer, design has become a key source of differentiation and a C-suite topic.

To help get ideas to market quickly, winning innovators increasingly rely on “speedboats”: small launches where a product is tested and refined in a real market setting.

The ability to scale up rapidly is critical to getting new products to market before competitors can. Leading consumer-goods innovators have reaped substantial rewards by scanning the market for promising ideas, watching for emerging consumer acceptance and new behaviors, and then jumping in before the market landscape has fully evolved.

Merger & acquisition (M&A) functions can play an important role as well, though they need to become much more dynamic on reading the evolution of market trends, competitor moves, and the entry of new attackers. This requires greater focus on the return on capital in the current business areas and on future growth opportunities, and oftentimes an ecosystem of partners to deliver.

 

How Do I Set Up My Growth Engine?

Markets shift, so businesses must keep finding and pursuing new sources of growth. To do that, they need a growth engine: an operating model underpinned by analytics and top talent, and built around the core blocks of organization-wide alignment, focused capability building, an agile culture, and a leadership mind-set.

To launch a growth transformation, the most important element will be dedicating sufficient resources and being rigorous in driving the process. That means putting in place a well-supported growth-transformation office that has the authority and resources to rigorously track and manage the transformation. It establishes a baseline and manages output to that baseline. This kind of central resource is crucial because it can drive and coordinate change across the entire business. It also provides a stable backbone with well-oiled processes for tracking implementation, driving initiatives, removing barriers, and managing trade-offs for short-term earnings targets. Without a dedicated team in place, change tends to be piecemeal or incremental, which inevitably leads to impact far below expectations.

The transformation office has an important role in focusing on developing the right capabilities. Research has found that top growers beat their peers by differentiating themselves in key capabilities such as data and analytics, and by developing products, services, and processes such as agile working and cross-functional collaboration. In developing those growth capabilities, research has shown that it’s crucial to sequence their development thoughtfully. If you are moving from the bottom to the third quartile, for example, you might focus on aligning priority markets, building a product strategy and portfolio, and systematically measuring the voice of your consumer. If you move from the second to the top quartile, some examples of capabilities to develop include improving core offerings, introducing innovation awards, or improving processes to shorten commercialization cycles.

Developing these capabilities clearly has implications for talent and skills. Recent research by the found that digitization and automation are beginning to make new demands on workforce skills, with marketing and sales likely to be among the functions most affected. Up to 40 percent of sales activities can be automated with today’s technology, and that number can go up to 50 percent as technology advances. Overall, the greatest need will be for advanced technological capabilities and basic digital skills, followed by social and emotional skills.

For new capabilities to take full effect, businesses need to reinvent how work gets done. That means making offices more like workshops, with employees working together to build something great. A survey reported that 71 percent of high-growth companies have adopted agile processes such as scrum, sprints, cross-functional collaboration, and colocated teams.

Agile ways of working need to become a fact of life, embedded in every aspect of a company’s operating model from innovation and product development through to marketing. Indeed, agile approaches are critical in enabling companies to target micro-markets, test ideas at speed, run hundreds of campaigns simultaneously, personalize offers on a truly granular scale, use data to drive decisions, and maximize MROI. This applies to embedding design thinking into how companies work.

The final piece of the growth puzzle is a leadership mind-set. Top growth leaders are obsessed with growth and committed to keeping their business on a growth trajectory. They have a key role in developing a well-crafted story to help people at all levels understand what changes are in store, what the company is striving to create, and how new ways of working will affect what they do every day. Then they must communicate that clearly and continuously to the organization. They are also disciplined in the way they go about orienting the business to growth, constantly asking themselves and their peers’ questions such as:

  • Do I use language that emphasizes growth rather than productivity?
  • Do I and my top team role model the behavior we want to see from our employees?
  • Should I carve out a lighthouse organization that focuses purely on growth?

Growth today drives not just performance, but survival itself. The companies with the brightest prospects are those that know where to find pockets of growth, how to capture that growth now and in the future, and how to build a growth engine for sustainable success.

  • By Biljana Cvetanovski, et al

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Building Commercial Capabilities: Your path to growth in 2019

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The journey to outperforming your peers begins with a clear-eyed view of what matters most.  

Competition is accelerating. Many attackers are now using superior execution rather than better offerings to outperform incumbents and drive growth.

To combat this pressure, incumbents and attackers alike should build and sustain best-in-class commercial capabilities to gain significant competitive advantages. In many cases, that entails adopting best practices from other industries.

The rewards can be substantial. Based on an assessment of more than 200 commercial capabilities at 200 clients, it was found that businesses that were top performers—those with superior commercial capabilities—consistently deliver revenue growth about 1.9 points higher and earnings growth about 4.7 points higher than peers in the same sector (Exhibit 1).

Companies with superior commercial capabilities outperform their peers in margin and revenue growth. Focus more on building advanced commercial capabilities to accelerate growth and returns

Comparing yourself against the best

Performer leaders across sectors have one thing in common: they continuously assess their commercial capabilities not just against competitors but against global best practices to find areas where significant improvements are possible. More mature industries, such as chemicals, mining, and agriculture, constrained by production capacity and competing heavily on price, tend to focus more on operational rather than commercial excellence. Leaders have taken a page from software and IT companies, for example, which have no production constraints and therefore tend to focus more on building advanced commercial capabilities to accelerate growth and shareholder value.

While there is no single recipe for success, the research shows that in each industry, top-quartile performers share above-average strength in similar capabilities (Exhibit 2). So, while the path to success may vary by company and sector, a path does in fact exist.

Investing wisely in commercial capabilities can be difficult because what drives value tends to change over time; capabilities that provide competitive advantages today will become industry standards tomorrow. The research shows (Exhibit 3) that the gap between the top and bottom quartiles tends to narrow. This means commercial excellence is a journey, not a destination: it requires continuous self-assessment and improvement, including agile adoption of new best practices as they emerge.

In fact, to perform at the highest level, most companies need to do more than constantly improve their commercial capabilities; they must also shift their focus and double down on new capabilities that drive differentiation. For example, top-quartile energy and materials companies used to differentiate themselves by over performing in three areas:

  • Price and contract management
  • Marketing enablement of sales and
  • Channel-partner management

But our latest research shows that those companies should now focus on new capabilities, such as sales and account management and commercial support (Exhibit 4).

Trust the data

One of the biggest challenges in large, distributed, and field-oriented organizations is the absence of a structured fact base to measure commercial capabilities and compare them with best practices. Senior executives may have keen intuition—they may know, for example, that the company’s commercial capabilities should be stronger—but they may not know exactly what to do, such as how to find the pockets of best practice internally or how to scale them rapidly without disrupting the organization.

We find that companies tend to improve their performance faster by relying more on facts and analytics than on anecdotes and intuition. Tools and databases can help them gather and process deep qualitative and quantitative data with minimal organizational disruption.

How to avoid big stumbling blocks

Armed with a deep and up-to-date fact base, senior leaders can prioritize commercial-excellence capabilities from an ROI perspective and look beyond departmental priorities. They can also then rally the organization to build and sustain those capabilities to drive sustainable revenue and earnings growth.

Benchmarking against best practices and identifying capability gaps will not be enough to achieve commercial excellence. Transformations tend to stumble when the strategy isn’t clear or the implementation isn’t properly supported. Key questions, for example, include how the company will drive commercial impact and organize the commercial agenda for success.

Some commercial transformations fall short when companies try to implement a standard one-size-fits-all approach without taking into account mind-sets or behaviors. Others fail to reach scale because the organization doesn’t track the impact of improved capabilities or their direct link to performance.

While the route to success varies by company, a sound plan usually has five characteristics:

A discovery process that helps commercial leadership across functions align on a framework and language. Leaders should reach a common understanding of current capabilities and global best practices, and an objective, holistic view of improvement opportunities.

Clearly linking each commercial capability with specific outputs and results. Managers know how each capability will help, where it will perform best, and what economic impact they can expect from it.

The prioritized capabilities are perfectly aligned with long-term strategy. Managers understand how each capability will help to achieve the vision.

Business leaders and influencers remain highly engaged to drive adoption to reach critical mass. An executive sponsor of the transformation sets the tone and maintains momentum, in part by enlisting support from other leaders.

Capability improvements can be tracked and quantified. Senior leaders should know how much of the expected impact has been captured and where they are in the transformation journey.

Organizations that make the shift from insights to action and ultimately to sustained impact incorporate commercial capability development into their standard management processes, including annual operations plans, long-range planning, and talent reviews. The most effective companies not only take specific action to build capabilities, such as assessing current capabilities, setting aspirations, assigning owners, and launching initiatives; they combine these actions with accurate and timely performance management. They may measure impact on key-account management capabilities, for example, in terms of account growth, profitability, customer satisfaction, and churn at a granular level. In organizations that fail to track and reward progress consistently, some managers may come to see commercial excellence as the “flavor of the month” rather than a new way of working and thinking.

Once a company has a structured way of thinking about commercial excellence—what matters most in the industry and how the firm is performing against best practices—it can replace habits and biases with facts, dig deeper into the true sources of competitive advantage, and make targeted investments in the new capabilities that will help drive profitable growth in a changing marketplace.

These investments often include new tools, training, and talent that complement each other; it’s a world of “and” rather than “or.” Improving pricing and reducing leakage can quickly generate at least some of the funds required to invest in longer-term improvements. Improvement models vary: some companies create a central commercial-excellence team, while others give line leaders capability-building responsibilities.

Commercial excellence is one of the most powerful levers for consistently delivering superior shareholder returns. It has been found that a fact-driven view of what matters most can align leaders’ decision making and inspire everyone in the organization to pull in the same direction: toward more profitable growth.

 

  • By By Russell Groves, et al

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