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The Fundamentals of Companies’ Organic Growth

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There are many paths to growth, and high performers take more than one– supported by reinforcing capabilities such as advanced analytics and digital customer-experience management.

Growth is a tonic for most companies. It attracts talent and creates strategic options while generating financial resources to fund new moves– provided the growth is profitable. It’s also been harder to come by over the past decade, as a sluggish macroeconomic environment and accelerating technology-driven disruption have ratcheted up pressure on businesses.

Digital technologies and the pace of competition, however, also open new avenues to organic growth for those companies that have the capabilities and dexterity to take advantage of them. Today’s fastest growers, for example, price products in real time; they create meaningful and positive customer experiences with digital interactions; and they refine products continually with customer feedback.

To understand the relationship between organic growth approaches, capabilities, and performance in this environment, a recent survey of approximately 600 executives at leading companies in the European Union and North America were conducted. It was found that companies exhibit three basic growth tendencies; that an approach combining two or more of these holds particular power in driving growth; that advanced analytics is an ingredient of standout growth; and that success depends on nurturing a set of reinforcing capabilities that fit the growth approach.

Three growth profiles

The corporate growth goals and behavior can be described as having three broad growth profiles.

  • Investors have a clear understanding of sources of growth from existing products and services and squeeze funds from a variety of areas, such as low-growth initiatives or unproductive costs, to reallocate capital and double down on winners.

The simplest way to grow is to put money where growth is already happening in existing products, services, or business models. Investing more in existing growth environment requires money, of course. Activating the Investor dimension is based first on a relentless search for efficiencies to unlock funds for growth priorities.

Those efficiencies can come from paring down administrative costs, renegotiating agency contracts, or moving funds from poor-performing areas of the business. For this approach to be effective, companies need to accurately identify where the growth is occurring within their existing portfolio and aggressively reallocate.

Improving the allocation process is about speed as well. Annual budget cycles aren’t good enough anymore. Fast growers actively track the performance of their spending and rebalance allocations monthly or even weekly.

  • Creators build value by developing new products, services, or business models.

Companies’ that are strong on the Creator dimension work at the frontiers of change to develop new business models or identify white spaces, whether they’re in emerging customer needs, unserved segments, or adjacent markets. They analyze data and extract customer insights that will help them to identify new opportunities.

Top growers excel at product and service development, aligning innovation with strategy, and applying design principles. Creators don’t just rely on data, of course. To really understand their customers, they use design thinking– customer empathy, ethnography, in-person observation– to identify and act on unmet needs.

Notably, companies that are strong Creators are more agile than their peers, with 58 percent of the best growers adept at collaborating across functions and 54 percent continuously innovating to cut down time to market. They embrace digital, which has made testing and learning quick, inexpensive, and much less risky.

Rapid prototyping targeted to a specific audience can test the viability of a product or service before significant resources are committed. This capability allows companies to “pull forward” their portfolio of initiatives and make better-informed bets.

Agile practices are enabled by “war rooms,” small teams of people across the business (including a campaign manager and people from creative, digital media, analytics, operations, and IT) who collaborate to address specific customer segments or opportunities.

  • Performers grow by constantly optimizing core commercial capabilities in sales, pricing, and marketing.

Those businesses that best activate the Performer dimension build competitive advantage by continuously optimizing their commercial operating model. Advanced analytics has opened up new opportunities for improving commercial performance in almost every area, simply by providing ways to analyze more data faster and speeding up decision making.

Standard market-research processes that often take weeks or months are giving way to near real-time dashboards that allow leaders to understand if an investment is working as opposed to whether it has worked. Some 73 percent of high-growth companies focusing on the Performer dimension, in fact, distinguish themselves by making it easy to act on insights generated from analytics.

They also outpace their peers in sales and pricing capabilities, particularly when it comes to acting quickly and at a granular level.

The scale of data and the analytics tools to process it have opened the door to advanced automation. Effective automation isn’t just about processing things better or more quickly, of course. When done well, it can greatly improve customer experience, a core capability along the Performer dimension.

In fact, those companies with customer experience capabilities are twice as likely to be top growers. While there is no single formula for delivering growth, there is a single overarching trait: having a growth mind-set and pursuing it with vigor.

Understanding each profile is helpful because leaders tend to fall back on what has worked for them in the past, and this can often blind them to new growth opportunities. Companies that carefully evaluate each growth profile, and make choices based on the strategic fit, will increase their chances of achieving above-market growth rates.

The power of the diversified approach

While 60 percent of those surveyed identified one of the approaches as their primary source of growth, the largest group in the sample– representing about 40 percent of companies surveyed– were those that diversified their organic growth portfolio.

A disproportionate number of the companies that grew significantly– at 4 percent greater than the rate of their sector’s over the past three years– were in this group.

Exhibit 1

These results make intuitive sense: companies creating new products or services frequently need to reallocate capital so they can place their bets, while an exceptional sales force or top-flight marketing team can accelerate a variety of new product or service initiatives.

The analysis further showed that companies exhibiting strong investor and creator tendencies particularly benefited from a diversified approach to changing their growth trajectory (Exhibit 1).

The potential of advanced analytics

Across all the growth lenses, a significant potential for an upside in advanced analytics was found. As Exhibit 2 shows, even at today’s low levels of penetration, advanced￾analytics capabilities were strongly associated with the highest levels of growth, suggesting they will be a critical platform for the next generation of performance.

Exhibit 2

Building the capabilities that drive growth

Capturing those growth opportunities, of course, requires specific capabilities, and the best growers are clear and purposeful in developing them.

Results of the survey revealed some common themes:

  • All growers need a set of ‘table stakes’ capabilities. The survey showed that top growers, regardless of their profile, had to hone a handful of capabilities just to be in the game. These table-stakes capabilities include resource allocation, branding, and mind-set.
  • There are also differentiators needed to excel, which vary by growth dimension. The best growers beat their peers by differentiating themselves through their capabilities. Distinctive Performer capabilities include sales and pricing as well as customer experience; for the Creator, it is data, analytics, product/service design, and customer insights; the Investor outperforms on data and analytics as well as customer experience. Across all dimensions, the most significant gaps between top growers and their peers were in data and analytics (81 percent of growers have them), developing products and services (75 percent), and company processes, such as agile work environments, cross-functional collaboration, and collocated teams (71 percent). While adoption of advanced analytics is limited, those companies that use it outgrow their peers.
  • Companies are looking to creation of new products or services to drive future growth. Regardless of where their growth came from in the previous three years, companies expect creation strategies to be a major contributor to growth over the next three years.

As companies consider driving growth across each dimension, they need to be clear and purposeful about building the capabilities and practices that will help them move with greater speed and precision.

The importance of reinforcing capabilities

Like a triathlete who needs to develop different sets of muscles to effectively compete, delivering on a diversified growth strategy requires building the right reinforcing capabilities.

Research indicates that there are table stakes for growers across all dimensions:

  • nimble resource reallocation
  • effective branding and
  • growth-oriented organizational culture.

There were other areas that, predictably, seemed more tightly linked with individual strategies. Sales and pricing were vital to faster-growing performers while the ability to develop products and services differentiated investors and creators.

These capabilities, combined with an understanding of the options for activating growth, are fundamental to building up a company’s growth DNA. And, as the research shows, a purposeful approach across a diverse portfolio of growth strategies increases the odds of success.

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Are we long—or short—on talent?

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  • By looking at their supply of skills and talent in a new light today, organizations can take actions that better prepare their companies for tomorrow’s challenges.

 

CEOs and HR leaders worried about the viability of their talent strategy may be excused an occasional sleepless night. After all, there’s a closetful of bogeymen to pick from as disruptive technologies such as digitization, automation, and artificial intelligence combine with demographic forces to continue transforming the nature of work, how it gets done, and by whom. The resulting job displacement could be massive—think Industrial Revolution massive—affecting as many as 800 million people globally by 2030 and requiring up to 375 million of them to switch occupational categories and learn new skills.

Companies are already feeling the heat. Fully 60 percent of global executives in a recent survey expect that up to half of their organization’s workforce will need retraining or replacing within five years. An additional 28 percent of executives expect that more than half of their workforce will need retraining or replacing. More than one-third of the survey respondents said their organizations are unprepared to address the skill gaps they anticipate.

The competitive implications are profound. Organizations that expect to benefit from a digital transformation or a promising new strategy won’t get very far if they lack the people to bring the plans to life. What might seem like an irritating talent gap today could prove a fatal competitive liability in the not-too-distant future.

 

How can organizations better prepare for what’s coming?

For starters, they should embrace a more expansive and dynamic view of their talent supply—one that tosses out the usual preoccupation with titles and traditional roles and looks instead at the underlying skills people have. Indeed, we find that when companies start with skills—the ones they need, the ones they have, and how the mix may change over time—they can free up their thinking and find more creative ways to meet the inevitable mismatches.

In this narrative, we’ll show how forward-looking organizations are grappling with these challenges and highlight ways that CEOs and senior leaders can spark progress that is tangible, practical, and quite often beneficial for both employer and employee alike. Oftentimes, taking the first step can be as simple as asking: For our five most important skills, are we long—or short—on talent?

 

Shift happens

Consider the European bank whose market position was threatened by new, more digitally savvy rivals. The shifting competitive landscape required action, but when the bank’s leaders compared their proposed strategic response with a three-year projection of the bank’s talent pool, they saw a mismatch. The plan made sense, but executives feared that their people couldn’t execute it.

For example, the bank would soon have serious skill gaps in its retail-banking unit, particularly among branch managers whose roles needed to change to encompass areas such as sales expertise, customer orientation, and digital capabilities, given the new strategy. Meanwhile, the bank’s IT group faced both undersupply and oversupply: programming skills would be too scarce, while IT infrastructure skills would be too plentiful. To complicate matters, the bank faced strict regulatory and labor restrictions that prevented most layoffs. Any solutions would require flexibility and creative thinking.

To respond to the imbalances, the bank developed a range of interventions. For example, the bank is rolling out upskilling programs to help prepare its retail bankers for the aspects of their jobs that are changing; elsewhere, reskilling and retraining programs (including new digital and analytical skills) are helping employees’ secure new roles in the company. Still other employees have been offered part-time positions, an option intended to appeal to those nearing retirement.

Finally, for some employees, the bank is exploring secondment opportunities with selected not-for-profit organizations. Under the arrangement, both organizations pay a portion of the employee’s salary. In principle, this benefits everyone: the not for profit (which gets a talented employee for less money), the employees (who are doing meaningful work using skills that are in high demand), and even the bank (which pays less for skills it already has in surplus, while potentially enhancing its visibility in the community).

While the bank’s overall approach is still a work in progress, its example is instructive not only for its breadth but also for the outlook of its leaders. Instead of just looking at its talent supply through the lens of its traditional jobs or roles, which after all are changing, the bank’s executives pushed themselves to take a more objective, skills-based look. Similarly, the bank’s experience underscores the importance of setting aside long-held assumptions about which roles are most important, as prevailing opinion may be outdated or biased.

 

Are we long—or short—on talent?

Adjusting the skills of a workforce requires a blend of rigor and creativity; it also requires dedicated commitment and attention from senior management. One way to spark a fruitful C-suite conversation about talent supply is to borrow a page from the dismal science and look at skills in the context of surplus and shortage.

Starting with a thought exercise such as this can help break down an otherwise intractable problem into smaller chunks that can be approached with discipline. At the same time, testing potential interventions using the logic of microeconomics can help managers see a wider portfolio of options beyond reskilling at one extreme, and layoffs at the other (exhibit).

 

The following snapshots highlight ways that organizations have addressed both talent gaps and overages.

 

 

We’re short on talent: Build, acquire, or rent?

While talent shortfalls arise for many reasons, the supply-side remedies can be summarized in just three watchwords: Should we build on our existing skills? Should we acquire them? Or should we “rent” them?

A global manufacturer investigated these options as it looked for ways to fill several looming skill gaps. One of the most acute shortfalls was in data science, a problem complicated by the company’s suspicion that it was losing ground to high-tech firms as an employer of choice.

On closer look, their fears were justified: a talent-supply forecast that used machine learning to predict the likelihood of employee attrition found the company’s data scientists would be eight times more likely to leave than other colleagues. Clearly, the company couldn’t simply hire its way out of the problem; filling the skill gap would also require better employee retention.

Subsequent analysis helped the manufacturer spot opportunities in both areas, starting with a plan for more meritocratic career paths and redesigned leadership tracks to keep employees engaged and happy. The company is now working on simple changes to its recruiting and interviewing processes, to be more responsive and to help make candidates feel more valued throughout the process.

Of course, another way that companies can acquire skills en masse is through M&A, an approach pioneered in the tech industry, where it was given the portmanteau “acquihiring.” It has since become more common in other industries. Walmart used it in 2011 when the company bought Kosmix, a social-media company, to form the nucleus of what would become Walmart Labs, the retailer’s digital-technology unit.

Companies can also start nurturing skills today that they may benefit from later. Programs such as this are intriguing to employers, because it lets them tap a new pool of talent and then create and shape the specific skills they need. The approach also holds considerable social promise, as it can be designed to support underemployed groups, such as young people or military veterans.

Finally, companies can obtain skills by “renting” talent; for example, through outsourcing partnerships that bring specialized skills or by tapping the gig economy, where the rise of digital platforms has rightly captured executives’ attention.

 

We’re long on talent: Redeploy—or release?

Invariably, the changing nature of work will create skill overages that even the most inspired corporate upskilling or reskilling programs can’t manage. In these cases, companies must choose whether to redeploy workers or to find thoughtful ways to let them go.

As the case of the European bank demonstrated, there may be regulatory reasons to consider the redeployment of workers by offering their skills to a third-party organization for a fee. There might also be cultural, financial, strategic, or even social reasons for redeploying skills.

In the private sector, meanwhile, the video-game industry has long “loaned out” the specialized skills of software engineers to other video-game companies, including competitors, when their own projects hit unforeseen snags. While the approach may seem counterintuitive, the arrangement helps the sponsoring company maintain ready access to skills that are particularly rare and hard to recover once lost. The engineers, meanwhile, appreciate the change of pace and the chance to work on high-visibility projects with talented counterparts.

To be sure, redeployment programs such as these tend to be the exception rather than the rule. And no program can forestall all the job separations that come with technological change.

 

Work, Adapt, Repeat

The nature of the evolving workplace confronts leaders with the need to think quite differently about people’s relationship to work. In this vein, we are particularly intrigued by concepts such as “lifelong employability” that prioritize helping people successfully adapt—again and again, if necessary—as the economy evolves.

Yet if companies are to bring ideas such as these to fruition, and truly reorient their organizations around skills and not just roles, they will need more than just a mind-set shift. Many, if not most, companies will find their people-operations infrastructure and talent-management system creaking under the strain of new challenges. Designing a winning employee value proposition, for instance, is much harder when career paths are themselves in flux.

Indeed, HR will need to sharpen its own skills, not only in traditional areas, like employee retention and performance management, but also in new ones, such as managing the risks associated with gig work. In this respect, HR leaders are no different from those in any other function—all of whom must be prepared to evolve if they are to be effective in helping the larger enterprise adapt to the changing nature of work.

 

  • By Megan McConnell and Bill Schaninger

 

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