I met with the CEO of a very successful listed IT company last week. This is one of my most enjoyable activities especially when they are the founder and have made the transition from being a start –up to a successfully listed entity. These meetings reveal without fail how views on some of the core growth strategy constructs differ and sometimes significantly across companies. It’s these meetings that help me understand how management team mindsets, tacit philosophies, culture, dominant logic, personalities, past successes congeal into operating fabrics unique to every business. It’s no surprise how competitors of similar sizes and with comparable offering sets produce markedly different results.
When meeting with CEO’s and their extended management teams, I like to get their views on a couple of broad (deliberately) growth topics. These offer small clues into the referred operating fabric. The answers are often diverse and sometimes contradictory. The questions typically include:
1. The role of and views on strategy
These differ from strategy (being X size, in the following markets by time Y by doing Z) being the enemy of growth to the pivot around which all successful returns owe a debt of gratitude.
2. Preference for revenue, earnings or competency growth
I typically encounter two schools: Revenue growers – earning maintainers Vs earnings growers. I find that “operators” are more inclined to value revenue plays (get the deal and then figure out how to make money). Earners tend to value doing the “right” deals and internal competency make-ups. The latter tend to acquire competencies for growth rather than develop internally.
3. Organic vs acquisitive growth
Organic is often stated to be the most preferred, especially around core business, albeit actions to the contrary. If we have the cash (or can raise it) and there is a player in the space we deem to be important (bolstering the core or entering an adjacency), acquire! The risks associated with building and competing from scratch seem to outweigh the risks of failing to extract value from acquisitions. Compare this with Apple and Google who have organically entered the smart phone and operating system market and in so doing significant damage to incumbents like Nokia and RIM.
4. Developing new growth platforms
Everyone talks about its importance but struggle with how to do this on a sustainable basis. Innovation as a mechanism is bandied around but the results are off spec and not delivering sufficiently large returns. There seems to be a bias towards geographic expansion utilising the same product and/or service sets as a way of finding new growth. Acquisitions are often justified on the basis of growth platforms investments.
5. The importance of people
This is where you typically find the most consistency. There is a definite recognition of how influential the good people factor is. As one CEO told me, I will always back a good person over an idea! Figuring out how to attract and retain good people becomes a competency without which growth cannot occur.
Failing to “get” the inner workings of the operating fabric when doing growth work amounts to bad strategy. I am of the view that the incumbent competencies and capabilities are recalcitrant pillars embedded within the bowels of companies and need to be the starting points around which strategy work begins. Put another way, strategies derived and deployed are more a function of your core make-up than the realities of the market structure. Competency sets determine what strategies companies can execute. If the strategy your operating fabric is able to deploy on works for the market, then you succeed. I am starting to believe that the congruency between market realities – strategy choices and competency sets, required for stellar performance, is fleeting and not easily sustainable over time. Developing new market insights and envisioning associated strategy choices is infinitely easier than augmenting or building new operating fabrics required to execute thereon.