Competitive Growth: Outgrow your competitors through ... · Competitive Growth: Outgrow your...

Competitive Growth: Outgrow your competitors through innovation in course, capability and conviction

By Anthony J. Lipp, Saul J. Berman, Vivek Kapur

IBM Global Business Services

2007 Growth Study

IBM Global Business ServicesPage �

About the 2007 Growth StudyThe 2007 Growth Study is an updated perspective from our ongoing analysis of growth patterns in S&P

Global 1200 companies. The results from our 2007 analysis reinforced the findings put forward in our 2004

growth study, “The growth triathlon: Growth via course, capability and conviction,” specifically:

Company industry neighborhood is not destiny: In both the 2004 and 2007 studies, companies demonstrated

a much wider range of growth within each industry than across industries. In our 2004 study, median

compound annual growth rate (CAGR) across industries ranged from +5.1 percent (Consumer products)

to +13.7 percent (Telcom), and total shareholder return (TSR) ranged from +1.5 percent (Telcom) to +14.5

percent (Banking). In our 2007 study median, CAGR ranged from +4.8 percent (Consumer products) to

+11.7 percent (Financial Markets) and median TSR ranged from +3.9 percent (Telecom) to +16.4 percent

(Banking). There was a much wider range of growth within industries. For example, within the electronics

industry, CAGR ranged from -25 percent to +169 percent in the 2004 study, and -11 percent to +185 percent

in the 2007 study.

Geographic base does not necessarily dictate growth opportunity: Top performers in the slow-growth

geographies outpaced median growth rates for the high-growth geographies. In the 2007 study, the median

revenue growth ranged from 2.1 percent in Japan to 11.2 percent in Non-Japan Asia, with the Americas at

9.3 percent and Europe, Middle East and Africa (EMEA) at 8.7 percent. The top performers in Japan grew in

excess of 90 percent, outpacing the medians across all geographies. In the 2004 study, Japan also had the

lowest median growth rate at 3 percent, and Non-Japan Asia had the highest at 10 percent. That year, the

top Japanese performer outpaced Non-Japan Asia with a growth rate in excess of 35 percent.

Growth is not necessarily a function of company size: Our 2004 analysis suggested that larger companies

can grow revenue and TSR as fast as smaller companies in the S&P Global 1200. Companies with revenues

in excess of US$40 billion grew revenue (median CAGR 11.6 percent) and TSR (median 10 percent)

significantly faster than companies with less than US$2 billion in revenues (median CAGR 7.9 percent and

TSR 6 percent). In our 2007 study, although the case was not as strong, companies with revenues in excess

of US$40 billion still demonstrated the ability to grow revenue and TSR at similar rates as companies with

less than US$2 billion in revenues (CAGR 10.1 percent versus 10 percent, and TSR 11 percent versus 12

percent).

Successful growth requires resilience: The vast majority of successful growers over a decade spent two

years or more below their industry medians. In the 2004 study, 94 percent of Successful Growers fell below

the medians for their peer groups for at least one year, and nearly three-quarters of the companies ranked

there for three years or more. And, of all companies who outgrew their industry medians over the 10-year

period, only 6 percent outgrew their industry median every year. In the 2007 study, 90 percent of Successful

Growers fell below the medians for their peer groups for at least one year, nearly two-thirds of the companies

ranked there for three years or more, and only 10 percent outgrew their industry medians every year over the

10-year period of the study.

Key metrics 2007 Growth Study 2004 Growth Study

Period analyzed 1995 to 2005 1993 to 2003

Companies studied 1,270 1,238

Median CAGR 8.36 percent 8.46 percent

Median TSR 10.71 percent 8.84 percent


Table of Contents

1. Introduction 4

2. The importance of growth 7

3. The patterns of growth 9

4. The path to growth 16

5. Putting it together 31

6. Get going now 35

7. About IBM Global Business Services 37

8. Appendix – Regional Breakouts 39

9. References 43

Study MethodologyThe Growth Strategy team developed a database of growth and shareholder return performance for companies included in the S&P Global 1200. The IBM team studied the period between 1995 and 2005, and added the firms that “fell off” the listing over the preceding decade. Several of these had ceased to exist as independent companies or did not have data available. This approach helped mitigate “survivor bias” to some extent, but these companies still represent a more successful group than a random choice. The study worked with a final list of 1,270 companies with complete data over the decade. Collectively, this group recorded median annual revenue growth of 8.36 percent and median TSR growth of 10.71 percent.

The team analyzed the patterns of revenue growth and shareholder value creation over the decade, segmenting results by four component geographies and 18 industry groups. It selected three industries (consumer products, telecom services and electronics) for detailed assessment, developing case studies for about 20 companies in each industry, chosen to represent a range of successful and unsuccessful results.

The team formulated hypotheses to explain the variation in outcomes and analyzed these companies using primary and secondary research, culminating in workshops with seasoned experts in each industry. After each of these workshops, the team refined its hypotheses, a process that eventually yielded the “3C” model proposed here.

Based on the final model, the research team created a diagnostic scoring tool and applied it to the companies included in the study to confirm the model’s explanatory power against growth and TSR results. Finally, the team asessed the choice of growth paths across the range of companies to identify patterns and collaborated with functional experts to develop a description of the capabilities required for each path.


1. IntroductionHow does an organization outperform its competitors? Many chief executives believe that their

organization’s growth destiny is largely dictated by their “neighborhood” – their industry segment,

the markets they serve, or the size of their company. We have all heard the term “growth” applied

liberally and broadly to industries (e.g., technology is a high growth industry), geographies (e.g.,

emerging markets are growing at twice the rate of the developed world) and company size (e.g.,

small companies grow faster).

To better understand the nature of growth and the diversity of growth performance, the authors

studied revenue growth and total shareholder return (TSR) performance of companies in the S&P

Global 1200 covering 15 industries over a ten year period (see Study Methodology). The team’s

research has shown that a superficial view of growth does not accurately reflect the diversity in

performance of the companies studied and, in many cases, may even be misrepresentative.

Companies in the S&P Global 1200 were grouped against the median for their peer group based

on their revenue growth and shareholder return performance over the ten year period of the

analysis (see Figure 1). The four groupings were described as Successful Growers, Prudent

Managers, Unsuccessful Growers and Shrinkers. Successful Growers were companies that grew

both revenue and total shareholder return faster than the median for their peer group.

As expected, a strong relationship was found between revenue growth and value creation. In

fact, above-average revenue growth doubles the odds of above-average shareholder return.

Successful Growers understand the counterintuitive reality that over the long haul, growth – rather

than cost-cutting – is the lower-risk path.

Four key findings emerged from the research. The first was that companies demonstrated a much

wider range of growth within each industry than across industries. High-growth companies not

only outperformed their peers, but did so by wide margins. For example, top performers in the

slow-growth consumer products and automotive industries outpaced median growth rates for the

high-growth financial and electronics industries.


Similarly, Successful Growers were not limited by geography. Top performers in the slow-growth

geographies outpaced median growth rates for the high-growth geographies. For example, the top

growers in the slow-growth Japanese market outperformed the median growth rates in other high-

growth Asian markets.

The third, and perhaps most unexpected finding, was that growth was not necessarily a function

of company size. The study suggests that larger companies can grow revenue and TSR as fast as

smaller companies in the S&P Global 1200.

Finally, successful growth requires the ability to bounce back from underperformance. Analyses

showed that over the ten year period of the study, more than 80 percent of Successful Growers

spent two years or more below their industry median. What distinguishes Successful Growers is

not perfection, but the ability to recover from imperfections.

Going beyond preconceived notions regarding predetermined growth destinies, companies can

take a more deliberate and comprehensive approach to developing and implementing their growth

strategies.

Figure 1: Growth Value Matrix (Revenue & Total Shareholder Return Growth)S&P 1200, 1995 to 2005

Growth10 Yr Revenue CAGR % (median 10.7%)

15.8%Prudent

Managers(199 companies)

34.6%Successful Growers

(436 companies)

33.9%Shrinkers

(427 companies)

15.8%Unsuccessful

Growers(199 companies)

Valu

eA

nnualized TS

R %

(median 8.4%

)


The team went on to examine the actions of several dozen of these companies in detail, focusing

on what Successful Growers do differently from others. These 436 Successful Growers form an

eclectic group that spans multiple industries and geographies. Based on this research, the team

concluded that achieving long-term business growth, Successful Growers excel in three areas

– Course, Capability and Conviction (or the “3Cs”).

Course – They set the right growth direction by forming a clear point of view on the future,

evolving the product-market portfolio without being limited by history, building a competitive model

to win and pursuing reinforcing initiatives to sustain growth.

Capability – They understand the required capability based on realistic assessments of strengths

and limitations – and evolve the operational model to support the growth strategy.

Conviction – While many companies develop excellent plans, Successful Growers build

organizationwide conviction that translates intent into living, breathing action on the front line.

As part of the study’s maturity assessments, the team found that Successful Growers not only

score higher on the 3Cs as a whole, they also score higher on each individually, with a far lower

variation in performance than other companies.

To be effective, the 3Cs must also be closely aligned and viewed as a coherent whole. Course,

capability and conviction are equally fundamental to achieving and sustaining growth over the

long term. Over a sustained period, a smart strategic course will not compensate for weak

capabilities. Neither will a superior combination of strategic course and capability lead to growth

without conviction – if the organization does not believe the commitment is real, or if management

is unable to convert its intent into corresponding action.

The 3Cs are not static; no competitive model is successful forever. Sooner or later, every growth

path runs its course and needs reinvention. Successful Growers not only align the 3Cs, they also

constantly innovate in order to maintain sustainable competitiveness.

“Innovation is viewed as a multi-dimensional concept, which goes beyond technological

innovation to encompass…new means of distribution, marketing or design. Innovation

is…an omnipresen driver for growth.”

– Erkki Liikanen, EU Commissioner for Enterprise and Information Society


2. The importance of growthIn a recent worldwide IBM survey of CEOs, an overwhelming majority cited sustained growth

as the top priority for driving their companies’ performance. This marks a distinct break with

recent experience. After concentrating on cutting costs and managing risk in the early 2000s,

companies are focused on growing the business (see Figure 2).

The case for growth is normally self-evident. At an enterprise level, growth creates

shareholder value, advances careers and makes work more rewarding. From a societal

perspective, growth drives the economy, creates jobs and improves quality of life by bringing

new products and services to the world. Therefore, the challenge for executives seeking

growth is not “why,” but “how.”

Figure 2: Focus of CEOs1

Percentage, Top 4 responses

39.2

39.8

67.8

83.1

0 20 40 60 80 100

RiskManagement

Asset Utilization

Cost Reduction

Revenue Growth

Percentage

Source: IBM Global CEO StudyCEO’s responses to question on key focus for strengthening their organization’s financial performance.


To investigate what successful companies do to achieve growth, and sustain it over long periods,

the team focused on three questions:

• Who are the Successful Growers and what patterns are associated with them?

• What do Successful Growers do differently?

• How can other companies apply what Successful Growers do to their own business?

To answer these questions, the team analyzed the growth and value creation record of 1,270

companies over the decade spanning 1995 to 2005. The companies included in the study

represent a wide range of sizes, industries and global geographies (see Study Methodology).

The team went on to examine the actions of several dozen of these companies in detail, focusing

on what Successful Growers do differently from others. The study defined “Successful Growers”

as companies that grew both revenue and total shareholder return (TSR) faster than the median

for their peer group. These 436 companies are an eclectic group that spans multiple industries and

geographies. It includes firms such as Cisco Systems, China Mobile, Nokia, BHP Billiton, Vodafone

and Bouygues SA.

Based on this research, the team concluded that achieving long-term business growth is

analogous to competing in a triathlon. This three-part sporting event requires athletes to hone

multiple skills and harness them into a coherent whole. Similarly in business, excelling in a single

area is not enough. Only the best all-around performers win. As successful triathletes train hard in

three areas – swimming, cycling and running – so do successful businesses; they train to excel in

course, capability and conviction.


3. The patterns of growthExecutives sometimes view their company’s growth potential as limited by a number of factors:

The maturity of their industry and geographic “neighborhood,” the size of the company and the

difficulty of sustaining growth over time. The analysis strongly suggests that these perceptions are

self-imposed limits, not necessarily marketplace realities. The team found that neighborhood is

not equivalent to destiny; several companies outgrew their industry and geographic neighborhood

by wide margins. Secondly, in order to achieve growth, the size of the company is not necessarily

a constraint; large companies can grow as fast as smaller ones. Lastly, resilience matters; no

company succeeds all the time. Successful Growers stumble too, but bounce back by focusing

their energies on key strategic areas.

Neighborhood is not destinySuccessful Growers are not limited by industry maturity or geography. The companies in the

S&P 1200 demonstrated a much wider range of growth within each industry (see Figure 3) and

geography (see Figure 4) than across them. In each of the four geographies and 15 industries,

high-growth companies not only outperformed their peers, but did so by wide margins.

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Figure 3: Revenue Growth by Industry (Median and Range)S&P 1200, 1995 to 2005, Revenue Median and CAGR%

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The message is clear: neighborhood is not destiny. Executives have more room to be ambitious

than they tend to believe. Winning companies set ambitious growth plans regardless of industry or

geographic “limits.” They aim for targets above and beyond what they and their peers typically expect.

Growth is not a function of sizeAnother common perception is that large companies grow much slower than smaller companies.

The study suggests that large companies can potentially grow revenue as fast as their smaller

counterparts (see Figure 5).

0.0%

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< $2 Billion

$2-5 Billion

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10.7%Median TSR

8.4%Median CAGR

Company Size (US$)

Median TSRMedian CAGR

Figure 5: Median Revenue Growth Rate and Annual TSR by Company SizeS&P 1200, 1995 to 2005, percentage

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Americas EMEA Non-JapanAsia

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Figure 4: Revenue Growth by Geography (Median and Range)S&P 1200, 1995 to 2005, Revenue Median and CAGR%


What about mergers and acquisitions?The demonstrated growth rate of large companies in the study begs the question: Do they use mergers and acquisitions (M&A) to sustain growth? The short answer is yes. In the period from 1993 to 2003, companies with revenue greater than US$10 billion made 50 percent more acquisitions over the decade than smaller companies. It is important to note that this acquisition-led growth did not come at the cost of value creation. In fact, large firms grew their value (TSR) at 10.5 percent, versus 7.2 percent for their smaller counterparts. Furthermore, the study found that Successful Growers, regardless of size, were more likely to acquire companies than others. In the sample studied, Successful Growers recorded twice as many acquisitions over the decade as other companies.

Several earlier studies have reported that a high percentage of acquisitions (typically more than 50 percent) destroy value. The current analysis suggests acquisitions do have a meaningful role to play in driving growth and value. Why the difference? While M&A was not the focus of this study, There are two hypotheses worth examining further.

First, some M&A studies take a short-term, typically one-year, view of results, which may not be a sufficient period to obtain a “full cycle” perspective on an acquisition. By contrast, this study analyzed performance over a ten year period. Considering the pains of integration, acquisitions may yield better results over the long term than they do in the first year.

Second, it appears from IBM research that a successful minority of companies make more acquisitions. They are able to find better deals and execute them more effectively. This suggests that M&A is a game of skill, not chance. It was also noted that the Successful Growers made acquisitions that seemed to stay closer to their core business. For example, they made fewer (about half as many) international acquisitions than other companies. They were also about 50 percent more likely to acquire entire companies rather than business lines, brands, assets or partial shares of a company. The research suggests that companies that build M&A skills can successfully leverage acquisitions to drive their growth agenda.

Cisco Systems is one such company. Over the years, Cisco has built a repeatable capability to leverage M&A. Its first acquisition, Crescendo Communications, was met with skepticism when it was announced in 1993. As it turned out, however, the move was based on a sound strategy, and Cisco’s revenue skyrocketed in the wake of the deal. The head of Cisco’s acquisition program during the 1990s noted that the initial Crescendo success made the company’s subsequent

acquisitions easier.3

With the Crescendo deal as a foundation, Cisco embarked on a strategy of acquisitions. From 1994 to 2003, it executed over 80 such deals,4 while recording an annual growth rate of 40 percent per year and a TSR growth of 30 percent per year. Noting the scrutiny the strategy had to endure from Cisco’s shareholders, one analyst quipped that the company had “done it

backwards in high heels with the whole world watching.”5

How was Cisco able to defy the odds? It maintained clarity in its objectives, built sustainable capability and stayed disciplined in its execution. Cisco’s deals have consistently focused on acquiring technology capabilities rather than established revenue streams or an existing customer base. It has also limited its deals to a manageable size. Since 1994, only one acquisition exceeded five percent of the company’s market capitalization at the time of the deal, and nearly all were less than two percent.

While Cisco’s approach reflects a carefully laid out strategy, during the M&A explosion of the dot-com years, some of its peers fell into the trap of pursuing acquisitions “at any cost for any reason.” Between 1998 and 2000, for example, one of Cisco’s major competitors invested billions of dollars in acquisitions that proved to be failures. In the end, these acquisitions

were either shut down or sold for a fraction of their purchase price.

IBM Global Business ServicesPage 1�


Successful Growers bounce backSuccessful growth is sometimes portrayed in the business press as the result of strategic genius

or uncanny foresight. In practice, the vast majority of companies – even Successful Growers

– stumble at some point. The study showed that while nine out of ten Successful Growers spend

at least one year below their industry median, most of them are able to keep this period of slow

growth fairly brief (see Figure 6). 62 percent fell below their industry median for 3 years or more.

What distinguishes Successful Growers is not perfection, but the capability and conviction to

recover from imperfections.

Figure 6: Percentage of Successful Growers Below Industry Revenue Growth MedianS&P 1200, 1995 to 2005, percentage

0%

10%

20%

30%

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24%

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Number of years below the industry median

Percentage of S

uccessful Grow

er s


The case of the Wm. Wrigley, Jr. Company provides one example of such resilience

(See Figure 7). Through the 1990s, the company drove its growth via steady

geographic expansion. But by late in the decade, its results were flagging.6 In 1999, as

company leadership transitioned from one Wrigley generation to the next, the company

outlined a plan to take bold steps into new product markets through innovation and

acquisition. Like all transitions of its scope, Wrigley’s strategic shift was not entirely

seamless and, for a time, its results lagged those of its peers.7 But by 2001, the

company had restored market momentum and confidence. Though the elder and

younger Wrigleys followed markedly different strategic paths, the company’s resilience

in making changes gave the Wrigley Company the ability to bounce back and beat its

industry peers in growth and value creation over the entire decade.

Figure 7: Wm. Wrigley, Jr. Company Yearly Growth Performance1994 to 2005, percentage

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10 year peer group CAGR median: 4.8%

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20052003

2002 2001

10 year peer group TSR median:

9.8%

10 year peer group CAGR median: 4.8%

2000

10 Year PerformanceCAGR 9.0%TSR 11.5%

1999

19961998


Growth doubles the odds of value creationFor an individual company, growth is neither risk-free, nor a guarantee of value creation. For the

S&P 1200, several companies with above-median growth in revenue delivered below-median

shareholder return, or value (see Figure 8). These companies were designated ‘Unsuccessful

Growers.’

However, on average, growth is strongly correlated with value. The study found that the slowest

growth quartile grew its TSR by under 4 percent a year over the decade. At the other end of the

spectrum, the companies in the highest-growth quartile delivered over 17 percent TSR growth

annually (see Figure 9).

Figure 8: Revenue & Total Shareholder Return Growth S&P Global 1200, 1995 to 2005

-40%

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-20%

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-30% -20% -10% 0% 20% 30% 40% 50%

Successful Growers(436 companies)

Unsuccessful Growers(199 companies)

Shrinkers(427 companies)

Prudent Managers(199 companies)

10 Yr Rev CAGR (Median 10.7%)

Annualized T

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(Median 8.4%

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MedianQuartile 4

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10.7%Median TSR

8.4%Median CAGR

Median TSRMedian CAGR

Figure 9: Growth creates Value (Median Revenue and TSR Growth)S&P 1200, 1995 to 2005, percentage

The study found that superior growth doubles the odds of superior shareholder value creation

(see Figure 10). A similar growth study conducted in 19988 found the same relationship – clearly

the relationship between growth and value creation is a firm and stable one. Over the long haul,

encouraging growth – rather than cost-cutting – is the lower-risk path. Indeed, the greatest risk is

to not bet heavily enough on growth.

Figure 10: Above-median growth doubles the odds of above-median value creationS&P 1200, 1995 to 2005, percentage

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Low Revenue GrowthCompanies

High Revenue GrowthCompanies

Percentage of companies with above average shareholder returns


4. The path to successful growthAn intense focus on growth is not surprising, given that today’s stock prices often reflect a

significant growth expectation. Executives must drive material growth simply to maintain market

value (see Figure 11); to raise shareholder returns, leaders must somehow find even more

sources of growth.

At times, the growth expectation is not readily met through classic management levers such as

targeting current customers with product or service enhancements, derivatives or extensions, or

by capturing relative share of market growth within current markets. Acquisition might satisfy such

growth expectations, but at what cost premium? And at what realization risk? Yet, there is one

additional source of growth, which may be termed “innovation-based growth.”

Taking a more innovative approach has the potential to provide companies with the capability to

achieve sustainable growth. By definition, innovation-based growth is not incremental in nature,

but seeks to deliver fundamental new value to current customers and markets and/or to create

entirely new market opportunities. Such strategies are difficult for competitors to replicate,

providing a more sustainable source of growth than the routine extensions of current products and

services can offer.

Figure 11: Expected growth rates based on current stock valuationP/E Ratio, percentage

0

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80

Expected growth rate (percent)

5% risk free rate

6% risk free rate

7% risk free rate

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Valuation variables Beta = 1 Risk premium = 5.5%

Growth stage 10 years Payout = 20% Growth = X%

Remaining years Payout = 50% Growth = 8%P

rice

/ea

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ratio


How do winners put their risk taking into practice? How do they overcome the limits of

neighborhood and size? How do they approach growth? What levers do they use to create both

growth and value? The team’s analysis determined that Successful Growers focused on their

Course, Capability and Conviction, the 3Cs (see Figure 12).

Course: The paths to growth are manyMost would agree that a clear strategic direction is fundamental to success. Yet the practice of

formulating and adapting a course involves many schools of thought – and much debate. But what

does a close examination of Successful Growers reveal? What strategic principles are associated

with their success, and what sort of levers do they use? The team’s examination of Successful

Growers suggests four principles that are critical to shaping and adapting a successful course.

A. Develop a point of view on the futureSuccessful Growers have a clear point of view on their industry, where it is headed and how

they will create value in its new form or environment. Conditions are generally in a state of flux:

regulations change, customers exhibit new behavior patterns, new technologies proliferate and

new competitors arise. Successful Growers are attentive to these dynamics and constantly

explore new ways of delivering business value. Surrounded by change, they embrace it instead

of getting intimidated by it or merely coping with it. They see it as both reason and license to

expand their horizons – to look high and low, outside and in, for ideas and accept greater personal

responsibility for fostering growth within and beyond their organizations.

Figure 12: Dimension enabling successful growth

Course: The identification and selection of opportunities, the development of a business model and an environment that fosters and encourages growth. In setting a course, execu-tives should consider questions such as: Where is the industry headed? Where do we play in the future? How will we win and keep winning?

Capability: Introduce innovation in key activities, skills and assets that support the opera-tional model and enable the successful execution of the growth strategy. Here, executives must ask: What do we need to win?

Conviction: The creation of organizational belief, momentum and resilience in moving toward growth goals. Develop an organizational environment that nurtures growth. The key question here is: How will we generate action, maintain momentum and bounce back from failure?

The 3C Growth Framework

C

C

C


Successful Growers use a number of levers to put this principle into action. They:

• Understand the forces impacting the industry and how they will shape its future

• Demand and recognize insights from the business units and senior management on where

value will be created

• Use technology as a catalyst by combining it with business and market insights

• Ensure collaboration with various stakeholder groups beyond company walls, such as

business partners and customers.

Consider the example of Staples. When Staples founder Tom Stemberg looked at the office

products industry, he saw a multistep, high-cost value chain. He envisioned a future where he

would create immense value for customers and for Staples’ shareholders by shortening the

chain to capture margin, while offering small businesses lower prices, wider selection and more

convenience. Staples enabled this value proposition with a business model that supported its

retail stores with its own central distribution centers. The centers required greater operational

scale, but allowed Staples to eliminate middlemen and increase margin. They also consolidated

inventory in low-cost locations to reduce square footage and labor in more expensive store

locations. Of equal importance, this model allowed Staples to differentiate by placing smaller

stores closer to customers where they were more accessible.

B. Continuously evolve the product-market portfolioSuccessful Growers are iconoclasts who evolve their product-market portfolio on an ongoing

basis. Even seemingly rock-steady and unchanging firms exhibit a certain degree of growth

behind the scenes. But they stay grounded by understanding their true strengths and are careful

not to stray too far from them. In fact, they find opportunities to leverage their capabilities beyond

the segments in which they traditionally play.

Successful Growers take several actions to bring this principle to life. They:

• Take an expansive, customer-based view of markets not limited by current definitions of

product and service categories

• Understand the potential and respect the limits of the company’s capabilities

• Realign the portfolio based on the attractiveness of opportunities and their fit with capabilities

• Consider alliances, acquisitions and divestitures, if necessary, and in so doing build a strong

ability to execute and integrate transactions

• Develop an internal venture capital capability and an external new business network.


General Electric (GE) constantly evolves its portfolio to drive growth despite its large size and

already significant presence in major markets. It encourages its executives and business units to

take an expansive view of its markets as a means of unlocking growth initiatives that a product-

centric view would miss. Often, when its market share exceeds ten percent, it seeks to redefine

the market more broadly to include adjacent products or services.9 This continual questing and

restless energy lies behind GE’s successful moves from manufacturing to services – for example,

from manufacturing aircraft engines to servicing and financing them. It is this kind of thinking that

has allowed GE to keep growing even in relatively low-growth industrial markets.

C. Develop a competitive modelBold industry-level visions notwithstanding, Successful Growers keep a sharp eye on their

competitive proposition and how it is working on the ground, market by market, deal by deal.

Successful Growers:

• Use customer, competitive and technology insights to create compelling, high-value

propositions

• Define how to beat competitors in delivering and capturing value

• Influence the environment to shift the game.

Consider the example of Xilinx and Altera, both Successful Growers in the market for

programmable logic device (PLD) semiconductors. For several computing applications, industry

customers had a choice between custom application-specific integrated circuits (ASICs) and

standard microprocessors. ASICs are customized chips that can be optimized for performance

against specific tasks. However, their custom design requires up-front development time and

investment. Standard microprocessors are available off the shelf and without up-front fixed cost,

but their general logic may not be suitable for specialized applications. Altera recognized the

trade-off customers were forced to make and found a way to compete with established players in

both markets. It championed new technologies to create a complex programmable logic device

(CPLD). This solution was based on easy-to-use software that let customers customize the design

of chips and transfer the design code to the manufacturer. Customers were thus able to lower

their design costs and shorten time-to-market for custom chips. This approach allowed Altera to

compete with larger established players and emerge as the leader in the new PLD market.10

IBM Global Business ServicesPage �0

As the market matured, Xilinx saw the potential to leapfrog Altera and its other competitors

by offering customers an even higher level of performance through the leveraging of another

emerging technology: field-programmable gate arrays (FPGA). This technology benefited fully

from Moore’s law (processing power doubles every 18 to 24 months), enabling a steeply rising

performance curve over time. Xilinx also influenced the ecosystem, teaming with partners in

silicon fabrication, design automation, system-level tools, intellectual property (IP) and design

services to deliver a complete value chain for its customers.11 This proved highly attractive to a

performance-sensitive group of customers. Within the PLD market, the FPGA segment has now

overtaken CPLDs, driving Xilinx’s growth. In turn, Altera has responded by developing its own

strong capability in FPGAs and by seeking to lower its costs even further. As this rivalry between

the Coke and Pepsi of the PLD market has played out, both companies have emerged as leaders,

creating value for their customers and realizing successful growth themselves.

D. Create and sustain multiple growth initiativesEvery strategy has a limited shelf life. Successful Growers sustain the growth quest by developing

multiple growth initiatives that are backed by ongoing cost and asset management. This allows

them to draw from a portfolio of options when an existing strategy inevitably reaches its expiration

date. However, each company must take care that its portfolio is not simply an aggregation of

disconnected initiatives, but rather adds up to a unified whole in which the component parts

reinforce one another.

Successful Growers:

• Create multiple, mutually reinforcing growth initiatives sufficient to achieve growth goals

• Build management systems to nurture initiatives through development stages, each with

different needs

• Maintain ongoing focus on cost and asset management to create funding for growth

initiatives.


The team studied four common growth paths: product and service innovation, customer intimacy

and market penetration, channel management, and new markets and globalization. It was found

that within a given industry, companies tend to cluster around a few distinct growth paths. For

example, much of the CPG industry follows a path of product and service growth. Yet each

growth path is capable of yielding success. This suggests there is a strong case to be made for

broadening the growth “gene pool.” Greater strategic creativity can contribute to the sustainability

of growth by avoiding “me-too” strategies.

One way to increase potential is to combine mutually reinforcing initiatives. A number of

Successful Growers in the electronics and telecom industries, for example, have crafted mutually

strengthening technological and globalization-related initiatives. Nokia dedicates 39 percent of

its personnel to R&D, an exceptional investment aimed at growth. Recouping this investment

requires scale, which the European company achieves through an aggressive global approach

that generates nearly half of the company’s revenue from the U.S. and Asia.12 Similarly, in

the telecom industry, Telecom Italia Mobile (TIM) maintains its reputation as a pioneer in Italy

while extending practices to the rest of Europe and Latin America.13 Companies like these

recognize the growth potential of regulatory changes that have opened new markets. For them,

the alignment of resource capabilities and globalization presents an opportunity for synergy: a

winning formula at home can now be projected into new markets.

What paths should you consider? Exploiting the full potential of your current business is a natural

starting point. This includes taking measures to increase market penetration and customer

intimacy in current markets, as shown in the bottom left quadrant of Figure 13.

IBM Global Business ServicesPage ��

Strategies to enter new product/service businesses represent a second growth direction, depicted

in the top left quadrant of Figure 13. These strategies are most meaningful when there is rapid

change in technology and customer needs, creating an opportunity for growth in new products

and services. This direction succeeds most often when backed by strong expertise and relevant

technologies. Kodak is pursuing this path as it offers digital imaging products and services to its

customers. Kodak’s current challenge, of course, is to rapidly retool its capability to exploit very

different photographic technologies than film, and do so quickly enough to outpace the erosion of

its film business. The company has realized some success in this area with its line of EasyShare

cameras.14

Product / Service Innovation- Enter new product categories- Build services around products- Innovate faster/better

Diversification- Extend into new products and new markets simultaneously

Customer Intimacy &Market Penetration- Increase customer retention- Improve price realization- Gain wallet share- Attract new customers- Refresh products/services- Increase geographic depth

New Markets & Channels- Extend into new customer segments- Enter new geographic/global markets- Enter new channels

Products

Markets

New

Traditional

Traditional New

Figure 13: Choosing the Growth Course

Source: Adapted from Ansoff, HIgor, Strategies for Diversification, Harvard Business Review 1957


Projecting current products into new customer segments, geographies and channels is a third

growth direction (bottom right quadrant of Figure 13). This is most valuable when existing markets

are saturated and untapped customer segments and geographies are emerging. The targeting

of fast-growing ethnic populations within the U.S. and the rush to tap China’s developing markets

are examples of measures that companies are pursuing in order to reach out to new customer

and geographic markets. Channel innovation is often necessary to serve these new segments

and geographies, especially when technology or regulatory changes allow disintermediation

of existing channels. Adding services content to product businesses also often requires the

development of channels to deliver complementary services.

Diversifying into new products and markets simultaneously, combining the previous two

directions, is a path that may take companies well away from home ground and add risk. This

should be considered only under certain circumstances: when changes in buyer behavior patterns

or technology are linking previously distinct markets, a pool of M&A candidates are available at

attractive valuations and the acquiring company has strong integration experience and capability.

Consider how Procter & Gamble harnesses its different growth initiatives into a coherent whole.

First, it mines its traditional core categories of laundry, hair care, diaper and feminine products.

It pursues growth through innovation in its current businesses, introducing regular technology

upgrades to brands like Tide and Pantene. It has not hesitated to acquire new brands as a

means of driving growth in these core categories, where it can leverage its cost base to create

advantage, as P&G did with the acquisition of Clairol and Wella to drive its hair care business.15, 16

P&G has focused on large, emerging geographies. For example, the company’s recent growth

rate in China is double its average across all geographies.17 This array of growth initiatives has

been backed by actions to cut costs and create funding. In 1999, with the “Organization 2005”

program, it created shared services centers to streamline back-office costs.18 Reaching the limits

of that strategy, it has now outsourced these shared services centers to an external provider that

can offer even greater scale and lower costs.


Capability: The paths to growth rest on a foundation of capabilitiesSuccessful Growers develop their capabilities methodically, harnessing process,

organizational and technology elements to create ingrained strength and repeatable

performance. They seek alliances when needed capabilities do not reside within the company.

These Successful Growers exploit several action levers to develop and align their

capabilities. They:

• Define the operational model and capabilities against chosen growth strategies

• Identify required changes as strategies evolve and close gaps

• Overcome the inertia of existing power structures to realign the model where necessary

• Consider alliances and acquisitions if necessary to develop timely capabilities.

Customer IntimacyProduct and Service

Innovation Channel Innovation New Markets

Source: IBM Global Business Services

Figure 14: Growth requires innovation in distinct capabilities

- Customer segmentation- Customer acquisition & retention strategy- Market structure & competitive analysis- Value proposition development- Market potential assessment- Account mgmt. - Capability assessment & investment ROI- Satisfaction & loyalty assessment- Scorecard development

- Product segmentation & portfolio strategy- New product or service development including brand and value propositions- Innovation or R&D strategy- Capability assessment and design, including investment- ROI

- Channel segmentation & needs analysis- Market structure & competitive analysis- Channel strategy & offer development- Partner assessment- Capability assessment & design, including investment- ROI

- New country entry strategy- New market segment entry strategy- Customer acquisition & retention strategy- Global organization design- Acquisition & partnering strategy- Capability assessment & design, including investment- ROI


For example, five capabilities support a product/service/market innovation strategy

(see Figure 15):

• Market Planning - Picking the right market segments and developing the right products

and services for them

• Portfolio Management - Making the right investments in development; balancing return on

investment (ROI), strategic direction and risk

• Platform Management - Creating product and process architectures that increase speed to

market, knowledge reuse and the leveraging of development investments

• Pipeline Management - Striving for speed and efficiency across the total lifecycle, from

concept to service, including people, processes and technology

• Partner Management - Building the organizational capability required to exploit the physi-

cal and intellectual assets of partners for mutual gain.

IBM research demonstrates that building these capabilities can potentially drive growth that

outpaces industry performance. Companies that have grown their operating margins faster

than their competitors were found to be putting twice as much emphasis on business model

innovation as underperformers (see Figure 15).

Figure 15: Innovation Priorities(Percent of emphasis)

0%

20%

40%

60%

80%

100%

Underperformers Outperformers

Product/services/markets

Operations

Business model

Note: Based on operating margin growth over five years as compared to competitive peers.


Competitive pressures have pushed business model innovation in companies’ priority lists

as there is a greater need to search out new competitive differentiators. Figure 16 highlights

some of the most common business model innovations.

50 60 70

Figure 16: Most common business model innovations


Organizationstructure changes

Major strategicpartnerships

Shared services

Alternative financing/investment vehicles

Divestitures/spin-offs

Use of a third-partyoperating utility

0 10 20 30 40

(Percent of respondents)

Note: This question was asked of business model innovators only.


Consider how Intel developed its innovation capabilities to sustain its growth path. Forced to

exit the dynamic random access memory (DRAM) chip market in the late 1980s by Japanese

competitors, Intel knew it had industry-leading logic circuit design skills but had been outclassed

on its manufacturing platform.19 Each of its chip fabrication plants, or “fabs” was different,

requiring different processes and a new learning curve at each fab when new products were

rolled out. In response, the company launched “Copy Exactly,”20 an initiative to enable the transfer

of new products and process flows into mass production with minimal variation.

This philosophy represented a significant change for the company. In practice, real-world limits

typically prevent exact copying. For example, differences in European and U.S. supply voltages

and frequencies had to be accommodated. With Copy Exactly, change control is initiated before

technology transfer, and all changes are implemented directly into both the R&D and production

lines within one week, or according to an approved schedule. As a result, products can be rolled

out across fabs quickly, at low cost, and with faster diagnosis and correction of quality issues. By

tying R&D and manufacturing into a common, end-to-end pipeline capability, Intel can now roll

out a package of product and process rapidly across its facilities. The resulting “time to volume”

is a critical differentiator in an industry where the profits are made in the first few months of a

product’s life. Today, even as rival AMD catches up on design and products, Intel’s end-to-end

“pipeline” capability gives it an additional layer of advantage to drive superior results.21


In the very different business of telecom services, Sprint has set out to drive growth through

various measures in the areas of customer intimacy and market penetration. The company has set

a goal of increasing customer satisfaction via superior service – while reducing cost. To achieve

this goal rapidly, Sprint has leveraged a strategic partner22 and charted out a transformational

program that features a number of customer-facing and enabling initiatives. These include better

segmentation and the redesign of service treatments and processes against them, an increase in

self-service options for customers and the retooling of applications to enable them and a reduction

of call handling time by upgrading call routing processes and agent desktop technology. As a

result of this program, Sprint expects to improve customer satisfaction dramatically while reducing

customer service costs by US$550 million over three years.23 With these enhanced capabilities,

Sprint can move forward simultaneously on its top priorities – improving customer satisfaction,

driving new sources of revenue and operating its business with greater efficiency and flexibility.

Finally, consider Starbucks’ actions to develop its capabilities in support of its path of channel

innovation. The company has launched two initiatives: the first to expand its food service accounts

and the second to build its presence in grocery stores. To support the first initiative, the company

has transitioned the majority of its food service accounts to broadline distribution networks and

aligned its current food service sales, service and support resources with SYSCO Corporation,

an established player in food service. To enable the second initiative, Starbucks is developing an

alliance with Kraft Foods to market and distribute its whole bean and ground coffees to grocery

stores. Starbucks is also strengthening its Web management capability (via starbucks.com) as a

customer interaction vehicle that allows coffee drinkers to reload Starbucks stored-value cards.


Conviction: Are you for real?Course and capability are necessary but not sufficient conditions for successful growth. A

company must also make its commitment to growth real in word and action. Globalization

and technology advances are lifting competition to new heights, thereby creating immense

opportunities to differentiate. Markets are demanding ever-faster growth. Growth – and perhaps

even survival – depends on innovation.

The blunt reality is that sustaining successful growth requires change. This is where so many

otherwise coherent plans fail to produce the intended results. Change can be wrenching, and

organizations often resist it. Successful Growers foster a corporate culture that encourages growth.

When inevitable setbacks occur, these companies have the resilience to bounce back.

Successful Growers exploit several levers to drive conviction deep into the organization. They:

• Create an inspiring purpose and ambitious goals

• Find ways to make innovation happen more systematically

• Communicate a believable and consistent growth strategy to employees and investors

• Develop and manage a bold strategy that spans all three types of innovation –

products/services/markets, operations and business model innovation

• Establish an effective system of metrics and incentives against market and capability initiatives

• Stay alert to organizational impediments and act quickly to unblock them.

As we have seen, Staples created huge momentum with a breakthrough insight and an

operational model to deliver competitive value. But as the market matured and it faced competition,

the company recognized the need to constantly innovate its model from an operational focus to

include elements of advanced customer care. The company made a serious and concerted effort

to craft the right mission statement, involving the best people from around the company. This

seeded the shift in corporate culture toward a high-value-add, customer service orientation. The

program projected a vision in which every associate would focus primarily on customer service

and sales.24 Staples redesigned its employee incentive system and training to support this shift to

customer service. As a result of these changes, it continued to prosper in a changed environment.

What it took was commitment from the top, and leadership’s willingness to stay involved and

remove hurdles.


This ability to identify and overcome organizational impediments is one of the least celebrated,

yet most critical, aspects of driving growth. Consider the case of a global, multidivision technology

business. This company is pursuing a strategy of differentiation based on deals of broad scope

and global scale. In analyzing its wins and losses, the company discovered that its metrics and

incentives were oriented largely toward single-business and single-country performance. The

very largest of multicountry and multidivision deals enjoyed the visibility and top management

sponsorship needed to overcome these hurdles. However, the more numerous middle-tier deals

– the ones holding potential for breakthrough growth – were getting bogged down. In one case,

a deal required 13 different approvals from country and business P&L owners. Each approver

judged the deal entirely on the merits of his or her own business, and any of them could have said

no. In fact, several did. That the deal survived was testament to the dogged follow-through of its

advocates. The enterprise has now committed actions to examine and address these issues. How

aggressively it does so, will be a vital factor in the growth it delivers.

This is not the glamorous stuff of business legend, of visionary CEOs buying and selling

businesses, assembling the right pieces on the chess board, fuelling the buzz around high-profile

new products or inaugurating a new facility in Shanghai. Nevertheless, the ability to identify

and overcome organizational impediments is a vital aspect of turning potential into reality and

translating a good strategy into real growth. In turn, this ability requires a truth-telling corporate

culture that sees things as they are.

During his tenure as CEO of Intel, Andy Grove introduced a culture of “constructive confrontation”

that frowned on ambiguity and stressed dealing with issues as they arose. He encouraged

employees to challenge each other’s assumptions and even interrogated managers to probe

how informed they were about their products and projects. Never one to mince words, Grove

would render detailed judgments (known as “blast reviews”) to rouse managers from intellectual

stagnation.25 Grove’s somewhat combative style shaped Intel’s corporate culture into one that

shuns wishful thinking and holds fact-based debate in high regard.


5. Putting it togetherWe have examined each of the three Cs individually. How do Successful Growers put them

together in practice?

Hit the high CsAs part of the study’s maturity assessments, it was found that Successful Growers score

higher on the 3Cs as a whole as well as on each of them individually, with less variation in

performance than other companies (see Figure 17). This finding suggests one reason why

growth is so often difficult: to succeed, businesses – like triathletes – need to excel in all three

areas of the game, all the time. It is critical to take a closer look at the business to identify

the few essential components that set it apart and find innovative ways to obtain the rest.

Moreover, new approaches to defining and evaluating the components should be considered

in order to ascertain their strategic value and how best to implement them.

Course, capability and conviction are all important to achieving and sustaining growth over

the long term. It is the combination of the three that is important: no one of them can result in

growth over the long term by itself.

Figure 17: Successful growers perform well on each of the three Cs“3C” Scores, 10 point scale


5.2

5.3

4.6

7.9

7.9

8.2

0 1 2 3 4 5 6 7 8 9

Conviction

Capability

Course

Successful Growers

Successful Growers(8.0, 0.8)

Others(5.0, 1.5)

Overall 3C score average(score, standard deviation)

5.2

5.3

4.6

7.9

7.9

8.2

0 1 2 3 4 5 6 7 8 9

Successful Growers OthersOthers


Consider the experience of AT&T Wireless. It developed arguably one of the most innovative

strategies in the industry (course), but fell short in the areas of capability and conviction. Early in

the wireless industry’s development, the company set a course for robust growth by aggressively

buying spectrum to establish a broad presence across the U.S. market and build its AT&T

Wireless (AWE) brand. The company recognized that its superior network coverage offered the

potential for rate plans without roaming charges. Its launch of the U.S. market’s first “national one-

rate” plan drove rapid share gains.26

Despite positioning itself for strong growth, and in fact building significant market share, it failed to

fully develop corresponding capability by way of network and customer service capacity to support

the increased volume. It fell behind competitors in building out adequate coverage to support

a genuinely national service, instead remaining dependent on other providers for coverage in

key markets. When quality began to suffer and complaints mounted, AWE was unprepared to

respond.27 Over time, the strong sense of conviction that AWE had originally inherited from its

founding entity, McCaw Cellular, waned. Increasing control from AT&T corporate and a series of

leadership changes depleted the company’s entrepreneurial spirit, prompted the departure of

employees and, eventually, undermined the company’s commitment to its course.

By 2003, AT&T Wireless, at this point an independent company spun off from AT&T, was reeling

from high-profile customer service missteps, such as its slowness to fully implement wireless line

number portability. It suffered declining growth and negative shareholder return over the period. In

2004, AWE was acquired by Cingular which was jointly owned by AT&T and BellSouth. Ironically,

following the AT&T / BellSouth deal announced in 2006 Cingular took on the AT&T brand.

Align the 3CsTo be effective, the three Cs must also be closely aligned to create a coherent whole. As a

successful grower, Procter & Gamble (P&G) works hard to develop each C in an integrated

manner. In the late 1990s, based on its strengths in branding and go-to-market capability with

global scale, P&G decided to pursue a new course. It moved to steadily shift its portfolio away

from staid categories like food toward categories like beauty and healthcare that offered higher

returns as well as global scale.


P&G realized that winning in these markets would require a fast pace of product introduction

and sought to streamline the organization to strengthen this capability. In 1999, it launched

the “Organization 2005”28 initiative that shifted authority from country general managers to

newly created Global Business Units that would drive new growth globally, unconstrained by

organizational boundaries. While this realignment was central to its goal of enabling faster

deployment of resources, it altered the company’s long-established management structure

in fundamental ways. The associated turmoil contributed to an abbreviated tenure for CEO

Durk Jager, and momentum faltered.29 But the new management demonstrated conviction by

following through with the initiative. Now, several years later, it is evident the radical shift was a

success. P&G’s organization combines the innovation excellence of integrated business units

with the global reach and scale of its Market Development Organization (MDO).

P&G also realized that, to meet its growth goals, it needed to drive a greater number of

product introductions than it could generate in its own labs. So it adopted an explicit course of

obtaining half its innovations from ideas sourced outside the company. To develop the required

capability, it created a network of external partners that included contributions from academia

and even competitors. Making this happen required the conviction to change a proud R&D

culture that valued its unique capability. The new R&D leader has explicitly stated that the

best ideas need not come from within the company.30 As visible proof, when P&G reinvented

the cleaning category with the introduction of Swiffer in 2001, the success owed much to

technology licensed from a Japanese competitor, Uni-Charm.31 This was no isolated instance.

P&G management has since broken new ground in exploiting its own technology in new ways

by forming a joint venture with competitor Clorox to commercialize technologies it developed.

These instances are a far cry from its previous “go-it-alone” R&D culture.

The results of these changes speak for themselves. Not only did P&G outperform its industry

during the decade, achieving annualized shareholder return of 15 percent over the period, it

has also corrected missteps and accelerated its growth in each of the last three years. While

remaining an iconic leader in its industry, behind the scenes, the P&G of today is very different

– in terms of portfolio and organization – than the P&G of a decade ago.


Evolve the 3CsAs noted earlier, eventually every growth path runs its course and needs reinvention.

Successful Growers not only align the three Cs to begin with, they also constantly innovate in

order to maintain sustainable competitiveness.

Another Successful Grower, Vodafone, demonstrates this well. In the 1990s, it sought to

project its “mobile only” business model on a global scale, pursuing an aggressive, acquisition-

led course in major mobile markets. It acquired established players in mature markets and

newer entrants in developing markets. At the same time, it divested businesses obtained

through acquisition that did not fit with its mobile-only strategy. To enable its acquisition-

driven strategy, Vodafone developed strong capability to identify and execute large global

acquisitions. It sought the CFO role in acquired companies to drive financial integration and

control cost and financing. Vodafone’s success at financial integration earned it the respect of

the investment community.

This, in turn, translated into higher valuations, providing currency for subsequent

acquisitions.32 Leadership demonstrated conviction in driving Vodafone’s strategy of growth by

acquisition. It liberally dispensed options to align employee interests with the growth agenda.

But the game is different now, and Vodafone is in the midst of evolving its business model

significantly on each of the three Cs. As the company recognized it was filling out the “white

space” of its acquisition strategy, it moved to adapt its course from conquest to consolidation.

It now seeks to exploit the global scale it has built to create greater global leverage of

technology, procurement and customers. The new course requires new capabilities, and

Vodafone is integrating its technology platform across markets as well as converging its

phone models to better leverage its clout with suppliers. Despite struggling to overcome some

barriers, in another show of conviction, management under the new CEO is seeking to replace

the company’s deal-making focus with an operational focus, and has communicated resolve to

see the changes through.

Vodafone has enjoyed a very successful decade, boasting almost 50 percent CAGR and 16

percent annualized shareholder return over the period. While its recent transformation remains

a work in progress and the results are not yet known, the company’s willingness to retool, and

its thoughtfulness in doing so, is a necessary ingredient for sustained, successful growth.


6. Get going nowThe starter’s gun has gone off. How are you positioned? What do you need to win?

Consider the following actions:

• Assess your business model against your growth ambitions and the 3C model winners

• Develop a point of view on how to address future opportunities with capabilities

• Evolve your product market portfolio and design your initiatives accordingly

• Develop a business model innovation strategy

• Embed your strategy in your words and actions with a key focus on growth

Diagnoses are no more useful than the thought you put into them. And there is no one more

qualified than you to assess where you are. So it will be instructive to take a few moments

to consider the questions on the following page. While they represent a simplified version of

the study’s growth diagnostics, they do provide food for thought.

Use the worksheet below to assess your company on a scale of 1 through 10 for the 3Cs

and their underlying principles. Remember, consistency is key. Only a score of eight or

higher in all categories will put your company alongside the “Successful Growers” identified

in the study. A score of less than eight in any category implies you have work to do in that

area of growth development, even if your position is strong in the others. Act now to put

yourself on the road to sustained growth and shareholder value.


3C Principle and action levers Score (1-10)

Course 1. Do you have a distinct point of view on the industry future and where value will be created?- Has your organization assessed key forces impacting the industry and howthey will shape its future?

- Do your executives possess, demand and recognize insights on where thevalue will be created?

- Are the key points of uncertainty identified? Is there a process to reassess them periodically?

- Do you have management forums for industry and strategic discussion, separatefrom operational reviews?

2. Are you evolving your product-market portfolio sufficiently, based onunderstanding of the industry’s future and your own capabilities?- Do you take an expansive, customer based view of markets, not limited bydefinitions of product and service categories?

- Is there management agreement on your distinct capabilities?- Have you reexamined your product-market portfolio recently, based onattractiveness as well as the fit with your capabilities?

- Are you considering alliances, acquisitions and divestures, if necessary?- Do you have strong ability to execute and integrate transactions?- Do you have internal venture capital capability and/or an external newbusiness network?

3. Do you have a competitive model that is creating and capturing value?- Do your businesses regularly use customer, competitive and technology insights to review and create value propositions?

- Can your organization really articulate why your customer value propositionis superior to that of your competitors?

- Are your mechanisms to influence the environment (technology, regulatory,customer, etc.) effective?

4. Is your growth sustainable? Do you have multiple, reinforcing growth pathsand ongoing cost actions to fund them?- Do you have multiple growth paths sufficient to achieve your growth goals? Does it take a special analysis to answer that question?

- Do you manage early stage, expansion stage, and mature initiatives withenough differentiation of mindset, metrics, incentives, and people?

- Are your cost and asset actions sufficient to fund your growth initiatives?

Capability 5. Are your capabilities aligned to your growth strategy and evolving on paceto meet your needs?- Do you have a clear view of the operational model and capabilities againstthe growth strategies?

- Are your capabilities evolving on pace to support changes in strategy?- Is the organization evolving to support the new capabilities, or is it gettingin the way?

- Have you examined alliances and acquisitions to accelerate capability development?

Conviction 6. Are you demonstrating commitment to growth in word and action?- Does the organization believe you? Is it acting with urgency?- Do you have an inspiring purpose and ambitious goals? Are they authentic?- Are you communicating a believable and consistent growth strategy to employees and investors?

- Do you have effective metrics and incentives against market and capabilityinitiatives?

- Do you have a culture of honest and fact based debate on strategy and performance?

- Are you keeping your ear to the ground on the rate and pace of frontline change?- Are you demonstrating quick and effective action to unblock impediments?

AVERAGE OVERALL SCORE


7. About IBM Global Business ServicesWith business experts in more than 160 countries, IBM Global Business Services provides

clients with deep business process and industry expertise across 17 industries, using

innovation to identify, create and deliver value faster. It draws on the full breadth of IBM

capabilities, standing behind its advice to help clients implement solutions designed to

deliver business outcomes with far-reaching impact and sustainable results. IBM Global

Business Services fuses business strategy with technology insight to help organizations

develop and align their business vision across four strategic dimensions – business strategy,

operations strategy, organization change strategy and technology strategy – to drive

innovation and growth.

The IBM Global Business Services Growth Strategy team helps companies outgrow their

competitors and translate that growth into shareholder value. IBM research demonstrates

that it is possible for companies to grow much faster than their industries for sustained

periods of time, and to do so while creating superior value. IBM Growth Strategy capabilities

draw on the lessons from these successful companies, and offer the tools, methods and

experience to help clients diagnose their situations, and develop and implement growth

strategies. Key IBM Global Business Services offerings include: Customer Intimacy,

Product & Service Innovation, Channel Innovation, New Market Entry, and Convergence/

Diversification Strategies.

To browse other resources for business executives, visit us at ibm.com/gbs


About the AuthorsAnthony J. LippAnthony J. Lipp is the Global Growth Strategy Leader for IBM Global Business Services with

diverse industry and consulting experience serving global organizations and industry leaders on

major strategy, organizational and management effectiveness issues. Prior to joining IBM, he

held senior positions with McKinsey & Co. and PricewaterhouseCoopers in New York and London.

E-mail: [email protected]

Telephone: (914) 320 5477

Saul J. BermanSaul J. Berman is the Services Leader for the Strategy and Change practice of IBM Global

Business Services. He is also the Global and Americas Media and Entertainment Strategy and

Change Lead Partner. He is respected as a trusted advisor to C-Level clients in Media and

Entertainment and has been recognized as a Top 25 Global Consultant by Consulting Magazine.


Telephone: (818) 539 3353

Vivek KapurVivek Kapur is the Global Strategy Leader for IBM Global Business Services. In this role he leads

the development and deployment of GBS’ strategy, and its M&A program. Earlier, as a partner in

the Strategy & Change practice of GBS he led some of IBM’s key relationships in the Electronics

and Consumer Products industries.


Telephone: (408) 956 3238

ContributorsThe authors would like to acknowledge significant support and contributions from Ragna Bell,

Sankalpa Bhattacharjya, Marc Chapman, Servi de Vette, Faisal Husain, and George Pohle.


8. APPENDIX: Regional breakoutsThe IBM team analyzed companies across several geographical regions including Americas

(AM), EMEA and Asia Pacific (AP) in order to study the variation in proportion of Successful

Growers by region. For this, the team factored in the revenue growth rate with the TSR for a given

region and the number of companies present in each region. In the AM region, the study identified

218 companies as Successful Growers out of 655 companies present there (33.28 percent).

AMERICAS Successful Growers in the AM Region

Comparison of Revenue and TSR Growth between the global S&P 1200 companies and the companies present in the AG Region (1995-2005)

Revenue & TSR GrowthAll S&P Global 1200 companies,

1995 to 2005

15.8%Prudent



(436 companies)

33.9%Shrinkers

(427 companies)

15.8%Unsuccessful


Revenue & TSR GrowthAmericas S&P Global 1200 companies,

1995 to 2005

16.7%Prudent



(218 companies)

33.4%Shrinkers

(219 companies)

16.7%Unsuccessful


Global: 1,270 Companies (100%) Americas: 655 Companies (51.5%)

Source: S&P Global 1200, IBM GBS analysis of 1270 companies Note: Percentages may not add up 100% due to rounding


ASIA PACIFICSuccessful Growers in the AP Region

In the AP region, the study identified 99 companies as Successful Growers out of 250

companies present there (39.6 percent).

Comparison of Revenue and TSR Growth between the global S&P 1200 companies and the companies present in the AP Region (1995-2005)



1995 to 2005

15.8%Prudent



(436 companies)

33.9%Shrinkers

(427 companies)

15.8%Unsuccessful


Revenue & TSR GrowthAll S&P AP 1200 companies,

1995 to 2005

10.4%Prudent



(99 companies)

39.6%Shrinkers

(99 companies)

10.4%Unsuccessful


Global: 1,270 Companies (100%) ASIA PACIFIC: 250 Companies (19.7%)


EUROPESuccessful Growers in the EMEA Region

In the EMEA region, the study identified 113 companies as Successful Growers out of 365

companies present there (30.95 percent).

Comparison of Revenue and TSR Growth between the global S&P 1200 companies and the companies present in the EMEA Region (1995-2005)



1995 to 2005

15.8%Prudent



(436 companies)

33.9%Shrinkers

(427 companies)

15.8%Unsuccessful


Revenue & TSR GrowthEMEA S&P Global 1200 companies,

1995 to 2005

18.9%Prudent



(218 companies)

30.9%Shrinkers

(114 companies)

18.9%Unsuccessful


Global: 1,270 Companies (100%) EMEA: 250 Companies (28.7%)


9. References 1 Kapur, Vivek, Jeffere Ferris and John Juliano. “The Growth Triathlon: Growth via course, capability and conviction.” IBM Institute for Business Value. January 2005. http://www-935.ibm.com/services/us/index.wss/ibvstudy/imc/a1007846?cntxt=a10052662 Ibid.3 Paulson, Ed. Inside Cisco: The Real Story of Sustained M&A Growth. John Wiley and Sons. 2001.4 Cisco Systems. “Acquisition Summary.” http://www.cisco.com/en/US/about/ac49/ac0/ac1/about_cisco_acquisition_years_list.html.5 Paulson, Ed. Inside Cisco: The Real Story of Sustained M&A Growth. John Wiley and Sons. 2001.6 “Wrigley Gives Rivals News to Chew On,” Financial Times (UK), October 16, 1999.7 “Wrigley Rebounds with $70B for 3 Brands,” Brandweek, April 21, 2003.8 Kapur, Vivek. “Creating growth and value.” IBM Global Business Services. 1998.9 Buss, W. Christian. “Jack Welch took more than one punch in the nose; you don’t have to.” The Business Review, May 30, 2003.10 “Altera Celebrates 20 Years of Innovation.” PR Newswire. June 20, 2003.11 Xilinx. “Company Overview.” http://www.xilinx.com/company/about/overview.html12 Nokia 2003 annual report.13 Telecom Italia Mobile 2003 annual report.14 Dobbin, Ben. “Kodak growing in digital camera market.” BizReport.com. August 6, 2004. http://www.bizreport.com/news/7776/ 15 Neff, Jack. “P&G claims Iams is top dog in pet food: Brand sales overtake giant Purina in Q4.” Advertising Age. March 10, 2003. 16 Procter & Gamble 2003 annual report.17 Shobhana, Chandra. “P&G ready to post 40% profit rise: Sales growth in China, acquisitions drive earnings spurt.” Bloomberg News. August 2, 2004.18 Peale, Cliff. “P&G cuts restructuring time.” The Cincinnati Enquirer. December 13, 2002.19 Ladendorf, Kirk. “Intel architect Grove to step down. Visionary leader will take more long-term view as chairman; president will take CEO job.” Austin American-Statesman. March 27, 1998.20 “Intel At 36: The CPU Business.” Fundamental Review. Kintisheff Research. June 17, 2004.21 Ladendorf, Kirk. “Intel architect Grove to step down//Visionary leader will take more long-term view as chairman; president will take CEO job.” Austin American-Statesman. March 27, 1998. 22 Schwartz, Ephraim. “IBM lands huge Sprint deal.” InfoWorld. February 4, 2004. http://www.infoworld.com/article/04/02/04/HNbigblue_1.html23 IBM Corporation. “IBM and Sprint announce comprehensive business agreements.” February 4, 2004. http://www-1.ibm.com/industries/telecom/doc/content/news/pressrelease/1005755102.html24 Stemberg, Thomas G. Staples for Success: From Business Plan to Billion-Dollar Business in Just a Decade. Knowledge Exchange. 1996. 25 Ladendorf, Kirk. “Intel architect Grove to step down//Visionary leader will take more long-term view as chairman; president will take CEO job.” Austin American-Statesman. March 27, 1998.26 Richman, Dan. “The fall of AT&T Wireless.” Seattle Post-Intelligencer. September 21, 2004. http://seattlepi.nwsource.com/business/191742_attw21.html27 Ibid.28 Described with permission from IBM client; “Forbes Names Lam Research Corporation a ‘‘Best Managed’’ Company Among ‘‘Platinum 400: Best Big Companies in America’.” Lam Research Press Release. January 4, 2006.29 “Moody’s downgrades long term rating of Procter & Gamble (Senior to Aa3) – Confirms short term rating at prime-1 – Outlook stable.” Moody’s Investor Service Press Release. October 19, 2001.30 Nelson, Emily. “Rehab takes toll on Procter & Gamble. One of first tasks for new CEO is to boost morale, plug management holes in wake of globalization upheaval.” The Wall Street Journal. September 1, 2000.31 Carey, John. “Flying High?” BusinessWeek. October 11, 2004.32 U.S. Patent and Trademark Office. “All Patents, All Types.”

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