Deloitte U: Moving into a "5D" view of growth

InsightaaS: Deloitte University Press is a source of deep, thought-provoking material on a wide range of technology and management issues. The site’s mandate is to publish "original articles, reports and periodicals…to draw upon research and experience from throughout our professional services organization, and that of coauthors in academia and business, to advance the conversation on a broad spectrum of topics of interest to executives and government leaders."

ATN-300We would submit that "Moving into a '5D' view of growth" meets these expectations. It starts slowly, noting that many executives look at only two primary strategies (customer retention and share growth), while ignoring three sources of organic growth: tapping into new potential customers, increasing the extent/intensity of use by current customers, and capturing new high-growth segments outside of the traditional customer base. The explanations and examples for each of these options are interesting, but not earth-shattering. Where the post starts to become interesting, though, is in its examination of why managers don't fully exploit these three options: because of short term thinking, in part due to Wall Street expectations, but also, caused by the normal pattern of managerial promotions, and what this means to focus. The post finds that managers looking to advance their careers look to implement measures that can be rolled out in 6-12 months, and whose impact can be seen within the next 12 months. Accordingly, these managers concentrate on metrics that are aligned with this cycle, and which are readily accessible: "market share and customer satisfaction are the most measurable, at the least expense." This 'inside the box' thinking aligns with conventional wisdom, but isn't optimally aligned with prospects for explosive growth: as the post states, "'Experience' teaches [managers] that they can get share by clever but modest tweaks to pricing or to messages, or by modifying package size or format. It also teaches them that it can be hard and risky to try to focus on the long-term growth available from anticipating the future, or to rely on marketing or market development activities to reshape demand. Of course, what experience teaches is usually wrong–very wrong...Executives come to fundamentally overestimate the odds and value of share gain and underestimate the feasibility and value of growing usage or the category."

The post then goes on to explore ways of enabling "5D" growth. It recommends the establishment of "complementary groups" tasked with educating potential customers about new uses of existing products, changes to management metrics and promotion standards that emphasize success in new areas, in addition to success in existing initiatives, and pursuit of "different and deeper insights." The final piece of advice is for companies to "define their own playing field," addressing internal issues that result in the organization itself acting as a "growth enemy."

Perhaps more advanced and ubiquitous analytics will help to expand the scope of metrics used by ambitious managers, and consequently, expand the range of growth strategies they consider; perhaps approaches like changing to a 'gated' measurement system that balances new launches with building on previous initiatives will help . Regardless, the post raises important questions for managers today: are you considering all of the growth options available to you, and are there "out of the box" strategies (and metrics) that you can use to amplify business success?

Every industry seems to have an implicit set of rules about where and how to compete, almost as if the industry were a sports league. Over time, seemingly sensible organizational design choices, competitive cultures, and intrinsic human biases combine to lead executives in the various firms in an industry to share a rather narrow set of assumptions about where and how to grow. They can come to believe that growth primarily comes from retaining their existing customers longer through better customer satisfaction while taking customers away from weaker competitors (that is, gaining share). This places a hidden but strong brake on their ability to grow rapidly and reliably. For, seeing the industry this way, most, if not all, act as if they were in a continuous series of win-lose games. They copy each other as rapidly as they can: Their product-line strategies become near-mirror images, and they invest in the same best internal practices. The result is that all firms’ growth rates tend to rise and fall with the industry average. Even those who play the game very well find that they live in a world of two steps forward, one step back, as competitors match (perhaps not perfectly, but reasonably) any effective move on their part.

Some executives and some firms, however, refuse to be constrained to the "2D" world of share and retention. They play in a "5D" world, outside the usual rules. They create or tap into a wider set of often less-contested options that then allows them to grow faster and more reliably than those with a narrower vision. Of course, these firms protect their competitive "flanks." They, like other firms in their industry, invest substantially in programs to retain their customers and poach those of rivals. But they also see and invest in one or more of the other three sources of organic growth:

  • Drawing new customers into their category
  • Convincing their existing customers to use their product more, either intensively, extensively, or both
  • Moving more quickly than rivals to serve the future, that is, to serve emergent fast-growth geographies, segments, and product areas

These are sources of organic growth that some firms more or less create, or appropriate, for themselves. They are not free or riskless. However, they can be large and, because so few firms pay attention to them, are usually much less contested than share or retention...

Read the entire post: http://dupress.com/articles/5d-growth-sourcing-growth-outside-rules/?icid=hp:ft:03

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