1
Growth Strategies
Dr. L. Prakash Sai
Internal (“organic”) growth, including:
 Greater share of the profit pool for exis...
2
Defining Growth Trajectories
NEEDS
CUSTOMERS
Existing New
A B
CD
Push PastResponse
$XB
Global
Your
Share
$10 B
$20 B
$5-...
3
IV
I
III
Existing
Existing
New
New
N
E
E
D
S
CUSTOMERS
II
William Cunningham
Co-founder
(1930-97)
Eleanor Josaitis
CEO a...
4
Local
Global
Expansion
Distribution
Indirect
Internet
Micro-segmentation
of current segments
Un-penetrated
segments New
...
5
UPS: Expanding the Core Through Adjacencies
Atlanta USA is the global headquarters of UPS, the package delivery company....
6
P
R
O
F
I
T
P
O
O
L
S
P
R
O
F
I
T
P
O
O
L
S
7
Red ocean strategy Blue ocean strategy
Compete in existing market space. Create uncontested market space.
Beat the compe...
8
Smaller Regional Circus
Ringling Brothers
The Strategy Canvas: Cirque du Soleil
high
offeringlevel
low
Price
Fun & Humor...
9
Key Blue Ocean creations
(Automobiles)
Blue
Ocean
Created
By?
Driven By
Technology or
Value
Pioneering?
At the time of
B...
10
Key Blue Ocean creations (Movie Theaters)
Blue Ocean
Created By?
Driven By
Technology or
Value
Pioneering?
Industry
Att...
11
Growth
Horizons
Dr.L.Prakash Sai
Horizon 1
Extend and defend
core businesses
Horizon 2
Build emerging
businesses
Horizo...
12
Bombardier’s
Cascading HorizonsServices
International
Capital
(financing & leasing)
Transportation
Motorized Consumer P...
13
Horizon 1
Operators
Horizon 2
Business Builders
Horizon 3
Visionaries
Focus Executing to defend, and
increase profitabi...
14
Operational Skills
Privileged Assets
Growth-enabling Skills
Special Relationships
 IT Management
 R&D
 Product Desig...
15
Horizon 1
Horizon 2
Horizon 3
Staircases and Horizons
Create viable
options
Seed growth options
Test biz model
Build em...
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7 growth strategies

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Transcript of "7 growth strategies"

  1. 1. 1 Growth Strategies Dr. L. Prakash Sai Internal (“organic”) growth, including:  Greater share of the profit pool for existing products and services in existing markets and channels;  New products and services;  New markets and channels;  Increased customer retention. External growth (through alliances and acquisitions):  In existing products, services, markets and channels;  In adjacent businesses surrounding the core;  In non-core businesses. Growth Avenues
  2. 2. 2 Defining Growth Trajectories NEEDS CUSTOMERS Existing New A B CD Push PastResponse $XB Global Your Share $10 B $20 B $5-10 B$18 B Existing Existing New New N E E D S CUSTOMERS 1994: Owns half-of world market ($20 B). But, market is not growing. Growing the Pond 1995: Acquisition of Italy‟s Nuovo Pignone broadened the pond to $ 25-30B. 1996: Moving into supplying services as well as equipment to its utility customers opened $18B Pond – enlarging its total business to $48B. 1998: Redefined its pond as global energy industry – $700B (37 times of 1994 figures) Global Energy Pond $ 700 B. GE Power Systems: 1994-04 [Now: GE Energy] $20 B. (2004) “From Well-Head to Consumer”
  3. 3. 3 IV I III Existing Existing New New N E E D S CUSTOMERS II William Cunningham Co-founder (1930-97) Eleanor Josaitis CEO and Co-Founder I - 1968: Focus:Hope established in Detroit USA as a food program for mothers and children. II – 1971: The program has been extended to feed the senior citizens. III – 1981: Established tools for economic self-sufficiency – thru Machining Training Institute and IT Center. IV – 1993: Training for community development – Center for Advanced Technologies. “Make My Work Live On” Core Growth
  4. 4. 4 Local Global Expansion Distribution Indirect Internet Micro-segmentation of current segments Un-penetrated segments New segments New to world Complements Support Services Next Generation New Models New Substitutes New-to-world Needs Sell Capability Outside Backward Integration Forward Integration NEW BUSINESS NEW CHANNELS ADJACENCY TYPES 1. The best adjacencies build on and reinforce the strongest cores Relatedness to a strong core is the most powerful and reliable engine of value creation. Many of the most successful growth companies were able to maintain strong, highly measurable and mutually reinforcing economics between the current business and the new adjacencies. 2. Drive adjacencies toward the most robust profit pools A profit pool evaluation embodies the size of the industry, its current and potential profit dollars, and the extent to which those earnings could cover the cost of capital for the leading players. 3. Insist on the potential for leadership economics The decision to make a major investment to push out the boundaries of a core business into an adjacent area requires a clear view of the reinvestment and cash requirements in the future. CHOOSING ADJACENCIES
  5. 5. 5 UPS: Expanding the Core Through Adjacencies Atlanta USA is the global headquarters of UPS, the package delivery company. UPS currently has nearly 360,000 employees - up from the ten-person bicycle messenger business Casey started in Seattle about one hundred years ago. By 2002, around a central core of delivery and in a market growing 4 to 5 percent, UPS held a two-decade long record that placed it among the most elite performing growth companies. When UPS CEO Mike Eskew talks about the series of adjacency moves that propelled the company forward again and again. The transition: from local message delivery (1907), to local package delivery (1918), to regional package delivery to common carrier (1950), to national network, to the addition of two-day air freight capabilities (1953), to next-day-air service through the purchase of a fleet of planes (1988), to global package delivery today by virtually any method. Next Step: The new wave of specialized logistics and information adjacencies. What is a “Profit Pool”?  A Profit Pool can be defined as the total profits earned in an industry at all points along the industry’s value chain.  The pool will be deeper in some segments of the value chain than in others and depths will vary within an industry segment as well.  Segment profitability may also vary widely by customer group, product category, geographic market or distribution channel.  The pattern of profit distribution in an industry is often very different from the pattern of revenue distribution.  Profit concentrations result from the actions and interactions of companies and customers.  The Profit Pool is not stagnant. Rental Trucks + Trailers Moving Accessories + Insurance Rental Storage Space
  6. 6. 6 P R O F I T P O O L S P R O F I T P O O L S
  7. 7. 7 Red ocean strategy Blue ocean strategy Compete in existing market space. Create uncontested market space. Beat the competition. Make the competition irrelevant. Exploit existing demand. Create and capture new demand. Make the value/cost trade-off. Break the value/cost trade-off. Align the whole system of a company's activities with its strategic choice of differentiation or low cost. Align the whole system of a company's activities in pursuit of differentiation and low cost. STRATEGIC PERSPECTIVES Chan Kim and Renee Mauborgne Blue Ocean Strategy Guy Laliberté Cirque du Soleil Founder and CEO (Circus of the Sun) “Reinventing the circus” The fun & thrill of circus with the intellectual sophistication & artistic richness of the theater.
  8. 8. 8 Smaller Regional Circus Ringling Brothers The Strategy Canvas: Cirque du Soleil high offeringlevel low Price Fun & Humor Unique VenueAisle Concessions Multiple Show Arenas Thrills & DangerAnimal Shows Star Performers Theme Refined Viewing Environment Multiple Productions Artistic Music & Dance Cirque du Soleil Strategy Canvas: Southwest Airlines High Low Price Meals Lounges Seating Class Choices Hub Connectivity Friendly Service Speed Frequent Point-to- Point Departures Average Airlines Car Transport
  9. 9. 9 Key Blue Ocean creations (Automobiles) Blue Ocean Created By? Driven By Technology or Value Pioneering? At the time of Blue Ocean creation, is the Industry? Ford Model T Unveiled in 1908,theModel T was the first mass- produced car, priced so that many Americans could afford it. New entrant Value pioneering (mostly existing technologies) Unattractive GM's "car for every purse and purpose" GM created a blue ocean in 1924 by injecting fun and fashion into the car. Incumbent Value pioneering (some new technologies) Attractive Japanese fuel-efficient autos Japanese automakers created a blue ocean in the mid-1970s with small, reliable lines of cars. Incumbent Value pioneering (some new technologies) Unattractive Chrysler minivan With its 1984 minivan, Chrysler created a new class of automobile that was as easy to use as a car but had the passenger space of a van. Incumbent Value pioneering (mostly existing technologies) Unattractive Source: W. Chan Kim and Renee Mauborgne, “Blue Ocean Strategy”, Harvard Business Review, October 2004. Key Blue Ocean creations (Computers) Created By Driven By Technology or Value Pioneering? Industry Attractiveness CTR's tabulating machine In 1914, CTR created the business machine industry by simplifying, modularizing, and leasing tabulating machines. CTR later changed its name to IBM Incumbent Value pioneering (some new technologies) Unattractive IBM 650 electronic computer and System/360 In 1952, IBM created the business computer industry by simplifying and reducing the power and price of existing technology. And it exploded the blue ocean created by the 650 when in 1964 it unveiled the System/360, the first modularized computer system. Incumbent Value pioneering (650: mostly existing) Value and technology pioneering (360: new and existing) Non-existent Apple personal computer Although it was not the first home computer, the all- in-one, simple-to-use Apple II was a blue ocean creation when it appeared in 1978. New Entrant Value pioneering (mostly existing technologies) Unattractive Compaq PC servers Compag created a blue ocean in 1992 with its ProSignia server, which gave buyers twice the file and print capability of the minicomputer at one-third the price Incumbent Value pioneering (mostly existing technologies) Non-existent Dell built-to-order computers In the mid-1990s, Deli created a blue ocean in a highly competitive industry by creating a new purchase and delivery experience for buyers. New Entrant Value pioneering (mostly existing technologies) Unattractive
  10. 10. 10 Key Blue Ocean creations (Movie Theaters) Blue Ocean Created By? Driven By Technology or Value Pioneering? Industry Attractiveness Nickelodeon The first Nickelodeon opened its doors in 1905, showing short films around-the-clock to working-class audiences for five cents. New Entrant Value pioneering (mostly existing technologies) Non-existent Palace theaters Created by Roxy Rothapfel in 1914, these theaters provided an opera like environment for cinema viewing at an affordable price. Incumbent Value pioneering (mostly existing technologies) Attractive AMC multiplex In the 1960s, the number of multiplexes in America's suburban shopping malls mushroomed. The multiplex gave viewers greater choice while reducing owners„ costs. Incumbent Value pioneering (mostly existing technologies) Unattractive AMC megaplex Megaplexes, introduced in 1995,offered every current blockbuster and provided spectacular viewing experiences in theater complexes as big as stadiums, at a lower cost to theater owners. Incumbent Value pioneering (mostly existing technologies) Unattractive Source: W. Chan Kim and Renee Mauborgne, “Blue Ocean Strategy”, Harvard Business Review, October 2004. Costs Buyer Value Value Innovation The Simultaneous Pursuit of Differentiation and Low Cost  Value innovation is created when a company's actions favorably affect both its cost structure and its value proposition to buyers.  Cost savings are made by eliminating and reducing the factors an industry competes on.  Buyer value is lifted by raising and creating elements the industry has never offered.  Over time, costs are reduced further as scale economies kick in due to the high sales volumes that superior value generates.
  11. 11. 11 Growth Horizons Dr.L.Prakash Sai Horizon 1 Extend and defend core businesses Horizon 2 Build emerging businesses Horizon 3 Create viable options Time (years) Profit 3-Horizons’ Model
  12. 12. 12 Bombardier’s Cascading HorizonsServices International Capital (financing & leasing) Transportation Motorized Consumer Products Aerospace Commercial Aircraft Amphibious fire fighters Business jets New Prototypes New Prototypes 3-Horizons in Aerospace (Examples) CRJ-50 Dash 8 Turboprop CRJ-70 Dash 8-400 Turboprop New Prototypes 3-Horizons in Commercial Aircraft (Examples) New Prototypes Learjet 31A and 60 Challengers Learjet 45 Global Express 3-Horizons in Business Jets (Examples) Horizon 1 Operators Horizon 2 Business Builders Horizon 3 Visionaries Type of People Deep functional and/or industry expertise. Strong drive to hit targets and meet plans consistently. Discipline. Entrepreneurial desire to create. Comfort with ambiguity and change. Top line focused, sharp decision makers. Champions. Unconventional thinkers. Talent Approach Create personal (career and compensation) consequences for near-term performance, including clear penalties for under performance. Impose “no excuses” management style. Provide autonomy, freedom to act, and mandate to create and build. Opportunity to create personal wealth through cash bonuses and equity participation. Opportunity to build, create and leave a legacy. Provide psychological rewards; recognition of ideas; freedom to experiment and explore. Provide career advantages: opportunity to satisfy intellectual curiosity; option to become Horizon 2 Business Builder. Provide financial rewards. Talent Management By Horizon
  13. 13. 13 Horizon 1 Operators Horizon 2 Business Builders Horizon 3 Visionaries Focus Executing to defend, and increase profitability of existing businesses. Resourcing initiatives to build new businesses. Uncovering options for future opportunities and placing bets on selected options. Outputs Annual operating plan: tactical plans, resourcing decisions, budgets. Business building strategies; investment budget, detailed business plans for new ventures. Decisions to explore: initial project plan, project milestones. Planning For Growth Horizon 1 Operators Horizon 2 Business Builders Horizon 3 Visionaries Focus Near-term bottom-line results and cash flow Top-line growth and capital productivity Size of payoff and probability of success Measures  Profit  Return on invested capital  Productivity or efficiency  Revenue growth  Market share or installed base  New customer acquisition  Profit  Capital investment efficiency  Expected net present value  Project-based milestones  Option valuation  Rate of conversion from idea to business launch  Number of initiatives Performance Measurement
  14. 14. 14 Operational Skills Privileged Assets Growth-enabling Skills Special Relationships  IT Management  R&D  Product Design  Low-cost Manufacturing  Distribution Networks  Brands  Reputation  Customer Information  Infrastructure  Intellectual Property  Acquisition & Post- merger Management  Financing & Risk Management  Capital Management  Customers  Suppliers  Partners  Government Elements of Capability Platform E X A M P L E S Hardware Manufacturers Vendors and Resellers Systems Consultants Software Developers Proprietary Software Reputation Installed Customer Base Continuous Product Enhancement Operational Skills Privileged Assets Special Relationships SAP’s Distinctive Bundle of Capabilities
  15. 15. 15 Horizon 1 Horizon 2 Horizon 3 Staircases and Horizons Create viable options Seed growth options Test biz model Build emerging businesses Replicate proven biz model Extend and defend core businesses Manage for profitability Replicate Proven Biz Model Manage For Profitability Test Biz Model Seed Growth Options Developed world‟s largest combined-cycle plant in Teesside, UK 1990-91 1992 1993-96 Developed plants in Philippines and Guatemala Developed power plants world-wide: Second plant in UK Projects in India, China, Philippines, Turkey, Indonesia 1992 1990-91 1988-89 1987-88 1986-87 Acquired combined cycle plant in Argentina Developed plant in MassachusettsConstructed second Texas plant and acquired New Jersey plant Constructed flagship Texas plant Operated small gas-fired plant in Texas Project Promotion, Structuring and Financing International Operations US Plant Development and Construction US Plant Operations International Project Development PLATFORM OF CAPABILITIES Enron’s Staircase in Power Generation (1986-96)

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