Profitable Growth Is Everyones Business B I Z

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  • 1. Profitable Growth Is Everyone’s Business 10 Tools You Can Use Monday Morning Author: Ram Charan Publisher: Crown Publishing Group Date of Publication: 2000, 2nd Edition About the Author ISBN: 1-4000-5152-5 No. of Pages: 204 pages The Big Idea Ram Charan The bottom line for all companies is to make a profit. The higher the Ram Charan is a highly acclaimed earnings and the profit, the better for everyone involved. The best business advisor, speaker, and author. way to do this is through growth - profitable growth. Gone are the Ram has coached some of the world's days of ruthless downsizing and cost cutting in order to make more most successful CEOs. For 35 years, he has worked behind the scenes at money. In this book, the author shows you how focusing on companies like GE, DuPont, EDS, Ford, profitable growth could be the answer you've been looking for. Duke Energy and Verizon. Here, the author gives practical information that you can Ram started his business career as a teenager working in the family shoe understand, use, and take to work with you on Monday morning. shop in India. He went on to earn an engineering degree and then MBA and doctorate degrees from Harvard Business School. He graduated from Harvard with high distinction and was a The Challenge of Profitable Revenue Growth Baker Scholar. He then served. Ram is a favorite among executive Profitable revenue growth is a goal of any company. In this book, we educators. He won the Bell Ringer (best teacher) award at GE's famous will discuss not theories, but concrete steps you can take to the Crotonville Institute. He won similar office with you on Monday mornings. awards at Wharton and Northwestern. He was among Business Week's top ten resources for in-house executive There are three main reasons why people find growth difficult to development programs. achieve. First, many companies turn to cost cutting methods which Ram has written several books, including: What the CEO Wants You in the end actually undermines growth instead of fostering it to Know, Boards at Work, The Second, when people think of growth, they think of “home runs”, or Leadership Pipeline, and Every great, big, splashy kinds of growth (such as a revolutionary new Business Is a Growth Business. He also tailors his books for specific client product), instead of concentrating on smaller sustainable growths companies. He did one for Gateway, referred to as singles or doubles to follow the baseball analogy. one for Ford, one for EDS. His articles have been published in Harvard Third, improving productivity and increasing revenue are seen as Business Review, Fortune, Time, two separate entities when in fact they are not. Director's Monthly, and USA Today. Ram serves on two corporate boards: Austin Industries and Biogenex. He is The good news is that there are ten tools for profitable growth that also on the editorial review board of you can use. Human Resource Planning. He was elected a Fellow of the National Academy of Human Resources. He serves on the Blue Ribbon Commission Published by BusinessSummaries.com, Building 3005 Unit 258, 4440 NW 73rd Ave, Miami, Florida 33166 on Corporate Governance. Ram is © 2003 BusinessSummaries All rights reserved. No part of this summary may be reproduced or transmitted based in Dallas, Texas. in any form or by any means, electronic, photocopying, or otherwise, without prior notice of BusinessSummaries.com. Copyright © 1998 by Laurie Weiss, PhD.
  • 2. Profitable Growth Is Everyone’s Business by Ram Charan These tools are: 1. Revenue growth is everyone's business, so make it part of everyone's daily work routine. 2. Hit many singles and doubles, not just home runs. 3. Seek good growth and avoid bad growth. 4. Dispel the myths that inhibit both people and organizations from growing. 5. Turn the idea of productivity on its head by increasing revenue productivity. 6. Develop and implement a growth budget. 7. Beef up upstream marketing. 8. Understand how to do effective cross-selling (or value/solutions selling). 9. Create a social engine to accelerate revenue growth. 10. Operationalize innovation by converting ideas into revenue growth. Reorient Your Thinking About Growth: Hit Many Singles and Doubles, and Not Just Home Runs Singles and Doubles In the game of baseball, homeruns are exciting and everyone wants to see someone hit one. The same goes for business and growth. Managers always want to go for the home run, the big breakthrough, or the grand new product. However, many should keep in mind that home runs in business don't happen every year. Sometimes they don't even happen in a decade. Instead of aiming for that one grand home run, aim for singles and doubles. This is a surer and more consistent path. Of course, it is important to note that while aiming for singles and doubles, one should not exclude home runs. These singles and doubles come from an in-depth analysis of ALL the fundamentals of a business. Avery Dennison Avery Dennison is a $4.2-billion dollar company. Company president Phil Neal, tried without success to hit a home run, before he finally shifted to aiming for singles and doubles. The results were astonishing. The company immediately gained additional revenues, plus a new product that they were able to sell worldwide. While aiming for singles and doubles, Avery Dennison hit a potential home run. How Every Part of the Business Can Create Singles and Doubles for Revenue Growth Growth is not only the leader's responsibility, but also the responsibility of everyone in the company. Here are a few areas to pay attention to: 1. The sales force 2. Helping your customers grow [2]
  • 3. Profitable Growth Is Everyone’s Business by Ram Charan 3. Customer-needs segmentation 4. Pricing 5. Positioning, and when necessary, repositioning your business 6. Downstream marketing 7. Customer satisfaction 8. Logistics and delivery operations 9. Manufacturing 10. Finance 11. Billing 12. Legal 13. Information technology 14. Human resources The importance of singles and doubles also lies in the fact that they enable you to reorient the thinking of everyone in the business to achieve revenue day in and day out. Good Growth and Bad Growth Not all growth is created equal. When speaking of growth, it is important to distinguish between good growth and bad growth. How Good Growth Builds Value Growth builds revenue. Good growth on the other hand, increases not only revenues but also improves profits and is sustainable over time. Good growth is primarily internally generated. It is profitable, organic, differentiated and sustainable, and should build shareholder value over time. We'll look at all these characteristics one at a time. Profitable Good growth makes money and is capital efficient. One good gauge of profitability is Gross Margin. Gross Margin is your revenue less what it costs to make the product to obtain those revenues. Organic Organic growth is growth that is generated from within an organization. It fosters team building and builds the creativity of the organization since creating successful new products is a multi-disciplinary task. Differentiated It is important to differentiate your product from all the others - no matter how razor thin the difference may be. For example, Lexus could have been just another luxury car. But they positioned themselves just below the Mercedes, and above the Cadillac. So it was like getting the prestige of a Benz at Cadillac prices. They are also famous for their great customer service. Sustainable Good growth continues over time. You do NOT want a short spike in revenue followed by a sudden drop. Good growth continues year after year. [3]
  • 4. Profitable Growth Is Everyone’s Business by Ram Charan Bad Growth Bad growth lowers shareholder value. Unwise mergers and acquisitions are examples of bad growth. Price cutting to gain market share without cutting costs can also be detrimental to your company's health. Leadership for Growth: Confronting the Enemy Within Becoming a Revenue Growth Leader A leader in a corporation or business unit usually determines the strategy and positioning of the business. A leader is also in charge of ensuring that all customer needs are fulfilled, and that he can develop and inspire other people. However, if a leader is not dedicated to growth and productivity; and fails to link them together then “the enemy is within us”. When people speak of leaders, it is easy to just assume that they talking about the president or the CEO of the company. In this case, however, the author is also referring to the different unit, division and project heads within the corporation. It is important that the leader, whoever he or she is, always has an eye out for growth and “walks the talk” so that everyone can see. Spreading the Word Some companies hold company-wide meetings for senior executives to talk about one particular thing - revenue growth. Having all the heads together helps close deals faster, encourages inter-office communication, and increases revenues without increasing cost. Accelerating Profitable Revenue Growth Through Revenue Productivity Looking Differently at Productivity Revenue productivity is increasing revenue from the same level of cost. This is a different way of thinking from traditional cost productivity, which is usually about reducing expenses. This requires a different psychology. For instance, if you were working for a call center, you would go from thinking about how to get off the phone faster to accommodate more calls, to thinking about the tone of the representative so that the customer feels appreciated and understood. You will then adjust accordingly to satisfy your customer. This will increase customer satisfaction and may result in positive word of mouth about your company. Sometimes this may mean increasing costs to grow revenues, and this causes a lot of uncertainty. However, the pay-offs in the end will be worth it. [4]
  • 5. Profitable Growth Is Everyone’s Business by Ram Charan A Different Mind-Set What you have to do is shift from the cost-cutting mind-set to revenue productivity. Most managers cut costs in order to increase return on investment or ROI. ROI is usually computed as: ROI= Earnings/Investment Cost-cutters try to make ROIs higher by making the investment, or the denominator, higher. This makes sense but by looking at the formula from another perspective, you can also think of another way to increase ROI, and that would be to keep investments stable and to increase earnings. Let’s Review Revenue productivity begins with the idea that getting sales is everyone's job. It DOESN'T mean cost cutting. It means that costs remain the same, but revenues increase significantly. Building a Growth Budget In many companies, there are various budgets for almost everything. However, there is none set aside for profitable growth. Most companies are made up of various departments such as marketing, sales, product Development, etc. All departments are usually not effectively linked together, although they need to be. The growth budget can overcome this obstacle. The growth budget is a plan that not only lays out how the organization intends to create growth, but how it proposes to fund that quest. This will force managers of different departments to discuss their individual departments. Furthermore, organization-wide resources will be devoted to revenue growth. The growth budget should also be made transparent to everyone in the company so each employee is aware of the serious commitment to obtain additional revenue. The Growth Budget Making a growth budget starts with the following steps: 1. Develop a list of the sources of revenue growth and classify them as short, medium, or long term. 2. Note down each source of revenue growth and what it would take to make it happen. Prioritize and develop into a separate project. 3. Spell out the costs associated with each project on a quarter to quarter basis. 4. Identify which people will be assigned to key components of growth projects, what their accountabilities are, and how often they will be reviewed. Here's an example of how a growth budget for a publishing company may look: [5]
  • 6. Profitable Growth Is Everyone’s Business by Ram Charan 1. Funds for hiring additional editors to acquire books in new, emerging, “hot” categories. 2. Providing editors with enough funding to travel around the world to meet and speak directly with people on the cutting edge of their fields. 3. Funds to experiment with offbeat book formats and electronic publishing in an effort to change the game ahead of the competition. 4. Testing new channels of distribution to reach customers. 5. For the business-book market, research the sales potential of selling direct to in-house corporate training/education programs. Where Do You Get the Funding? There are four sources of funding for a growth budget besides cost productivity improvements. The four sources of funding are: 1. Resources taken away from stagnant or shrinking product lines, with the savings used to fund growth. 2. Take resources from divisions that are not growing or actually losing market share and are destined to continue doing so. 3. Reallocate the money that has already been assigned in the traditional budget funds, such as research and development. 4. A leader may decide to increase the money to be spent in an effort to obtain additional revenues. Pinpointing Opportunities for Profitable Revenue Growth Through Upstream Marketing Upstream Marketing is the ability to create or pinpoint the specific needs of chosen customer segments and satisfy them on a profitable basis better than the competition. This not only creates profitable revenue growth, it is also a competitive differentiator that creates long-term value. Downstream marketing, on the other hand, consists of brand building, promotion, and advertising; timely delivery of goods and provision of customer service; and customer relationship management. Getting Unfiltered Information Successful upstream marketing is based on your knowledge of customer needs. In short the first question we should ask ourselves is, “Who are our customers?” Answering this question means understanding every link in the demand chain from wholesale stores, to retail stores, to the customer who will ultimately buy and use your product. Focusing on the needs of all your customers is the starting point of upstream marketing. An Underutilized Asset [6]
  • 7. Profitable Growth Is Everyone’s Business by Ram Charan Your salespeople can be an amazing source of information and revenue. Here are five questions you may want to ask them: 1. Do they understand what their customers are looking for from suppliers, and how purchasing decisions are made? 2. Are they skilled at working with people at several levels, both within their customers' organization and at their own? 3. Are they perceptive enough to see the customers' evolving needs? 4. Once they have gained information about customer needs, how skillful are they at communicating without distortion what they have learned so that your organization can act on it, possibly providing customers with new products, new services, a new pricing structure, or whatever else is required? 5. How close is the connection - both socially and business wise - between those who produce the products and those who provide the intelligence? Cross-Selling: The Art of Creating a Value Proposition Cross-selling is based on the idea that you can get more out of your customers by convincing them to do more business with you. Creating the Value Proposition In order to cross-sell successfully you have to look at the total picture of the customer and then work backward to create a value proposition in a language that the customer understands. In developing value propositions you can make a template that includes the following: 1. Getting the total picture of the customer by gathering information that describes his working needs. 2. Identifying the customers' key decision makers and their process for coming to a decision. 3. Assembling and shaping the right value propositions, determining the mix and price of offerings and the cost, and the margins expected from the offering. 4. Showing the customer how the value proposition brings quantitative benefits such as cost reduction in the customer's shop, margin improvement, cash-flow improvement, increase in revenues, and increase in market share. Creating the Social Engine of Revenue Growth A lot of great ideas come from an exchange of information between people. This is the underlying idea of the social engine, a structure that allows information to flow in [7]
  • 8. Profitable Growth Is Everyone’s Business by Ram Charan the right channels throughout the organization. This is more than simple communication it is information flow. Information flow has four elements: 1. It is unfiltered. The person who has learned something is communicating it directly. 2. It is timely. They are passing on what they have learned almost immediately after they have learned it. 3. It is simultaneous, not sequential. It goes out to everyone who needs the information at the same time. It is not sent up or down through the ranks, which takes time and, by definition, creates distortion. 4. It is to the point and presented so that people can see how it is relevant to them. Why This Is So Important The growth process needs a way of collaborating to transmit ideas, get things done, make decisions and create accountability. All of these are just as important as the financial resources needed to get the process started. A social engine fosters growth and enables collaboration to occur naturally. Creating the Social Engine: A Step-by-Step Guide 1. The top team realizes that the current ways of trying to generate more profitable revenues are not working well. 2. They individually and collectively believe that growth is not only possible but also desirable and necessary. 3. The business unit managers get on the same page. They wholeheartedly endorse the idea of growth and communicate it effectively to their people. 4. Tools are added. Everyone masters the growth tools contained in this book and sets out to hit singles and doubles. 5. Growth ideas are tested. Each division forms a multi-functioning team, operating horizontally, to put the growth engine to the test. They are given a hundred-day deadline. They are rewarded lavishly when successful. Other employees will want to participate and several one hundred day projects are launched simultaneously. 6. Once the short-term wins convince everyone in the organization that growth is possible, the company starts moving down three tracks simultaneously - short, medium, and long-term goals and projects. 7. A monitoring and review system is put into place to make sure that the social engine continues to function seamlessly. Keeping the Engine Up and Running It is not enough to create a social engine, it is also important to keep your engine in healthy shape. There are key skills that must be learned to keep your engine up and running. [8]
  • 9. Profitable Growth Is Everyone’s Business by Ram Charan 1. Communication and information flow - these are central to building an engine that powers growth within your organization. 2. Getting the right people - when a leader is confronted with the issue of staffing he or she should ask these questions: · Do we have the right people with the right skills for what we are trying to do? · Are they in the right place? 3. Collaboration - having the right people and making sure they work well together is a powerful factor in revenue growth. Leaders at all levels must be willing to make corporate boundaries porous in order to make horizontal collaboration possible. Converting Innovation Into Revenue Growth All revenue growth starts with an idea. Getting revenues definitely requires innovation. While many think that innovation is created by geniuses, innovation is a largely social process. This process should be firmly integrated into the way the company does business everyday. There are five components to innovation: ideation, selection, nurturing, launch, and killing failures early. Ideation This is the flow of ideas that can be converted into growth on a consistent basis. An example of Ideation would be ideas for new products or services. Ideation can come from inside your company or outside your company. Selection As fun as it sounds, you can't possibly pursue every idea that comes along. The next step in innovation is choosing the more viable of your ideas to focus on. This means choosing “selectors” within your company that can choose which ideas are viable and which are not. Nurturing Once you have selected an idea, it needs to be nurtured so that it develops, grows, and thrives. Launch When it comes time to launch a new innovation, there are three potential problems that you need to anticipate in order to launch your innovation successfully. 1. The launch may come at a time when funds are not available. 2. The marketplace may not be ready for the new product or service you are [9]
  • 10. Profitable Growth Is Everyone’s Business by Ram Charan about to unveil. 3. Key employees may not be available to help in the launch. Killing Failures Early Killing failures in a timely manner can help the organization achieve profitable growth more easily. Here's why: 1. It frees up resources. 2. It allows people to think more broadly. 3. It improves judgment. Conclusion Here are some questions that can help you diagnose whether or not you are part of a growth business: 1. What percentage of time and emotional energy does the management team routinely devote to revenue growth? 2. Are there just exhortations and talk about growth or is there actually follow through? 3. Do managers talk about growth only in terms of home runs? Do they understand the importance of singles and doubles for long-term, sustained organic growth? 4. How much of each management team member's time is devoted to making effective visits with customers? Do they do more than listen and probe for information and then try to “connect the dots”? 5. Does the management team come into contact with the final user of your product? 6. Are people in the business clear about what the specific future sources of revenue growth will be? Do they know who is accountable? 7. Would you characterize your company or business unit's culture as cost cutting or growth oriented? If the answer is one or another you need to start doing both. Do people in leadership positions have the skill, orientation, and determination to grow revenues? 8. Does the company practice revenue productivity? Does it think through whether there are ways to more effectively use current resources to generate higher revenues? 9. How well does your sales force extract intelligence from customers and other players in the marketplace? How well is this information communicated and acted on by other parts of your organization, such as product development? 10. How good are the upstream marketing skills- that is, the ability to segment markets and identify consumer attributes- in your business? 11. Is the head of marketing in your business an upstream marketing expert? 12. How good is the relationship and information flow between upstream marketing and product development? Between upstream marketing and R & D? 13. Do you have an explicit growth budget? How well is the growth budget connected with revenue growth beyond the current fiscal year? Are there funds allocated in the growth budget for medium and long term revenue [ 10 ]
  • 11. Profitable Growth Is Everyone’s Business by Ram Charan growth? 14. How skilled are the people in your business in creating value propositions for each major customer segment of your business? How effective is your organization in using cross-selling to accelerate revenue growth? 15. How often and how effectively is information shared simultaneously among people who make resource trade-offs? 16. How good is the flow of ideas in your business? 17. How good is the process of selecting ideas that will be funded as growth projects? 18. How well defined are the steps of the nurturing process in getting revenue growth projects ready for launch? How effective is the process? By going through the above questions, you have reviewed all the key points made in this book. So here's one final question. Are you ready for Monday morning? [ 11 ] ABOUT BUSINESSSUMMARIES BusinessSummaries.com is a business book summaries service. Every week, it sends out to subscribers a 9- to 12-page summary of a best-selling business book chosen from among the hundreds of books printed out in the United States. For more information, please go to http://www.bizsum.com.