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GrowthPraxis growth consulting paper


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Do successful companies think differently and act differently? Do they fear recession? How do they stay
at the helm as market or technology leaders? Do they pile on cash for future or invest now?

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GrowthPraxis growth consulting paper

  1. 1. Growth Strategy – What it means to BusinessWritten by Amit Goel and Nagarajan GanesanDec 2011For enquiries please contact: Page 1
  2. 2. Growth Consulting – What it means to BusinessDo successful companies think differently and act differently? Do they fear recession? How do they stayat the helm as market or technology leaders? Do they pile on cash for future or invest now?Recession or no recession, companies should constantly plan for growth. That’s what successfulcompanies do. Whether big or small, smart companies always go for growth. A recent survey conductedby Brother International Corporation shows that more business owners see the value of investing in theirbusiness now as opposed to stockpiling cash for a later date. Organic growth and open innovation remainhigh on the corporate agenda, even in troubled times. A classic example is that of Cognizant who hasused its cash to enter into newer service offering areas organically or inorganically. Areas such asPharma BPO (biostats, medical writer, pharmacovigilance, regulatory writer, etc.), platform BPO,engineering services, and analytics . Cognizant has been very proactive and very successful at identifyingnewer opportunity areas as compared to its competition. The result is showing up in financial results now.Look at the chart below. 99% of the companies don’t invest in growth and are stuck in stage 1 and 2. Lotof mid size companies also don’t reach the Fortune 1000 because they stop thinking about growth.“Growth” is similar to the “Quality” concept of the Japanese – Continuous improvement or continuouseffort. It should not be just a onetime effort. Following chart looks at all the companies in the US andsegments them base upon some important criteria. Fortune 1000 Companies 2000+ Employees 20K Companies 250 -800 Employees $ 40 MM Revenue 0.4% 40 -70 Employees $ 10 MM Revenue 4% 7 -12 Employees $ 1MM Revenue 95% 1 -3 EmployeesFor enquiries please contact:; +91-80-41231576 Page 2
  3. 3. Growth Consulting – What it means to Business Knowledgefaber Growth Consulting FrameworkWe have seen clients come to us for many reasons such as – can you help us double the EBIDTA in nextfive years, help increase profit margins by a target percentage every year, increasing sales or lower costs.We at Knowledgefaber follow a Growth Consulting framework.The following chart describes the various ways a company can possibly look to increase its ROA (Returnon Assets). The primary intension of this paper is to touch upon the various possibilities available for afirm’s growth. The factors like reduction of assets and performance improvement will be discussed in thenext paper. In this paper we will focus on Sales Growth. New Products/ Services Increase market share in existing business Sales Growth Geographic Expansion Adjacent Businesses Total Quality Management Increase productivity of Improving ROA Resources Value added performance Outsourcing Reduction of Assets Control Eco systems Typically growth strategies would involve one of the following or a combination of them:  Increasing market share in existing business: In this case, the company attempts to realize greater market penetration by becoming highly efficient at servicing its market with a limited product line. This strategy is limited and can be used only until the market is saturated. This is generally achieved by decreasing the prices of the products/services, adaptation of new marketing and sales techniques like repacking the product, product promotions and offers etc. An example for such a strategy would be Colgate – A company which sells tooth whitening product A new concept in the modern business world highly advised by Knowledgefaber is looking for newer end-client verticals for the same product/services. For e.g., we suggested one of our clients into telecom equipments (2G, 3G active network elements) that were selling to state owned operators and some private operators to also look at selling to entities such as GAIL and RAILTEL that are also building networks. GAIL or RAILTEL are not telecom operators but are buying various equipments for laying out networks for their use. Similarly we also suggested to look at ISPs.For enquiries please contact:; +91-80-41231576 Page 3
  4. 4. Growth Consulting – What it means to Business  Develop New Products or Services: The Company attempts to launch new products to penetrate deeper into the market. In most cases, the success of the new product or service launched depends on the consumer pain point the new product/service is expected to overcome Let us consider the example of Intuit - A software company developing payment solution for the banking industry. After the success of its Quickbook accounting software and Turbotax which is tax filing software they looked at something interesting to develop. In order to expand its business offering, the company has joined forces with AT&T to offer Intuit GoPayment, a mobile based application and credit card reader that helps small businesses of all sizes process credit or debit card payments using their Smartphone or tablets. The company in this case has used it existing capability to develop a new product.  Geographic Expansion: In this case, the company attempts to sell its existing product/services in a completely new geographic area. Foreign market entry strategies mainly involve decisions about the target country, target product and the entry mode. A research study from KPMG shows that main reasons for investing abroad (for say Chinese Firms) are to achieve geographic growth (59%) followed by building a global profile and reputation (41%). As an example, a company called Informa, formed by the Merger of IBC Group and LLP has always been looking to expand into new regions and territories to take Company’s knowledge and expertise to new people. The company today generates more than 20% of its revenues outside Europe and the U.S. with the revenues contribution from BRIC countries increasing at 30% Let us consider the example where Knowledgefaber assisted a client in expanding their business, a growth consulting exercise. The company was a HRO player that provides Payroll management, Compliance, time & attendance and temporary staffing solutions. After a careful due diligence that lasted couple of months and profiling of various opportunities including geographic expansion opportunities Knowledgefaber plotted all the opportunities on one single chart with market attractiveness on Y axis and company’s execution capabilities on X axis. This helped the client to prioritize and go after only the right ones.For enquiries please contact:; +91-80-41231576 Page 4
  5. 5. Growth Consulting – What it means to Business  Adjacent Business: In this case, the firm attempts to venture into opportunities that compliment company’s core businesses. A very good example for this case would be Whirlpool Corporation. Companies’ strength in the core appliance business has created opportunities for the firm to expand into adjacent businesses, such as water filtration products; kitchen cutlery and utensils. Another example to consider would be the GE Financing division which complements the company’s product sales. GE believes that they can ease off the purchase process for clients that can’t afford its products by financing it. Its important to profile and understand such opportunities in great details. Prioritize various opportunities on several parameters and then go after them. For e.g., Anheuser-Busch fell into an “adjacency trap” when the company tried to expand from the beer into the snack food business with its Eagle Snacks brand. In reality, snack foods required capabilities that Anheuser-Busch did not have, in manufacturing, merchandising, and rapid-cycle product development. The effort failed and cost shareholders dearly. What growth means to Business: A case study To understand the possible growth arenas available for a business, let us consider the case of a $13 billion leading wholesale distribution company in the U.S. – providing a broad range of products (pipes, valves, fittings for water and wastewater infrastructure) to customers in the infrastructure, maintenance, repair/improvement and specialty construction market. Lot of their clients are municipalities or municipal contractors. On careful analysis of the company, we can see that there are opportunities available for the company to expand its operations in various segments. Some of the suggestions are:  Increase market share with existing product/Service line: Since the company is currently into waterworks, it can also look at extending its business into water treatment plant business to achieve higher market penetration. This simply means taking the existing product to a new end- client vertical.  Geographic Expansion: The Company as of now operates in U.S. This gives company an opportunity to look at other geographies such as Canada or Mexico.  New Product/Services: The pipes produced by the company are Concrete or Iron pipes. So there seems to be an opportunity to bring in futuristic materials in pipes like High Density poly ethylene (HDPE). Additionally there also seem to exist a huge potential for the company to provide bundled services which could include meter supplying/ installation/ and maintenance. A study from Schneider & Associates reveals that companies who are actively launching new products/services had generated on an average ~20% of their revenues from them over a period of three years. Another example would be the transformational shift that IBM took, and moved from products into global Services, which now constitutes to more than 50% of the IBM’s revenues  New End user Market: Currently, the company’s target customers are residential or municipal customers. There is an equal opportunity for the company in the commercial business due to replacement requests  Adjacent Businesses / New Opportunities: Currently, the company deals into water and sewer products (water pipes, valves, fittings, etc.). The Company can also venture into Oil pipes,For enquiries please contact:; +91-80-41231576 Page 5
  6. 6. Growth Consulting – What it means to Business Irrigation pipes and gas distribution pipes using its existing capabilities. Since they are a wholesale distributor this would mean a similar business as clients would be same or similar and also they can acquire technical competence by hiring right set of people. Companies that have executed adjacency moves have grown revenues three times faster than average firms in their industry. A very solid example of this would be Nike. By systematically expanding from Football/Soccer into a series of sports such as Golf/Cricket, Nike raced past its rival Reebok — growing its profits from $164 million to $1.1 billion, while Reebok’s shrank from $309 million to $247 million in the same timeframe Knowledgefaber believes that the imperative for extending into new markets should include fitment analysis based on the company’s existing capabilities or segments that can be grown realistically. So in addition to identifying growth opportunities, we map the attractiveness of each available alternative against company’s execution capability to short list the opportunities that can be pursued. This is done through several workshops with the management of the company. 12 Attractiveness of Opportunity 10 Not fit , Unattractive Opportunity 8 Good fit , but Unattractive Opportunity 6 Good fit , Attractive Opportunity 4 For some Good fit, Consider how to 2 acquire skills 0 0 2 4 6 8 Ability to Execute What happens if companies did not pursue growth opportunities? Murugappa Group is one of Indias leading business conglomerates. The founder in the late 1940’s had taken a far-reaching decision to pull out of all overseas investments - the family had holdings in Malaysia, Sri Lanka and Burma - and focus only on India after the death of his son in Burma. Since then, the family has been mostly conservative, and exercised caution in getting into new businesses and new geographies. Consider this: Before the founder’s son Vellayan made his fateful trip to Burma, one of the people he did business with was Azim Premji’s grandfather. Like Premji’s family, the Murugappa’s too started an IT hardware manufacturing business, but sold it off and lost out on one of the biggest growth stories. However the company has realized the need for external Growth. They are coming out of the conservative regime. Their big 3 themes are adjacencies, backward integration and inorganic growth. For example, in fertilizers it would mean a new segment like rural retail (Coromandel grew its retail operations to over 425 centers from two centers three years ago), or providing new services or products such as bionutrients, consulting or farm mechanization.For enquiries please contact:; +91-80-41231576 Page 6
  7. 7. Growth Consulting – What it means to Business Another worthy example to consider would be the Nokia missing the “Smartphone bus”. Although Nokia had been a leader in mobile phones industry for a very long time, the company missed on the growth opportunity in the Smartphone market in recent past. It focused on low end or feature phones except one or two business phones. In the meantime, Apple started in 2007 with iPhone and an appstore and captured the Smartphone market. And if that blow was not enough for Nokia, Android platform on which many manufacturers build smartphones surged ahead. Nokia is losing market share and is left behind. Growth related exercises should not be limited to only good times but also for difficult times such as recession. The Japanese are known for this. They are masters at crisis management and look at situations like recessions also as polarities. The Japanese symbol for crisis is a representation of two separate symbols: danger and opportunity. Such a perspective encourages proactiveness - not reactiveness. As a result, the Japanese focus not on the problem, but on new solutions; not on survivability, but on growth; not on short-term losses, but long-term prospects. Conclusion In the present state of the business world, where growth is becoming a necessity rather than a discretionary exercise, continuous structured plans for growth are required. One of the top things on CEO’s agenda should be increase the ROA by a) sales growth, b) reduction of assets and improving the efficiency of resources to reduce costs. Demand trends are changing fast, competition among companies is increasing, firms are expected to look for alternate segments/new opportunities for recurring revenue generation and to increase profit margins. The above examples make it very evident that companies in the past have prospered by considering growth opportunities in and around their core businesses seriously and making it a top priority to do growth consulting exercises regularly/proactively rather than in a reactive way.For enquiries please contact:; +91-80-41231576 Page 7