1. Some Impressionistic takes from the book
of Ram Charan & Noel M. Tichy
“Every Business is a Growth Business “
by Ramki
ramaddster&gmail.com
2. About the Authors
Ram Charan, Ph.D, advices CEOs & boards. He is a popular author
who published 15 other business books , including Execution, a best
seller he co-authored. & also books Leaders at all levels, Boards that
deliver & Boards at work . He is a member of 3 corporate boards.
Directorship magazine named him as one of its top 100 directors
He is Known for his insights & practical wisdom, Charan has counselled
some of the World's most successful business leaders.
He has an MBA & a doctoral degree with Corporate governance as a
field of study from the Harvard Business School
Noel M. Tichy is a professor at the University of Michigan Business
School and a Worldwide consultant specializing in leadership and
organizational transformation.
His previous books include The Leadership Engine (with Eli Cohen)
and Control Your Destiny or Someone Else Will (with Stratford
Sherman).
3. Prelude
What’s the number one item on every company’s agenda? Profitable Growth.
Every Business Is a Growth Business is your one-stop guide to making
profitable growth happen. It’s a radical & refreshing source of ideas,
inspiration, & common sense, all based on the unparalleled experience &
access of Ram Charan & Noel Tichy.
Charan & Tichy have worked with some of the World’s leading Executives—
people such as Jack Welch of GE, Eckhard Pfeiffer of Compaq, Larry Bossidy
of Allied Signal, John Reed of Citigroup, Dick Brown of Cable & Wireless, Alex
Trotman & Jacques Nasser of Ford, & the senior management of Coca-Cola—
who have transformed their companies into profitable growth machines. Every
Business Is a Growth Business is a distillation of what the authors & these
unique leaders have learned about profitable growth: I
Happy Reading …
5. 1. Clarity about growth
Thinking clearly about growth means understanding five crucial
points
There is no such thing as a mature business. Any company in any
industry can grow, once its leaders learn how to look beyond their
traditional definitions of industry & markets.
Not all growth is good. Good growth is sustainable, profitable, &
capital efficient & should not be confused with spurts of volume that
destroy earnings or bankrupt the future.
Growth is a mindset created by a company’s leadership.
Balanced growth is the key to prosperity. It requires meticulous
attention to the basics of cost structure, quality, product
development cycle time, productivity, asset utilization, investment of
capital, supply chain innovation, & customer service satisfaction.
Growing is less risky than not growing.
7. The Coke Story
Most people have forgotten just how bad Coca-Cola looked when
Mr.Goizueta took over.
At the time, the company dominated the U.S. soft-drink market, with
roughly a 35 percent share, & everyone knew the market was mature.
The game involved fighting for tenths of a percent of market share--at
exorbitant cost to the bottom line--or defending each tenth of a percent,
since PepsiCo was kicking Coca-Cola's can in marketing.
Security analysts & business writers were all but composing its obituary.
Goizueta didn't buy it. But how does one break the mindset of a mature
business--the deeply ingrained set of beliefs that circumscribes
everyone's thinking and hopes, dulling their minds and imaginations?
His company was full of talented people butting their heads against a
stone wall--the inexorable logic of squeezing out drops of market share
in a zero-sum game.
8. The Coke Story
Goizueta had an insight--a simple but stunningly powerful one that he
shared with his senior executives in the 1980s.
What, he asked almost casually, was the average per-capita daily
consumption of fluids by the World's 4.4 billion people?
The answer was:
64 ounces.
And what, he asked, is the daily per-capita consumption of Coca-Cola?
Answer: Less than 2 ounces.
Finally, he asked: What's our market share of the stomach?
Not Coca-Cola's share of the U.S. cola market or the world soft-drink
market, but of all the fluids everyone in the world drinks on a given day.
Coca-Cola's share was scarcely measurable.
Coca-Cola's people had invested a lot in the idea of PepsiCo as their
enemy.
But Goizueta led them to see that the enemy was coffee, milk, tea. The
enemy was water.
9. The Coke Story
With a few simple questions, Goizueta redefined Coca-Cola's
market to be vaster than anybody had imagined.
And he changed the psychology of its people.
They saw that their company was not a large fish constrained in a
small pond, but a small fish in a huge pond.
Rather than facing the depressing chore of struggling to not lose
more fractions of market share, they could set their sights on
winning a larger share of a huge opportunity.
Obvious? Yes--but not until Goizueta pointed it out. It was the
beginning of Coca-Cola's transformation from a threatened leader in
a mature business to the greatest market value creator ever.
(Goizueta's stockholdings at the time of his death were worth over
$1 billion, making him the first "hired hand," or non founding head of
a company, to become a billionaire.)
PepsiCo, the comer when Goizueta took over, is no longer in the
same league.
10. 2. There is no such thing as Mature business
If a business is not growing,
It’s dying.
Its markets, market valuation, & human capital are all at risk.
Growth is a mindset, & trouble starts when business leaders fall
into the “mature market” trap.
Any & every market has pockets or segments of growth potential if
a company knows how to look for them.
Customer needs are always changing & new ones arising.
By the same token, there is also no such thing as a growth industry
– “only companies organized & operated to create & capitalize on
growth opportunities.”
In addition, core competencies must be constantly redefined in light
of the company’s changing knowledge base & the fluid external
environment.
11. 3. Common Sense & Capital – the Business Thinking Underlying Top-Line
Growth & Bottom-Line Results
Good growth is profitable, capital efficient, & it more than
repays the money invested in it.
Whether a business is big or small, growing quickly or slowly,
the only criterion is: What’s the return on investment (ROI)?
The better & more consistent the return, the more people are
willing to invest.
The simple measure for this comparison is the stock’s
price/earning ratio (privately held companies can calculate an
imputed price/earnings ratio).
Given this criterion, business success can be stated as a
simple formula
Return = Margin x Velocity – no matter how complex the
organization.
12. Your bias as a leader can’t be for stability, predictability, for
policy conformance. The passion of leadership has to be to
grow a business. You just have to wake up every day
thinking about how you are going to grow it.
Dan Burnham, AlliedSignal Aerospace
14. 4. Strategy from outside in- 1/ 3
Those who build growth companies do not worry about share.
Instead, they redefine the market & they grow it.
In other words, they follow four simple rules that form the
framework for any growth strategy:.
They look at their businesses from the
outside in.
They enlarge the pond by looking
beyond the boundaries & existing
markets of their industries to the total
needs of their customers.
They find growing market segments –
or create them.
They build new core competencies to
capitalize on their new opportunities.
15. 4. Strategy from outside in- 2/3
Once a company starts looking from the
outside in, it can translate what it sees into
a plan by identifying the combinations of
existing and new customers it can reach,
and the existing and/or new needs it can
meet for these customers.
The resulting “2 x 2” matrix is an outside-in
strategic tool that forces a focus on needs,
not on products, allowing the firm to define
and choose its universe of potentially
profitable revenue streams in one of four
quadrants:
A. Existing customers with existing needs.
B. New customers with existing needs.
C. New customers with new needs.
D. Existing customers with new needs
16. 4. Strategy from outside in- 3/3
Companies with consistently high growth rates capitalize on change and
have a sustainable growth path (a growth trajectory) based on a welldefined set of needs.
Any new trajectory will have a central idea at its core – a clear, robust,
purposeful statement that summarizes strategy and goals and creates a
picture of customer needs that everyone in the organization can
visualize.
For example, Alfred Sloan’s central idea for General Motors, “A car for every purse and
every purpose,” defined the strategy that created the World’s biggest company
17. 5. Citibank -Outside in-1/2
During the early 1990s, John Reed’s primary goal
was to keep Citibank from going under as a result
of a two decades- old goal, deeply embedded in
the genetic code, of becoming the biggest bank
around.
With the survival phase of his plans concluded,
Reed looked to having Citibank measured by its
shareholder value rather than by the size of its
assets.
His announced goal was to grow profits by at
least 10 percent to 12 percent a year and to lift
the price/earnings ratio of the stock from 7 to 15.
His central idea was “to be known as the
preeminent bank for companies that value us for
our globality.”
18. 5. Citibank -Outside in-2/2
John Reid articulated two complementary strategies for the corporate
banking group.
The first was to make Citibank an “embedded” bank in emerging
markets – the largest and most global foreign bank in each
country.
The second strategy, global relationship banking, was a thrust to
make Citi the bank of choice for global companies needing an
ever-increasing number of services & solutions in a wide variety of
markets.
By the end of 1997, Citi had added thousands of customers across the
emerging markets and lifted its share as lead bank in many.
Importantly, Reed wanted to pursue these strategies in a way that
yielded good return on equity, reduced earnings volatility,
strengthened the organization’s sustainability & credibility, and realized
shareholder returns that would not diminish the returns earned in the
consumer business.
Over the next two years, revenues grew nearly 20 percent annually.
19. 6. Compaq -1/2
Eckhard Pfeiffer was made CEO in 1991, Compaq was a $3-billion-a-year
company stuck in a shrinking niche in which its high-priced PCs were
rapidly losing ground to Dell and Gateway.
Immediately, Pfeiffer set the goal for Compaq to surpass IBM as the
world’s number one supplier of PCs by 1996. Growing revenues at a
compound annual rate of about 63 percent and profits at just over 100
percent,
Pfeiffer met his goal two years early. He immediately redefined Compaq a
second time, announcing that it would serve the corporate market with
networked servers that would do the work of mainframes
Then, in July 1996, he declared that Compaq would become one of the
world’s three largest computer companies with revenues of $40 billion by
2000.
By the end of 1997, revenues had climbed to almost $25 billion (from
$14.8 billion in 1995) and profits stood at $1.9 billion. Compaq’s
P/E ratio was approximately 19 in comparison to 11 in 1992. Moreover,
acquisitions of Tandem and DEC brought additional revenues of $37.5
billion.
20. 6. Compaq-2/2
Pfeiffer’s
growth
strategy
was
radical,
methodical, and fast moving.
In less then five years he completely redefined
the company and enlarged its pond three times,
but only after thorough and dispassionate
analyses of customers, competitors, the
business model, and Compaq’s own capabilities.
Today, its product line extends from handheld
computers to multimillion- dollar fail-safe servers.
It defines its pond, not only as sales of hardware,
but virtually anything that existing or new
customers might do with their computers.
Pfeiffer is after as much of the total computing
wallet as he can get, whether it’s from big
corporations, small businesses, or individuals.
After saving Compaq Computer corp. from oblivion, he [Eckard Pfeiffer] went on to set
new records for creating shareholder value through profitable, capital efficient to line
revenue growth. His business model-forced others to follow, and thus grew demand
exponentially. A true wealth creator, he has broadened the pond for everyone.
21. 7. GE Medical- 1/2
GE Medical Systems (GEMS), the global leader in its industry, is a
$4.5 billion-a-year maker of diagnostic imaging equipment.
Originally a maker of X-ray machines, GEMS led in developing new
diagnostic techniques from the mid-1970s through the mid-1980s.
Then, the domestic market flattened out and tough foreign
competitors moved in.
In response, Jack Welch appointed Jon Trani to head the division &
gave him the mandate to globalize GEMS in order to position it in a
much bigger pond – worth some $120 billion (versus the U.S.
market of $48 billion).
First, Trani organized task forces to lower costs by $80 million,
which they accomplished within months.
At the same time, he asked Crotonville, GE’s in-house training
center, to help GEMS executives become a globally networked,
customer-focused team.
22. 7. GE Medical- 2/2
Trani also developed Quick Market Intelligence (QMI), an operating
mechanism for translating customer needs into fast action.
GEMS’s third stage of growth was the expansion of its service
business.
Looking for a way to redefine its marketplace, Trani found a whole new
pond to explore – the needs of its equipment customers for a single,
reliable, easy-to-deal-with supplier of related services.
GE’s own equipment amounted to a service pond of some $1.5 billion
in annual revenues.
The new initiative – servicing equipment made by numerous
manufacturers – would create a pond three times as big (a major part
of the expansion would be handling “bio-med” equipment – sterilizers,
monitors, anesthesiology equipment, etc.).
As a result, GEMS was able to tell GE shareholders that it “posted
record ongoing earnings during 1997 despite continued price erosion
in a slow-growing worldwide diagnostic imaging/ equipment market.
23. 8. GE Capital Services-Capitalizing on Change-1/2
GE Capital began in 1933 as a captive credit arm, financing GE
appliances.
Today, among other things, it is the world’s biggest equipment lessor;
owns the third-largest reinsurer in the U.S.; competes with banks
providing commercial loans, residential mortgages, mortgage insurance,
and private-label credit cards; and supplies life insurance and computer
services.
From 1983 to 1997, revenues expanded at more than 20 percent to $39.9
billion, while profits rose at an 18 percent rate, making Capital Services
the primary engine of GE’s growth.
Although superb execution makes it all work, GE Capital’s success
springs from its passion for growth, its remarkable capacity for change,
and its ability to segment and re-segment the marketplace.
Together they represent an institutionalized entrepreneurialism, or
mindset, that is rare in big corporations.
This mindset, present in leaders at all levels, largely reflects CEO Gary
Wendt’s teachable point of view.
24. 8. GE Capital Services-Capitalizing on Change- 2/2
Wendt does not think of GE Capital as being in the financial services
industry but rather as serving an endless series of markets and customer
bases with needs for an endless variety of products
What’s the secret of GE Capital Services, General Electric’s
celebrated growth machine?
Simply this:
A leader who finds opportunities for enlarging his pond
everywhere, and has replicated his point of view in the
company’s genetic code
25. The Choice & the Difference- The Leaders have to make
27. 9. The Genetic code & How to change it ? –(1/2)
An organization’s genetic code shapes Corporate Culture at the
most fundamental level, driving the development of vision,
strategies, and execution &, thus, determining how individuals
make decisions and how they work together
Transformation cannot succeed if the genetic code is not
diagnosed, understood, and reengineered.
The genetic code embodies the ideas of the company’s leaders (or
lack of them), the values they hold, and the emotional energy they
create (or fail to).
The code governs all transactions and interactions.
It dictates how everyone thinks, acts, and behaves.
It determines choices and actions.
It determines how people communicate with and treat each other; it
determines who gets rewarded, promoted, fired, and brought in
from the outside.
28. 9. The Genetic code & How to change it ? –(2/2)
Growth companies grow because their leaders have actively worked to
Change the genetic codes of their companies by developing new
teachable points of view,
Radically changing the organization’s operating mechanisms, and
bringing in new genetic material – outsiders with different decision and
social architectures.
Decision architecture is the framework for
What decisions get made
How they are made,
What information is selected, and
What analytical tools are customarily used.
How that information is structured and discussed; and what types of
judgments are given the most weight.
The social architecture is the product of how people react to each other
and includes the social relationships they develop through the dialogues
and decisions of work life.
29. 10. Rewriting the Genetic code-Allied Signal- ( 1/2)
When Larry Bossidy became CEO of AlliedSignal in 1991, the company
was a muddled portfolio of disparate businesses. Of its three major
sectors, only the Engineered Materials Division (the chemicals and
plastics sector) showed much promise.
The automotive sector was mature, and aerospace was in decline.
Earnings and the corporate stock had both languished for six years.
Bossidy was able to reinvent a company whose market value almost
quintupled to $24 billion in seven years.
Sales grew 22 percent to $14.5 billion, and net earnings reached $1.2
billion – compared to a loss of $273 million in 1991.
Bossidy’s first order of business was a reality check to ascertain what
customers believed about the company and its products, what employees
thought of the company, its real competitive position, and whether it was
generating enough cash from operations.
He discovered that AlliedSignal was not focused on customers and had
too many managers and capital projects with unclear paybacks.
30. 10. Rewriting the Genetic code-Allied Signal- ( 2/2)
Moreover, it was clinging to underperforming nonstrategic businesses; there
was no emphasis on margins; managers did not have a clue about how much
defects and poor quality were costing them; and alienation, disaffection and
lack of purpose were serious problems.
Bossidy first set about meeting commitments:
Making the numbers
Focusing on cash & Working capital turnover,
Margins, and the margins of competitors.
However, every numerical goal had an important subtext – to constantly
improve and strengthen the three core operating mechanisms: strategy,
operations, and human resources.
Bossidy also completely reshaped the company’s genetic code by replacing
three-fourths of senior management, a third of whom came from outside.
Aiming for new decision and social architectures, he also radically redefined
traditional management roles, insisting that all leaders become coaches.
Finally, viewing Total Quality as an ongoing operating mechanism for the
skills and mindset training that would help alter the genetic code, he made TQ
the centerpiece of his revitalization plan.
31. 11. Reynolds and Reynolds – Creating Lifelong Customers ( 1/3)
At the beginning of the 1990s, the Reynolds & Reynolds Company
was a $600-million-a-year business.
It made business forms and sold computer systems to automobile
dealerships.
Although respected, Reynolds was not considered to be stellar –
revenues had stagnated in 1991 at about $600 million a year, with
a return on equity of about 10 percent.
Dave Holmes –Chairman set the ambitious goal of growing
Reynolds to a $1-billion-a-year company by 2000.
Four years ahead of schedule revenues passed the $1 billion mark,
with profits growing at a compound annual rate of 36 percent.
The stolid forms maker had become “a powerhouse information
management company,” with a return on equity of more than 25
percent.
32. 11. Reynolds and Reynolds – Creating Lifelong Customers ( 2/3)
How did Reynolds do it?
The company broadened its pond from selling business forms and
computer systems to supplying “solutions” – the knowledge and
support customers needed to run their businesses better.
In the auto dealership computer sector alone, this strategy expanded
the pond from a $1.5-billion market with a 30 percent share to a $5
billion market where its share is just over 10 percent.
Holmes also paid as much attention, if not more, to changing the way
employees thought, made decisions, and behaved, as he did to the
basic business plan.
The old Reynolds was full of managers with limited horizons, reflecting
the modest ambitions of the founding family shareholders. Holmes
implanted many new genes, recruiting from such diverse companies
as Motorola, Procter & Gamble, General Foods, Xerox, GE, and
McKinsey. And, he promoted his teachable point of view in every
possible forum.
33. 11. Reynolds and Reynolds – Creating Lifelong Customers ( 3/3)
Holmes also paid as much attention, if not more, to changing the way
employees thought, made decisions, and behaved, as he did to the basic
business plan.
The old Reynolds was full of managers with limited horizons, reflecting the
modest ambitions of the founding family shareholders. Holmes implanted
many new genes, recruiting from such diverse companies as Motorola,
Procter & Gamble, General Foods, Xerox, GE, and McKinsey. And, he
promoted his teachable point of view in every possible forum.
Creative leaders are the ultimate sustainable competitive advantage. …CEOs
need to audit their organizations for them. They need to identify them, coach
them, and unblock and promote the ones who have been sidetracked in the old
genetic code. They must also often go outside for new genes with the requisite
mental architecture for a growth company.
34. 12. Can You Pass the Father Cunningham Test?
Thirty years ago, Father William Cunningham & Eleanor Josaitis started a
program (Focus: HOPE) to distribute food to pregnant women and infants.
Today, the program is a 30-acre enterprise that includes everything from
childcare facilities to machinist training, for-profit businesses that produce
parts for the auto industry, and an advanced degree-granting institute for
manufacturing engineers.
Cunningham & Josaitis can be characterized as leaders with ideas,
values, emotional energy, and edge.
They created their growth strategy by looking from the outside in,
constantly identifying new needs and enlarging their pond by developing
new segments.
They also implanted a genetic code so powerful that the enterprise
continues stronger than ever despite Cunningham’s untimely death.
He once said, “Don’t put my name on a building. … Make my work live on.
” This is the Father Cunningham test – the ultimate test of leadership: “Will
the organization you built keep growing after you’re gone?”
35.
36. Summary
Incremental market-share gains will not ensure long-term success.
Companies must either grow or die.
This is the simple, commonsense reality about doing business and one of
the many universal principles explored in this book
Business commonsense, as it “informs the views & actions of all true
businesspeople, whether they run giant corporations or trinket stands in
the third world” (what former Coca-Cola-Cola CEO Robert Goizueta called
“the commonsense of a shopkeeper”) is the central theme here.
Based on this theme, Charan and Tichy offer two fundamental (and very
original) insights into the secrets of creating and perpetuating growth:
outside-in strategy and changing the genetic code.
Outside-in is not just a theory. The authors demonstrate, unequivocally,
that it is the winning mindset & best practice of the highly successful
companies they profile.
These profiles offer the reader a new reality: There are no mature
markets, businesses, or industries.
37. Summary
The key word is need not product. Increasing market share does not lead to
growth. Focusing on core competencies is a mistake. And the fundamental
measure of success is nothing more complicated than return on investment.
Although these “truths” represent a radical departure from conventional
wisdom, intriguingly, the best leaders seem to have understood them all
along.
The second principle – that of changing the company’s genetic code – draws
a distinction between nurture (corporate culture) and nature – the “DNA” that
determines culture.
Although the conceptual difference might well be a matter of semantics, the
way in which many companies opt to change their genetic codes has indeed
been radical (with radical results) – they import an entirely new cadre of
leaders whose fresh perspectives will make things happen.
In addition, this DNA is the teachable point of view of the leader – a work in
progress that springs from the evolving ideas, values, energy, and edge of the
individual in charge.
Thus, changing the genetic code is more than anything about personal
growth.
38.
39. Take Away
No business is mature; growth opportunities always exist.
Don't just focus on growth. Seek growth that is "profitable, sustainable and
capital-efficient."
Develop a corporate mindset for growth.
Such a mindset has to start at the top and extend through your company.
A company's genetic code is the underlying way of thinking and behaving
that influences how people make decisions and work together.
Changing your organization's genetic code is the key to creating a
company-wide growth orientation.
To change your company's genetic coding, develop and share a
"teachable point of view."
Look beyond traditional industry and market viewpoints.
Continually think about new growth possibilities.
View your business from the outside in: Think about the needs of your
customers.
