While many companies have shifted their focus to growth, most lack an effective growth strategy. To successfully grow, companies need a new paradigm of setting credible, quantifiable growth targets. A growth strategy requires actively managing a program to achieve desired growth. The document outlines a framework for growth with five key elements: strategy, execution, optimization, growth capacity, and managing political risk. It also discusses risks at each stage and how to mitigate risks to improve the chances of a successful growth program.

1. N
ow that most major
developedcountries
a p p e a r t o b e
returningtoaperiod
of growth, the question on the
minds of CEOs has shifted from
cost reduction and containment
to how best to grow. The trouble is
that most companies do not have
an effective growth strategy. They
lack the structure, political capital
and resources to be successful.
Growth involves an element of
risk taking and adventure that is
often at odds with running a
successful business. To be
successful at growth, companies
needtoadoptadifferentparadigm.
Instead of looking at ideas for
growthonanindividualinvestment
go/no-go basis there should be a
target of “We will grow X per day
by a certain date”
. Not only does
this credible commitment to
growthboostthecompany’sshare
price,itprovidesatargettoachieve.
Thisnewparadigmrequiresthat
companies get serious about
growth and actively manage a
programme to achieve the growth
they desire. A growth strategy is a
practically grounded investment
programme and not necessarily a
singular idea for examination.
Think wider
Many companies have become
muchmoresophisticatedinrecent
years in how to conduct mergers
and acquisitions (M&As). Aided
by armies of consultants and
experienced practitioners (often
themselves former consultants),
companies are better equipped
to develop a strategy, execute
that strategy and integrate
acquired companies into their
company. They are armed with
flashy PowerPoint documents,
due diligence reports from big
four accountants, and integration
planning software and checklists
in order to track the attainment
of synergies.
However, having worked in this
field for many years, I have come
to realise that many people are
eitherstuckintheir‘box’
,bounded
by their own rationality and rarely
ifeverventureoutsideoftheirpiece
of the M&A lifecycle. Or they work
across the lifecycle but do so
infrequentlyandoftenwithoutthe
depth of experience necessary to
be successful. This creates myopic
andpoordecisionmakingbecause
the whole growth programme is
not looked at in an experienced
and holistic manner.
Programme elements
A growth programme has five
key elements:
•StrategyDevelopingaprioritised
list of growth options that have
been selected through rigorous
analysis of the triggers of growth,
competitionandthecompetencies
required to deliver growth.
• Execution To do new things,
companies need to be able to
develop new capabilities. These
capabilities
are bundles of
people, processes,
and technology that are glued
t o g e t h e r b y c u l t u r e .
To do this companies use three
tools:buyingcompanies,building
new capabilities and partnering
with other companies. Of course,
companies also divest assets in
part to be able to reallocate
resources to more attractive
opportunities
• Optimisation Integrating
acquiredassetsintothecompany,
optimising the operation of
capabilities that are built by
the company, and ensuring the
smoothoperationofpartnerships.
• Growth capacity A growth
programme is a major investment
that can make or break the
performance of the company.
Very often sufficient resources
are not devoted to this important
investment activity. The
development of a company’s
capacity to grow through the
acquisition of people, skills,
processes and an appropriate
incentive and governance
structure ensures that the growth
programme is set up for success.
• Political risk Corporate
development is often seen as a
cost centre that does not generate
current revenue or profitability.
The political will to maintain a
growth programme needs to be
nurtured and maintained on an
active basis.
Growing pains
These five elements come with
their own risks:
• Strategic risk There are risks
that the identified triggers for
growth (political, economic,
social, technological, legal,
environmental) do not create the
size of market opportunity
anticipated.Competitionwhether
from new or existing companies
andsubstitutesmayalsoimpactthe
opportunity in detrimental ways.
• Execution risk Each tool to
acquire new capabilities has its
ownadvantagesanddisadvantages
that can be predicted.
Buy Companies are bought with
a premium that reduces the value
to be obtained from the growth
option.Thedesiredassetmayalso
bepartofabiggercompanysothat
theacquirermayneedtobuyassets
atapremiumthattheydonotwant.
Thetargetmayalsobeunavailable
either because it does not exist or
because it maybe ‘locked up’ as
part of a bigger company making
it unobtainable.
Build It can take time to move
along the experience curve and
d e v e l o p t h e n e c e s s a r y
competencies to move to an
efficient level of production. Most
companiesaresetuptoefficiently
operate a set of capabilities.
Developing new capabilities
r e q u i r e s n e w
skills and investment. If the
competency is close to existing
competencies or if the company
wantstodomoreofthesamethis
can be the most attractive tool.
Partner There are many different
types of partnership, from a
contractual relationship
through to an equity joint
venture. The former have the
advantage of being more
flexible. In essence, you get
what you pay for and if you
are not happy you change
supplier. This is particularly
valuable for elements of an offer
thathavelowstrategicandfinancial
value. Equity joint ventures are
more difficult because they are
defined by legal documents at the
beginning of the partnership. This
makes future course corrections
and investment decisions more
difficult to align against the
partners new and differing
objectives. For divestitures,
corporate development need to
balancetheexpenseofseparation
and the higher price for a fully
separatedassetwiththelikelihood
and need for a quick(er) sale.
•Implementationrisk Inaddition
to the risks of running and
optimising a business, M&A and
partnerships have the following
additional risks:
M&A integration risks are well
known from not ‘doing the right
deal’ and culture clash through to
not realising synergies. Adopting
the following eight best practices
canincreasethelikelihoodofdoing
the deal right: provide strategic
clarity; control the integration;
stabilise the workforce; address
cultural priorities; optimise
outsourcing;bereadyforDayOne;
focusonsynergy;andprovidebest-
in-class project management.
• Capability risk Many growth
programmes are set up to fail
because there is not a recognition
of the need to build a company’s
capacity to grow. In a previous
article (‘A Better Way to Merge
Companies’, Winter 2011) I
discussed how companies can
build their capability to conduct
M&As by having effective
governance;appropriatecorporate
oversight; implementing effective
strategic measurement and
incentive programmes; and by
following a step-by-step process.
In addition two other risks exist
between the three elements:
• Strategic priorities When a
strategy is developed without the
considerationofexecutionyouget
theproverbial‘strategyinavacuum’
.
Everyone knows this can happen
but somehow it still does. For
example, a recent client of mine,
a Middle Eastern chemical
company, engaged a leading pure
play strategy firm and was
considering acquisitions but did
not factor in the availability of
assets as they were mainly ‘locked
up’ as part of a much bigger
company.Thishadamajorimpact
on what opportunities were
practically viable.
• Operating model priorities
Whenexecutiondoesnottakeinto
accountoperatingmodelpriorities,
additionalcapitalexpenditureand
operating costs can derail the
growth programme. This same
MiddleEasternchemicalcompany
didnottakeintoaccountoperating
model priorities when it was
proposed to enter eight new
markets while the assets being
acquired were to remain joined-
at-the-hip to their former owner
on a global basis. Surely, this
was a nightmare scenario for
integration and optimisation of
that new business.
A growth programme that
anticipates, plans for, and actively
mitigates against these risks while
b u i l d i n g a c o a l i t i o n f o r
implementationwillbemorelikely
to be successful.
RichardHParry(rhparry@us.ibm.
com)isanAssociatePartnerinthe
Growth and M&A Global Center
ofCompetenceatIBMConsulting.
He is a Sloan Fellow in General
Management at London Business
School and a has degree in
engineeringfromOxfordUniversity
A growth
strategy is a
practically
grounded
investment
programme
Richard Parry describes a framework that any company
can utilise to improve their chances of developing, executing
and optimising a successful growth strategy
A better way
to grow?
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