Thinking Differently About Growth
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Thinking Differently About Growth
The 5th Annual CFO Rising Conference & ExpoLas Vegas
October 25, 2010Ed HessProfessor of Business AdministrationBatten [email protected]
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THE DNA OF GROWTH
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RESEARCH FINDINGS5 research projects
The Organic Growth Index ( “OGI”)
The Characteristics of High Organic Growers (“HOGS”)
The Challenges of Managing Private Company High Growth
The Myths of Growth
The Risks of Growth
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U.S. GROWTH MENTAL MODEL
All Growth is Good
Bigger is Always Better
“Grow or Die”
Public Companies : Continuous Linear Growth
These beliefs are NOT supported by empirical data or business reality.
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THE REALITY OF GROWTH
Growth can be good; growth can be bad- it depends
Bigger is not always better
Growth is not a requirement for every business but improvement is
Continuous linear growth is rare
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OGI INDEX RESULTS
Purpose of the OGI Financial Model is to illuminate high organic growth companies and “screen” out companies that produce material non-organic growth earnings through accounting games, non-core earnings, serial acquisitions, financial engineering, etc.
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FINDINGS
Less than 10% of companies studied over several 5 year periods qualify as HOGs
Less than 3% of companies studied 1996-2006 qualified as HOGs
For years 2001-2006, of the 4031 public companies, only 276 qualified as HOGs
Of those 276 companies only 35 had market caps greater than $10B
5 other confirming studies
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WHAT ELSE DO WE KNOW?
Few companies show any predictable patterns of growth
Growth is only weakly correlated to profits
Earnings growth rates are largely unpredictable
Growth/Innovation is NOT a linear mechanistic smooth linear process
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GROWTH ISChange
Messy
Hard
People dependent in most cases
Mistakes & failures
Antithetical to the goals of a corporation: predictability, consistency, standardization, reliability, and no variance
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CHARACTERISTICS OF HOGS
My hypotheses:
Unique products/services
The best talent
Visionary, charismatic leaders
Superior innovation
Cost superiority by outsourcing/offshoring
Sophisticated diversified strategies
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HOGSMy findings:
None of the above were necessary or even commonSimple focused strategiesHumble passionate operatorsExecution championsHigh employee engagementConstant improvement DNAMaster learners and copiers
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RESEARCH CONCLUSIONS
Growth is much more than a strategy- it is a SYSTEM
Growth is Experimental Learning
Growth requires the right Leadership, Culture, & Processes
Growth results from a 2 X 2 X 4 Growth Portfolio
Customer Centricity & High Employee Engagement are Growth Enablers
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RESEARCH CONCLUSIONSGrowth/Innovation Killers:
“ROI-tis”
Group think
Arrogance
Legacy mental models/cognitive blindness
Penalizing mistakes
Short-termism
Product -centricity
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RISKS OF GROWTH
Growth can stress people, processes & controls
Growth can dilute culture and customer value proposition
The question is how much growth creates these risks
Toyota & Starbucks examples
Growth Risks Audit
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PRIVATE COMPANY RESEARCH FINDINGSGrowth changes everything
Growth is evolutionary - waves of change
Growth requires more and better processes
Preconditions to Growth
4Ps of Growth: Planning, Prioritization, Processes & Pace
The 4 Ways to Grow
The Entrepreneur Must Grow, Too !
The Difficulty in Building a Management Team