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Every business is a growth business

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Every business is a growth business

  1. 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. 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. 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 …
  4. 4. 1. Why Every Business Can be a Growth Business ?
  5. 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.
  6. 6. The Coke Story- Goizueta
  7. 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. 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. 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. 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. 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. 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
  13. 13. 2. Broadening the Pond
  14. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 25. The Choice & the Difference- The Leaders have to make
  26. 26. 3. Energizing & Aligning the Organization for Growth
  27. 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. 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. 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. 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. 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. 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. 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. 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. 35. 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.
  36. 36. 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.
  37. 37. 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.
  38. 38. Mail your comments to ramaddster&gmail.com