Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
The business optimist gets advice and reinforcement
Donald MitchellChairman and Chief Executive Officer of Mitchell and Company, and co-author of The Ultimate Competitive Advantage, The Irresistible Growth Enterprise and The 2,000 Percent Solution (www.mitchellandco.com).
Double-Digit Growth: How Great Companies Achieve It – No Matter What
Michael TreacyPublished by Portfolio
During the times when inflation and GNP growth in the US were higher, investors gradually expanded their expectations of what ''growth'' meant. During the great bull market of the 1960s, a company that grew revenues by 10 percent a year was considered a great growth firm. Soon, that target was being set north of 15 percent. Exciting breakthroughs in technology meant that many markets were actually growing faster than that, so those who were growing market share were expanding at enormous rates (remember Cisco in the 1990s?).
Since then, inflation has declined to almost nothing, GDP has been stagnant during the Bush administration (with a recent up tick), and the dollar has been plummeting (making overseas revenues worth much less). That's a tougher environment to grow in than even the 1960s. So Double-Digit Growth is talking about a difficult target for those who are not in the highest growth industries. In appreciation of that point, Michael Treacy (co-author of The Discipline of Market Leaders) says that companies should measure their growth in terms of total gross profits. If you are expanding your value-added enough, you may be able to have double-digit growth while having less than double-digit revenue growth. That said, he argues that any company can have double-digit growth. I assume that he means it is possible. Based on the track record of the last three years, most would agree that it's improbable if we look at time frames of five years or more.
As with The Discipline of Market Leaders, Treacy looks at a few successful companies that have met his targets in the past (Johnson Controls, Mohawk Industries, Paychex, Biomet, Oshkosh Truck and Dell) and extrapolates what they did into a few simple lessons. The strategic lessons are:
spread your risk by pursuing many growth initiatives;
take on small growth challenges in order not to become overwhelmed by the size of the task;
use a variety of strategies involving organic growth and acquisitions, as appropriate to grow;
be committed to providing superior value;
develop your management to handle growth opportunities before tackling more opportunities; and
make growth a central focus of your management processes (using Balanced Scorecard-like measures).
To implement these six strategic perspectives, he counsels that each company should focus on five management disciplines: reduce customer turnover, take business from competitors, emphasize those areas in your industry that are growing fastest, invade adjacent markets where you can bring important advantages to bear, and invest in new lines of business. The heart of the book is devoted to these five disciplines and each receives a chapter that talks about the difficulties involved and how to overcome them. I thought the book's advice was most practical and interesting when it talked about the disciplines.
If I look back to when I was first learning about strategy, I think that every article or book I read talked about the last four disciplines but omitted the first. In fact, the best chapter in the book is on the first discipline – reducing customer turnover – and is especially strong in refuting those who advocate that you can build loyalty in customers with any method other than making your value proposition be terrific.
Another excellent part of the book comes in the case history of First Data, which used these disciplines to improve its situation. Presumably First Data was a consulting client of Treacy's.
I was pleased to see Treacy note that many of his champion growers frequently changed business models in positive ways (especially Paychex and Dell). Double-Digit Growth is a rare book in noting and describing such management excellence. In doing so, the book's only weaknesses were that few examples of continuing business model innovation were included and the author did not pay enough attention to the key elements of this new and important management discipline. I hope Treacy will place more emphasis on the best practices in this area in future books.
The book takes the perspectives of strategist and marketing executive, so those who come from other disciplines will probably gain the most from this book. Double-Digit Growth will give other executives a chance to understand what they should be focusing on as they meld their talents together with others in the organization. If you are, however, a veteran strategist or marketing executive, you may get little benefit except from reading whichever company cases in the book you have not read before.
As I finished the book, I wondered about how companies can make it more exciting to work on customer retention. Perhaps Raving Fans has it right in that regard. If you are not in a high growth market, though, I would still rate your chances of double-digit growth in revenues or gross profits to be slim ... unless you become a master of continuing business model innovation.