10 business practices used by ''growth champions,'' that CEOs and executive teams can implement
by: Mercer Delta Consulting
Mercer Delta Consulting has released findings from an unprecedented study of practices that companies pursue to achieve organic growth. The study - "In Search of Growth: 10 Practices that Create Organic Growth Champions" - included responses from CEOs, CFOs and other top executives from 174 U.S. companies (42% in the Fortune 1000 and 12 in the Fortune 100)(1). From the research, Mercer Delta isolated 10 key business practices that comprise a must-have set of ingredients for top executives who want to launch, with confidence, an effort to achieve growth from within.
|In addition, the study found that these 10 key practices characterize "Growth Champions," a subset of the sampled companies, which, on average, have grown more than three times as fast and maintained stronger profit margins than the rest of the companies in the sample from 2000-2004.(2) Some of the Growth Champions identified included CB Richard Ellis Group, Inc., Forest Laboratories, Inc., Oldcastle Products and Distribution, Procter & Gamble, and Texas Capital Bank.
"Growth is always a priority on the minds of CEOs: organic growth specifically is a central issue and our CEO clients increasingly seek ways to grow organically," said Dr. John Parkington, partner, Mercer Delta Consulting. "But, organic growth has historically been difficult to achieve despite being an appealing alternative to the cost and risks associated with growth by M&A. We went well beyond the current studies to find out why some companies are more successful than others at organic growth and we discovered valuable insights for leaders who want to grow their companies from within."
What the Growth Champions Do Differently The 10 practices that statistically differentiated the Growth Champions from all other companies in the sample follow:
1. Create clarity about the markets or businesses from which growth will come - 95% of Growth Champions vs. 73% of all other companies in the study reported implementing this practice to a 'great' or 'very great extent'
2. Articulate clear profit model(s) that are well understood by managers - 90% vs. 54%
3. Focus the whole business on a few initiatives - 68% vs. 45%
4. Engage in disciplined execution, at all levels of the organization, on growth initiatives - 79% vs. 44%
5. Translate customer insights into new offerings and/or business improvements - 68% vs. 35%
6. Promote excellence in execution - 90% vs. 75%
7. Maintain strong metrics/feedback loops to identify what is/isn't working - 74% vs. 40%
8. Make effective trade-off decisions about which opportunities to invest in - 68% vs. 44%
9. Ensure sustained alignment of leaders around actions to support growth strategies - 84% vs. 49%
10. Build leaders' capabilities to grow the company from within - 74% vs. 47%
"It is clear that some companies are focusing on activities that, while theoretically important, are not the right seeds to sow for organic growth. In fact, CEOs should avoid certain actions or at least approach them with caution. Better still, by redirecting their resources into the ten areas above, which are contingent upon and leverage one another, a company can successfully propel itself towards its growth goals," said Dr. William Pasmore, partner, Mercer Delta Consulting.
Size, Industry Don't Matter - Using the Right Practices Together Creates Impact
Successful organic growth is not dependent on size or industry - the Growth Champions, identified by the study, matched the financial size and industry mix of the balance of the sample. What sets the Growth Champions apart is their ability to implement these business practices in conjunction with one another and to pursue the practices with a greater level of intensity(3) than other companies in the sample.
"The Growth Champions implement these key practices in a systematic way, using them - oftentimes unknowingly - as mutually reinforcing actions for maximum impact," said Parkington.
In addition to the ten key practices exhibited by the "Growth Champions," the study also found:
-- 95% of the companies who responded said organic growth is critical to their success
-- 90% claim that their organizations are highly engaged in efforts to grow from within
-- 49% reported their company's capabilities to grow from within is getting stronger
-- 60% believe that organic growth will be even harder to achieve in the next three years - Growth Champions feel the same
(1) Data was collected between January and March 2005 via multiple choice questionnaires.
(2) Growth Champions are those companies that responded that they are 'above expectations' for their growth objectives in regard to sales, earnings and cash flow and who outperformed other companies in the sample for five consecutive years (2000-2004) on actual revenues, operating margins, and stock price.
(3) The questionnaire asked participants to respond regarding their implementation of the 35 practices in terms of a six point scale: "not at all," "to a little extent," "to some extent," "to a great extent," "to a very great extent," or "not able to rate".