Driving Double-Digit Growth And Increasing Your Profits
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Over the past three years, GDP growth in South Africa has been small. Economists expect 2018 to see GDP growth at 1% or less. And yet the growth strategies of businesses are aiming much, much higher. How do you target 15% to 20% growth under such tight economic conditions?
According to Dr Greg Fisher, a professor in the Management and Entrepreneurship Department at the Kelley School of Business at Indiana University and a visiting lecturer at the Gordon Institute of Business Science (GIBS) in South Africa, you can’t just ride the momentum of the economy. You need to do something more to fill that gap. And therein lies the challenge, because there’s no silver bullet that can drive double digit growth.
“Ultimately, you need to be able to critically think through and formulate multiple ways to fill that gap,” explained Greg during his keynote strategy workshop at the 2017 ThinkSales Sales Leadership Convention. “Success in anything — sports, raising children, learning and business — is driven by fundamental principles that need to be applied with balance and moderation.
“A conceptual understanding of what to do isn’t enough. You need to take action — your ability to drive double digit growth lies in developing a strategy based on five key principles, and then executing it.”
Here are the five key principles you must unpack in order to formulate and execute a growth-driven strategy.
1. You need a good plan
Every successful business shift begins with a good theory. It doesn’t need to be sexy. It does need to be insightful, and give you a map of what to do next, what not to do next, and what value needs to be created through which channels going forward.
Leverage foresight, insight and hindsight to formulate a mental model and hypothesise (or develop a theory) that relates to your market.
Take Steve Jobs as an example. He hypothesised that people would pay a premium price for ease of use and an elegant design in computing. This would form the foundation that other digital products could be added to.
2. Strategy is about making choices and trade-offs
Strategists are constantly faced with choices and trade-offs that need to be made if you’re going to stick to the plan. Remember, true value is created when you make a choice, and don’t try to dabble in multiple things at once. You need a clear and manageable goal. Choices require decisions, often relating to where you will be channelling your resources. A trade-off is not doing something. What will you do and not do? This must align with what you’ve already theorised. It doesn’t serve you or the business to follow too many paths and options.
Which markets will you pursue vigorously and which will you leave alone? Which customers will you target, and which won’t you? Which products will you produce to enact your theory? Which activities will you engage in inside your organisation, what will you outsource and what won’t you do at all? Who will you hire? Who won’t you hire? And which assets will you choose to own?
Everything is a choice and a trade-off. Take Ikea, a retail brand that’s enjoyed 70 years of successful growth. Why? Because of fundamental and particular choices relating to product designs and style. Ikea isn’t everything to everyone — it has a very specific value proposition and delivers on it relentlessly.
This is fundamental. Even if you’re the low-cost provider in your space, you still need to be doing something different to drive those costs down; you still need to be differentiating yourself and the way you operate. The world is more competitive than it’s ever been, and buyers have more access to information and options than they’ve ever had. To be competitive, you need to really interrogate your differentiators.
The strategy conversation tends to happen early, the profit conversation happens late. You need to bring them together. When you’re having a strategy conversation, you need to understand how it will drive bottom line growth. The role of strategy is to bridge what customers are willing to pay for a product or service, and what it will cost you to deliver it. The strategies you adopt are determined by theories, choices, differentiation and costs.
The formula is the following: Profit = the number of products you sell x price of product — expenses.
How does your strategy impact this equation? Which lever will your strategy pull? You ultimately want to drive profit, and to achieve that, your strategy must point to one or more of these three elements.
In other words, either you need to sell more products, or you need to increase the price you can charge, or you need to decrease the expenses you will incur to get that product to market (or a combination of all three).
The key question is therefore: What can you influence to drive the outcome you want? What strategy will drive profit?
The variants on the profit equation that you need to consider include:
- Industry average competitors
- Uniquely differentiated competitors
- Low-cost competitors
- Competitors with a digital advantage.
On the other side:
- Customer willingness to pay
- The cost to produce and deliver your goods.
Profit lies in the middle. Focusing on two or even all three of the levers is challenging, but it will result in the greatest results if executed properly.
But remember: The management of the profit equation is ongoing. You need to manipulate it in action and create a strategy that can be adjusted when and where necessary, always tying it back to the bottom line.
Ideally, you want to spend less while delivering more, resulting in higher profits. Before you can do that though, you must identify your profit levers. Finally, does your profit equation tie back to your points of differentiation, trade-offs and choices and ultimately business theory?
5. Activity integration
Your fifth, final and most important point is activity integration. You need to make your strategy happen. The previous four steps are meaningless unless you can do something with them.
Activity implementation is the result of the business performing a certain set of discreet activities. These include the sales force, managing customers and managing returns. This is your core and critical to business. Think of each business unit as a part to a mechanical watch.
The challenge becomes: How do they all work together in the service of the four points above? Your goal is to ultimately create something that is beautiful and precise. Independently, these departments are meaningless. Success lies in multiple activities, all working together to drive your strategy.
To get started, consider which activities are necessary to drive your strategy and ensure integration. How these activities work together reinforces everything you’re doing. Activities amplify each other, until 1 + 1 = 3.
The problem is that multiple activities working together is difficult to replicate. There is no single activity (or silver bullet) that will drive success. You need to optimise all of your activities — you need ten primary activities, and you need to do them all very well. That’s activity integration.
The problem is that it’s not easy, which is why so many organisations fail at this stage.
If you can get this right though, the results will speak for themselves. 1x1x1… to 10 = 100%. 0.9x0.9x0.9… to 10 = 35%. That’s the power of activity integration. It also means that doing each activity at 90% will bring the entire organisation down to 35%.
Walt Disney conceptualised the entire Disney business according to activity integration. Each element worked into the next, starting with movies at the centre. Get that right, and all the other activities — Disneyland, merchandising and so on — work. Negate the movie piece and the rest disintegrates.
Bringing it all together
What’s your theory? Do you have a clear, consistent and concise theory on how to succeed? How does that theory translate into your choices and trade-offs? What definitive things are you choosing to do and not to do?
How do these choices drive differentiation? You need a core differentiation that customers can appreciate, value and buy into.
How does your differentiation ultimately drive profits? Can you articulate it, and what levers are you pulling? What activities do you need to implement your strategy, and how do they ultimately integrate with each other?
Your Business Workplan
Your key business plan to discover and implement the five core elements of a business strategy
Briefly describe the THEORY underpinning your organisation’s strategy.
A theory is a mental model about how your organisation does (or could) create value. It reveals hypotheses about how an organisation can create significant value. It usually entails:
- Foresight about the evolution of the industry in which you operate
- Insight into how your organisation can create value in the industry as it evolves
- Hindsight about how you might build past competencies, relationships and assets.
Key questions about yourself
- What are the assumptions embedded in your theory? Are they valid? Could they be tested?
- Would the other leaders in your organisation describe a similar theory underpinning your strategy? Do you have a consistent view of opportunities and mechanisms for value creation across the organisation’s leaders?
2. Choices & trade-offs
Identify the CHOICES & TRADE-OFFS that you have made, and need to make, to act on your theory.
A choice is a clear decision to do something specific and meaningful. A trade-off is a clear choice not to do something that is somewhat tempting or attractive to pursue.
We have chosen to:
- Identify 3 to 5 important strategic choices you have made
- We still need to make choices with respect to
- Identify 3 to 5 important strategic choices you still need to make
We have chosen NOT to:
- Identify 3 to 5 important trade-offs that you have made
We still need to decide NOT to:
- Identify 3 to 5 important trade-offs that you still need to make
Key questions to ask yourself
- Do your choices and trade-offs clearly reflect your theory?
- What’s preventing you from making the choices and trade-offs that you still need to make? What would it take to definitively make these choices?
Identify the points of DIFFERENTIATION that are embedded in what you do (i.e. in your theory, choices and trade-offs).
Differentiation is something that clearly distinguishes an organisation from others in the industry. It is something that other organisations targeting the same customers are not doing and which those customers ultimately find valuable.
Key questions to ask yourself
- Do your customers see and experience these points of differentiation? Would they agree you are different in this regard?
- Would the employees in your organisation describe similar elements of differentiation? Do you have a consistent view of your organisation’s differentiators across the organisation?
- How easy is it for your competitors to emulate your points of differentiation? Could they easily copy your points of differentiation? If not, why not?
Identify how your points of differentiation drive PROFITS.
- A useful way to examine the connection between strategy and profits is to examine a simple version of the profit equation as follows: Profit = (Number of products sold x Price of products) – Expenses. Identify how the organisation’s differentiation elements drive profits as follows: Identify those elements of the profit equation that apply for your strategy and complete the statement where applicable
- We are able to sell more products than rivals (YES/NO) because
- We are able to charge higher prices for our products than rivals (YES/NO) because We are able to reduce our expenses relative to rivals (YES/NO)because.
Check those that are appropriate and complete the statement
- We sell more products because
- We charge higher prices for products because
- We reduce expenses because
Key questions to ask yourself
- What more could you be doing to increase volumes, charge higher prices and/or reduce expenses?
- Does your profit equation tie back to your theory, choices and trade-offs, and to your points of differentiation?
- Is the profit equation consistently understood across the organisation?
5. Activity integration
Identify the ACTIVITIES needed to deliver on your points of differentiation, and assess whether these activities are adequately INTEGRATED with one another (i.e. reinforce one another).
STEP 1. Write up a brief description of each activity required to deliver on your organisation’s elements of differentiation.
An activity is something that a organisation does repeatedly in the process of developing, marketing and delivering products and services to clients.
STEP 2. Draw links between the activities that currently reinforce each other.
Reinforcement between activities comes about when two activities support each other such that when they operate together, they are more effective than if they operated independently i.e. doing one activity well enhances the other activity.
Key questions to ask yourself
- Do we consistently view our organisation as an integrated system of activities that reinforce one another, or do we tend to deal with each activity independently?
- Are our activities arranged in a way that consistently and effectively delivers on our key points of differentiation? If not, how could they be rearranged to more effectively deliver on key points of differentiation?