recession - how to grow when markets dont

8/14/2019 Recession - How to Grow When Markets Dont

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How to Grow When Markets Don’tBy Adrian Slywotzky, Richard Wise and Karl Weber

PART 1: A Different Way to Grow

A. The Growth Crisis

• Traditional business model: invent a product, sell it like hell, go international, acquire and

consolidate, minimize costs, increase prices where you can.

• Cracks began appearing in the traditional model of business growth.

• The value outflow concept is emerging, which consists of markets becoming increasingly

saturated and common sources of growth are no longer the solution, while shareholder

value and profits are leaving industries in general.

• Classic product focused growth strategies such as acquiring, globally expanding, and

creating innovative products are getting old.

• New growth and value is established by applying demand innovation : focusing on the

issues that surround the product, and expanding the market’s boundaries.

B. Beating the Crisis: Cardinal Health

• Cardinal Health, a leading pharmaceutical distributor, faces increasing demand from

customers while maintaining cost efficiency with competitive prices.

•

They realized the economical problems of the customers.

1. Caregivers and patients suffered because insurance providers, along with the

government, were limiting the amount that they would pay for medical

procedures.

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2. There was a talent shortage of healthcare givers.

3. Information management methods, such as medication instructions, among the

hospital created problems.

• Problems arised as potential growth opportunities in several areas:

1. Dispensing medications

2. Accounting

3. Re-ordering

4. Billing

5. Information processing

• Through extended processes and acquisitions, Cardinal makes a positive impact and

provides the customers with solutions with storage, procurement, and accounting and

dispensing of drugs.

1. Cardinal provided logistics management services for hospital pharmacies.

2. Cardinal began distributing customized supply kits, and created an online ordering

tool.

3. They expanded their growth opportunities by treating pharmaceutical manufacturers

as customers with potential rather than the average suppliers.

4. They built their asset base by acquiring to strengthen and add to its manufacturing

and technical capabilities.

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C. Demand Innovation: The First Half of Success

• The internal value chain concept is introduced, which focuses on the reality that products

serve more than one user, and each has different priorities and needs.

• Business growth opportunities frequently arise from assisting customers with making

better decisions, reducing the risk and complexity of their businesses and helping them

get their innovative products to the market faster.

• Demand innovation causes new sources of growth.

1. Concentrating on future demands creates unknown and powerful opportunities to

expand core product sales by reinforcing and establishing customer relationships,

and especially altering the basis of competition to valuable and differentiated

dimensions.

2. Viewing the needs of customers in a broader sense will allow demand innovators to

merge their various services and products into integrated offerings with increased

value.

3. Growth will occur when the improvements in the customer’s value chain are

converted into new streams of revenue from things such as tolling charges,

outsourcing fees, etc.

• View your customer through the economic lens by anticipating the needs of customers.

1. What are the common, re-occurring issues that they deal with?

2. How are their time, resources, and energy spent?

• Transform from a supplier to a key economic partner.

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• Identify and mobilize the hidden assets that your company has developed over the past

years to create demand innovations with increasing profits.

D. Hidden Assets: Making a Good Opportunity Great

• Capture the value in improving the economics of your customer.

• Utilize the hidden assets to transform marginal opportunities into even bigger ones.

• Increase the value of your hidden assets by correlating the hidden assets of your company

to the demands of your next generation.

• Analyze your company to distinguish your current hidden assets.

1. Unique customer access

2. Technical expertise

3. Installed base of equipment

4. Network of relationships

5. By-product information• There are 5 major categories of hidden assets.

1. Traditional Intangible Assets - intellectual property, brands , etc.

2. Customer Relationships - customer authority, customer interaction , etc.

3. Strategic Real Estate - Where a company stands in its industry. An advantaged

position in the value chain of the industry that provides access to other growth

opportunities.

4. Enterprise Networks - These assets are based on the companies’ key constituents who

have the capability to share the opportunities that will create new product and service

offerings. Third-party relationships, user community, etc.

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5. Information – Systems and software, technical know-how, etc .

• Hidden assets are advantageous because they tend to increase as they are used, they build

stronger relationships, and they help establish powerful and competitive barriers that are

expensive and hard to duplicate.

PART II. The Demand Innovators

E. The Large-Number Issue Is Huge for Us”: GM OnStar

• GM establishes growth by discovering opportunities that develop businesses that have the

capacity of increasing the growth of profits at a rate which is disproportionate to their

modest size.

• GM creates a growth program that includes a renewed focus on the engineering and

styling of the vehicles, the establishment of profitable niche GM models, more

concentration on high-margin add-ons and accessories, and an increasing amount of sharp

advertising, merchandising, and incentive programs to boost sales and traffic volume.

• They pin point on the softer needs associated with traveling by car, and the safety of

drivers by using advances in technology to develop a new mobile hardware system and

service package known as OnStar.

• Instead of just delivering a machine for transportation, GM now assures safety, security

and other value added services to the harassed drivers on the road.

• This OnStar creation is an example of how information technology and communications

served as a purpose to wrap value added services to an otherwise routine product

delivery.

F. If You’re Not Talking to the Customer, Someone Else Is” : Clarke American

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• Clarke American is one of the leading check providers to financial institutions in the

United States, and has been growing by converting into a customer management

solutions provider to its financial institution partners.

• The beneficial changes of the financial services industry interfered with the check

printing companies such as Clarke American.

1. Consolidation began to emerge where local banks began to acquire one another to

form into even bigger banks such as state and national banks.

2. Large entities began developing centralized purchasing units that already handle

outsourced functions such as printing checks.

3. Customers preferred using online banking, and other convenient services such as pay-

by-phone, thus causing a decline in the number of checks written by customers.

4. A new competitive force was introduced, which was the direct suppliers who sold

inexpensive checks to consumers using direct mail advertising.

• Clark approached these problems by initiating a strategic account program that entailed

several key elements to make it a success.

1. Determine the best opportunities by screening current and potential partners.

2. Change the organization and structure of the Clarke American sales force to a

customer-segment-oriented structure.

3. Develop new partner relationships that go beyond your expectations, and would

include top management.

4. Transform sales force incentives from rewarding the winning of new business, to

rewarding the maintenance of relationships, customer satisfaction, and the increase of

accounts already present.

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G. “Our Biggest Wow!” John Deere Landscapes

• Deere & Company established a reputation as a manufacturer of landscaping equipment,

and had authority with those who develop and maintain green spaces.

• Having this authority, they then used a different business model to exercise an

opportunity that entailed launching a new business as a landscaping materials seller and

producer to professionals in the green industry.

• The heads of Deere’s Commercial and Consumer Equipment Division analyzed the

structure of the green industry and noticed that it resembles the shape of an hourglass:

The bottom consists of landscapers, irrigation installers, and lawn maintenance

companies, the middle is considered the distribution section, while the top are those that

the bottom interacts with, such as nurseries that grow trees, quarries that provide paving

stone, and many small manufacturers of irrigation tubing, pumps, and other supplies.

• This hour glass realization inspired the John Deere Company to launch a national

company, named John Deere Landscapes that would combine and improve the

connection in the industry value chain by offering products and skills under one umbrella.

• Later, a new opportunity existed that consisted of a financing program which allowed

loyal JDL contractors to offer to their landscaping clients.

1. This financing program included installment credit and sales tools such as instant

online approval.

2. An installer of the program can visit the prospective client and explain the process of

the John Deere Credit system.

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• The new credit system produces the benefits of increasing landscaper revenues, while

increasing the green product purchase flow through JDL, and not to mention the

relationships that are getting stronger.

H. “Honing Innovation to a Fine Art”: Johnson Controls

• Johnson Controls began assembling seats, and stands today as a developer of entire

automotive subsystems.

• JCI’s distinctive relationship with the Japanese automakers opened the door for new

growth opportunities by allowing the company to learn a new way of doing business so

that it may apply it along the journey to growth.

• JCI broadened their service by concentrating on the next goal of adding seat design

capabilities.

• Chrysler benefits from JCI’s services because it no longer needs to outsource its

engineering, development, and production costs.

• Initially, the costs of JCI’s seats were an issue to Chrysler, but JCI prevented the

opportunity to work with Chrysler from demolishing by sending their teams to research

Chrysler and their operations.

• JCI also expanded its market to venture from designing seats, to researching their

customers/consumers, to testing their production and developing credibility with their

customers.

• After extensive consumer research, JCI defines its new product niche of designing a TV-

and-VCR unit built into the overhead panels of automobiles.

• JCI establishes goals by maintaining a vision of the future, and an idea of where they

want their business to go.

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• Overall, JCI has grown by addressing the flaws of automakers, such as their

inefficiencies, redundancies, and extensive costs.

I. “Customers Don’t Care About Our R&D”: Air Liquide

• Air Liquide, a supplier of air, which is one of the basic industrial materials, used their

technical expertise in distributing, producing, and utilizing gas in industrial settings to

respond to the many critical operating issues that their customers face.

• Air Liquide encounters a problem when customers feel clueless, and neglected with the

company’s cumbersome and centralized hierarchy.

• The company made an effort to get closer to the customer to understand their problems,

and used their problems as an entry to become an economic partner that everyone can

benefit from.

• Over time and after R&D processes were conducted, the company realizes that the

innovations and skills that they acquired over the years served as a powerful hidden asset

if applied the correct way.

1. The company had the know-how of developing techniques to optimize energy use

throughout the production process.

2. Air Liquide was the creator of sophisticated measurements and detection systems, and

other tools and practices that addressed the handling of hazardous materials, which

their customers can learn from in order to improve their businesses.

3. Air Liquide also possessed the expertise of distributing gas efficiently via pipelines,

in smaller quantities in cylinders, or in liquid form via trucks.

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• The technical know-how of Air Liquide causes them to be chosen as the managers of

Texas Instruments’ Chemical Operations Department, and takes into consideration that

this can be a way to expand its relationship with other semiconductor customers.

PART III. Making Growth Happen in the Real World

J. Hidden Liabilities: The Other Side of the Ledger

• Hidden liabilities, which consist of unrecognizable features, create complications for

companies attempting to recognize and purse opportunities for new growth.

• Balance sheets are an effective tool in further analyzing the obstacles that a company may

face, and can be constructed by listing your company’s hidden assets on the left, while

noting the hidden liabilities that offset those assets on the right.

• EPI’s hidden liabilities were those such as manufacturing culture and tradition, flawed

budgeting process, lack of service experience or capability, and lack of the capability to

design.

• Companies in various industries discover basic hidden liabilities.

1. Cultural Liabilities - Many growth dysfunctions occur within a company when it

states their objectives and goals of growth without taking the necessary steps to

accomplish them.

2. Structural Liabilities - Many companies that are already established consist of poorly

designed or overly inflexible measurement, management, and information systems

that are unable to support the demands of new growth.

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3. External Liabilities – Relations with outside entities can impose growth prevention.

Channel conflicts are like bad marriages where the common flaws are inevitable

while the good traits are overlooked.

K. The Role of the Middle Manager: Becoming a Growth Catalyst

• The actions that middle managers take will determine the future of the company.

• Powerful middle managers have a duty to leverage the hidden assets of the company,

handle and surpass the hidden liabilities, while also creating opportunities for growth.

• Kathy of Magnum Manufacturing expanded the companies growing opportunities, as

well as her own by being opportunistic, a little subversive, and inventive.

1. She launched a new integrated service offering with persistence and enthusiasm, and

it was approved by her boss after she focused on a few simple pilots earlier on.

2. To execute her idea, she developed the needed resources by choosing those whose

talents were not being utilized to the best of their ability, and liberating them.

3. She eventually took charge and began running a separate business within a business,

even if it means ignoring the partnership of those within the company.

• Middle management should own a limited zone of control, and the more they encounter

different experiences within the business, they eventually realize that the boundaries of

your zone are flexible and not fixed.

• Middle managers have an advantage because they have an actual understanding of the

company’s invisible balance sheet of hidden assets and liabilities.

L. The Job of the Senior Manager: Creating an Operating System for Growth

• An operating system that serves to identify, shape, and nurture new-growth initiatives

should be established to create continuous successful growth.

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• Several key principles are important when developing new-growth initiatives.

1. Reexamine and reinforce the strength of its core business.

2. Mandate new growth at the operating level, and everyone should be involved in the

issue of growth while challenging but achieving in the real world business context.

3. Support and encourage a culture of growth, and remember that the innovative ideas

must first be translated realistically while the bad ideas must be eliminated as soon as

possible.

4. There should be a high level of support for growth initiatives, and management

should have an ongoing commitment to leading, even through the most difficult

forms of change.

5. The opportunities of the next generation are usually fundamentally different from the

core of the business, and therefore should be understood and structured in a

compatible way.

6. Build the asset base through acquisitions and alliances. Expand from revenue

acquisitions, which are those focusing to create revenue growth and cost synergies, to

capability acquisitions, or those that serve as a purpose to speed development,

introduce the business to strategic markets, bring in required skills, and improve the

odds of success for a new growth initiative.

PART. IV Opportunities on the Growth Frontier

M. Decoding the Economics of Consumers: Progressive Insurance, DeWolfe Homeowner

Services, and Mobil Speedpass

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• Various consumer companies have succeeded in leveraging their hidden assets to

improve the customer experience, while simultaneously removing hassles and

needless costs from daily life.

1. Progressive auto insurance providers are different from their competition

because of the unique coverage that they offer, and because of their outstanding

customer service when dealing with the most traumatic and hassle filled

experiences associated with car ownership.

2. DeWolfe differentiated itself within the Reality business by allowing customers

to experience a convenient home buying experience and providing them with all

the necessary services of mortgage lending, home insurance, and moving

services.

3. Mobil created Speedpass to respond to the needs of customers, which is a tiny

electronic transponder that could be waved near a receiver-transmitter at a gas

pump or minimart cash register and instantly triggers a secure credit card

transaction in the name of the holder.

PART V. Getting Started

N. Some Moves for Monday Morning

• There are a variety of short-term moves that represent transitional sources of

profits and skills.

1. Addressing unique needs and taking a fresh look at the traditional customer

base through the lens of next-generation needs.

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2. Building a strategic customer relationship program to begin forging

relationships deeper in the customer’s organization can stimulate new growth,

and at the same time enhance one’s ability to observe and respond to the

customer.

3. Replicating the best customer relationships.

4. Using value pricing approaches, which entails breaking in all-inclusive prices

into its component parts and charging for valuable but previously “free” add-

on services.

5. Evolving the product offer into a system offer and converting stand-alone products into a component of a system of products that are designed to work

together.

6. Wrapping easy to deliver but valuable supporting services around the product.

7. Shifting the brand equity investments to emphasize the emotional and affinity

elements of the brand.

O. Creating Your Growth Action Plan

• Analyze the current standpoint of your company

1. Where is my company on the growth curve, and which of these categories

does my company honestly fit into?

2. Decide on a realistic growth target and determine how great the growth gap

of the company is?

3. Where do my initiatives fall along the growth spectrum?

4. What is my growth action plan?

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recession - how to grow when markets dont

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