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Growth Strategies

Dr. L. Prakash Sai

Internal (“organic”) growth, including:

Greater share of the profit pool for existing products and

services in existing markets and channels;

New products and services;

New markets and channels;

Increased customer retention.

External growth (through alliances and acquisitions):

In existing products, services, markets and channels;

In adjacent businesses surrounding the core;

In non-core businesses.

Growth Avenues

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Defining Growth Trajectories

NE

ED

S

CUSTOMERS

Existing New

A B

C D

Push Past R

es

po

ns

e

$XB

Global

Your

Share

$10 B

$20 B

$5-10 B $18 B

Existing

Existing

New

New

N

E

E

D

S

CUSTOMERS

1994: Owns half-of

world market ($20 B).

But, market is not

growing.

Growing

the Pond

1995: Acquisition of

Italy‟s Nuovo Pignone

broadened the pond to

$ 25-30B.

1996: Moving into

supplying services as

well as equipment to

its utility customers

opened $18B Pond –

enlarging its total

business to $48B.

1998: Redefined its

pond as global energy

industry – $700B (37

times of 1994 figures)

Global Energy Pond

$ 700 B.

GE Power Systems: 1994-04 [Now: GE Energy]

$20 B.

(2004)

“From Well-Head to Consumer”

3

IV

I

III

Existing

Existing

New

New

N

E

E

D

S

CUSTOMERS

II

William Cunningham Co-founder (1930-97)

Eleanor Josaitis CEO and Co-Founder

I - 1968: Focus:Hope

established in Detroit USA

as a food program for

mothers and children.

II – 1971: The program has

been extended to feed the

senior citizens.

III – 1981: Established tools

for economic self-sufficiency

– thru Machining Training

Institute and IT Center.

IV – 1993: Training for

community development –

Center for Advanced

Technologies.

“Make My Work Live On”

Core Growth

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Local

Global

Expansion

Distribution

Indirect

Internet

Micro-segmentation

of current segments

Un-penetrated

segments New

segments

New to

world

Complements

Support Services

Next Generation

New Models

New

Substitutes

New-to-world

Needs

Sell Capability

Outside

Backward

Integration Forward

Integration

NEW

BUSINESS

NEW

CHANNELS

ADJACENCY TYPES

1. The best adjacencies build on and reinforce the strongest cores

Relatedness to a strong core is the most powerful and reliable engine of

value creation. Many of the most successful growth companies were able

to maintain strong, highly measurable and mutually reinforcing economics

between the current business and the new adjacencies.

2. Drive adjacencies toward the most robust profit pools

A profit pool evaluation embodies the size of the industry, its current and

potential profit dollars, and the extent to which those earnings could cover

the cost of capital for the leading players.

3. Insist on the potential for leadership economics

The decision to make a major investment to push out the boundaries of a

core business into an adjacent area requires a clear view of the

reinvestment and cash requirements in the future.

CHOOSING ADJACENCIES

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UPS: Expanding the Core Through Adjacencies

Atlanta USA is the global headquarters of UPS, the package delivery company.

UPS currently has nearly 360,000 employees - up from the ten-person bicycle

messenger business Casey started in Seattle about one hundred years ago.

By 2002, around a central core of delivery and in a market growing 4 to 5 percent, UPS held a

two-decade long record that placed it among the most elite performing growth companies.

When UPS CEO Mike Eskew talks about the series of adjacency moves that propelled the

company forward again and again. The transition:

from local message delivery (1907),

to local package delivery (1918),

to regional package delivery to common carrier (1950),

to national network, to the addition of two-day air freight capabilities (1953),

to next-day-air service through the purchase of a fleet of planes (1988),

to global package delivery today by virtually any method.

Next Step: The new wave of specialized logistics and information adjacencies.

What is a “Profit Pool”?

A Profit Pool can be defined as the total profits earned in an industry at all points along the industry’s value chain.

The pool will be deeper in some segments of the value chain than in others and depths will vary within an industry segment as well.

Segment profitability may also vary widely by customer group, product category, geographic market or distribution channel.

The pattern of profit distribution in an industry is often very different from the pattern of revenue distribution.

Profit concentrations result from the actions and interactions of companies and customers.

The Profit Pool is not stagnant.

Rental Trucks + Trailers

Moving Accessories + Insurance

Rental Storage Space

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P

R

O

F

I

T

P

O

O

L

S

P

R

O

F

I

T

P

O

O

L

S

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Red ocean strategy Blue ocean strategy

Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

Exploit existing demand. Create and capture new demand.

Make the value/cost trade-off. Break the value/cost trade-off.

Align the whole system of a

company's activities with its strategic

choice of differentiation or low cost.

Align the whole system of a company's

activities in pursuit of differentiation and

low cost.

STRATEGIC PERSPECTIVES

Chan Kim and Renee Mauborgne

Blue Ocean Strategy

Guy Laliberté Cirque du Soleil Founder and CEO (Circus of the Sun)

“Reinventing the circus”

The fun & thrill of circus with the

intellectual sophistication &

artistic richness of the theater.

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Smaller Regional Circus

Ringling Brothers

The Strategy Canvas: Cirque du Soleil

high o

ffe

rin

g le

ve

l

low Price

Fun & Humor Unique Venue Aisle Concessions

Multiple Show

Arenas Thrills & Danger Animal Shows

Star Performers

Theme

Refined Viewing

Environment

Multiple

Productions

Artistic Music

& Dance

Cirque du Soleil

Strategy Canvas: Southwest Airlines

High

Low

Price Meals Lounges Seating

Class

Choices

Hub

Connectivity

Friendly

Service Speed Frequent

Point-to-

Point

Departures

Average Airlines

Car Transport

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Key Blue Ocean creations

(Automobiles)

Blue

Ocean

Created

By?

Driven By

Technology or

Value

Pioneering?

At the time of

Blue Ocean

creation, is

the Industry?

Ford Model T

Unveiled in 1908,theModel T was the first mass-

produced car, priced so that many Americans

could afford it.

New entrant Value pioneering

(mostly existing

technologies)

Unattractive

GM's "car for every purse and purpose"

GM created a blue ocean in 1924 by injecting

fun and fashion into the car.

Incumbent Value pioneering

(some new

technologies)

Attractive

Japanese fuel-efficient autos

Japanese automakers created a blue ocean in

the mid-1970s with small, reliable lines of cars.

Incumbent

Value pioneering

(some new

technologies)

Unattractive

Chrysler minivan

With its 1984 minivan, Chrysler created a new

class of automobile that was as easy to use as

a car but had the passenger space of a van.

Incumbent

Value pioneering

(mostly existing

technologies)

Unattractive

Source: W. Chan Kim and Renee Mauborgne, “Blue Ocean

Strategy”, Harvard Business Review, October 2004.

Key Blue Ocean creations (Computers)

Created By

Driven By Technology

or Value Pioneering?

Industry

Attractiveness

CTR's tabulating machine

In 1914, CTR created the business machine industry

by simplifying, modularizing, and leasing tabulating

machines. CTR later changed its name to IBM

Incumbent Value pioneering

(some new

technologies)

Unattractive

IBM 650 electronic computer and System/360

In 1952, IBM created the business computer industry

by simplifying and reducing the power and price of

existing technology. And it exploded the blue ocean

created by the 650 when in 1964 it unveiled the

System/360, the first modularized computer system.

Incumbent Value pioneering

(650: mostly existing)

Value and technology

pioneering

(360: new and

existing)

Non-existent

Apple personal computer

Although it was not the first home computer, the all-

in-one, simple-to-use Apple II was a blue ocean

creation when it appeared in 1978.

New Entrant Value pioneering

(mostly existing

technologies)

Unattractive

Compaq PC servers

Compag created a blue ocean in 1992 with its

ProSignia server, which gave buyers twice the file

and print capability of the minicomputer at one-third

the price

Incumbent Value pioneering

(mostly existing

technologies)

Non-existent

Dell built-to-order computers

In the mid-1990s, Deli created a blue ocean in a

highly competitive industry by creating a new

purchase and delivery experience for buyers.

New Entrant Value pioneering

(mostly existing

technologies)

Unattractive

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Key Blue Ocean creations (Movie Theaters)

Blue Ocean

Created By?

Driven By

Technology or

Value

Pioneering?

Industry

Attractiveness

Nickelodeon

The first Nickelodeon opened its doors in 1905,

showing short films around-the-clock to working-class

audiences for five cents.

New

Entrant

Value

pioneering

(mostly existing

technologies)

Non-existent

Palace theaters

Created by Roxy Rothapfel in 1914, these theaters

provided an opera like environment for cinema viewing

at an affordable price.

Incumbent Value

pioneering

(mostly existing

technologies)

Attractive

AMC multiplex

In the 1960s, the number of multiplexes in America's

suburban shopping malls mushroomed. The multiplex

gave viewers greater choice while reducing owners„

costs.

Incumbent

Value

pioneering

(mostly existing

technologies)

Unattractive

AMC megaplex

Megaplexes, introduced in 1995,offered every current

blockbuster and provided spectacular viewing

experiences in theater complexes as big as stadiums,

at a lower cost to theater owners.

Incumbent

Value

pioneering

(mostly existing

technologies)

Unattractive

Source: W. Chan Kim and Renee Mauborgne, “Blue Ocean

Strategy”, Harvard Business Review, October 2004.

Costs

Buyer Value

Value

Innovation

The Simultaneous Pursuit of

Differentiation and Low Cost

Value innovation is created when

a company's actions favorably

affect both its cost structure and

its value proposition to buyers.

Cost savings are made by

eliminating and reducing the

factors an industry competes on.

Buyer value is lifted by raising

and creating elements the

industry has never offered.

Over time, costs are reduced

further as scale economies kick

in due to the high sales volumes

that superior value generates.

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Growth Horizons

Dr.L.Prakash Sai

Horizon 1

Extend and defend

core businesses

Horizon 2

Build emerging

businesses

Horizon 3

Create viable

options

Time (years)

Profit

3-Horizons’ Model

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Bombardier’s Cascading Horizons Services

International

Capital

(financing & leasing)

Transportation Motorized Consumer Products Aerospace

Commercial Aircraft

Amphibious fire fighters

Business jets

New Prototypes

New Prototypes

3-Horizons in Aerospace

(Examples)

CRJ-50

Dash 8 Turboprop

CRJ-70

Dash 8-400 Turboprop

New Prototypes 3-Horizons in

Commercial

Aircraft

(Examples)

New Prototypes

Learjet 31A and 60

Challengers

Learjet 45

Global Express

3-Horizons in

Business Jets

(Examples)

Horizon 1

Operators

Horizon 2

Business Builders

Horizon 3

Visionaries

Type of

People

Deep functional and/or

industry expertise.

Strong drive to hit

targets and meet plans

consistently.

Discipline.

Entrepreneurial desire to

create.

Comfort with ambiguity

and change.

Top line focused, sharp

decision makers.

Champions.

Unconventional thinkers.

Talent

Approach

Create personal

(career and

compensation)

consequences for

near-term

performance, including

clear penalties for

under performance.

Impose “no excuses”

management style.

Provide autonomy,

freedom to act, and

mandate to create and

build.

Opportunity to create

personal wealth through

cash bonuses and equity

participation.

Opportunity to build,

create and leave a legacy.

Provide psychological

rewards; recognition of

ideas; freedom to

experiment and explore.

Provide career advantages:

opportunity to satisfy

intellectual curiosity; option

to become Horizon 2

Business Builder.

Provide financial rewards.

Talent Management By Horizon

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Horizon 1

Operators

Horizon 2

Business Builders

Horizon 3

Visionaries

Focus Executing to defend, and

increase profitability of

existing businesses.

Resourcing initiatives to

build new businesses.

Uncovering options for

future opportunities and

placing bets on selected

options.

Outputs Annual operating plan:

tactical plans, resourcing

decisions, budgets.

Business building

strategies; investment

budget, detailed business

plans for new ventures.

Decisions to explore: initial

project plan, project

milestones.

Planning For Growth

Horizon 1

Operators

Horizon 2

Business Builders

Horizon 3

Visionaries

Focus Near-term bottom-line

results and cash flow

Top-line growth and

capital productivity

Size of payoff and

probability of success

Measures Profit

Return on invested

capital

Productivity or

efficiency

Revenue growth

Market share or

installed base

New customer

acquisition

Profit

Capital investment

efficiency

Expected net present

value

Project-based

milestones

Option valuation

Rate of conversion from

idea to business launch

Number of initiatives

Performance Measurement

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Operational Skills

Privileged Assets

Growth-enabling Skills

Special Relationships

IT Management

R&D

Product Design

Low-cost

Manufacturing

Distribution Networks

Brands

Reputation

Customer Information

Infrastructure

Intellectual Property

Acquisition & Post-

merger Management

Financing & Risk

Management

Capital Management

Customers

Suppliers

Partners

Government

Ele

me

nts

of

Ca

pa

bilit

y

Pla

tfo

rm

E X A M P L E S

Hardware

Manufacturers

Vendors and

Resellers

Systems

Consultants

Software

Developers

Proprietary

Software Reputation Installed

Customer Base

Continuous Product

Enhancement

Operational

Skills

Privileged

Assets

Special

Relationships

SAP’s Distinctive Bundle of Capabilities

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Horizon 1

Horizon 2

Horizon 3

Staircases and Horizons

Create viable

options

Seed growth options

Test biz model

Build emerging

businesses

Replicate proven

biz model

Extend and defend

core businesses

Manage for

profitability

Replicate Proven

Biz Model

Manage For

Profitability

Test

Biz Model

Seed Growth

Options

Developed

world‟s largest

combined-cycle

plant in Teesside,

UK

1990-91

1992

1993-96

Developed

plants in

Philippines

and

Guatemala

Developed power

plants world-wide:

Second plant in UK

Projects in India,

China, Philippines,

Turkey, Indonesia

1992

1990-91

1988-89

1987-88

1986-87

Acquired combined cycle plant

in Argentina Developed plant

in Massachusetts Constructed

second Texas

plant and

acquired New

Jersey plant

Constructed

flagship

Texas plant Operated small

gas-fired plant in

Texas

Project Promotion,

Structuring and

Financing

International

Operations

US Plant

Development

and Construction

US Plant

Operations

International

Project

Development

PLATFORM OF CAPABILITIES

Enron’s Staircase in

Power Generation (1986-96)