The Winning Formula for Growth Course,

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The winning formula for growth: course,capability and convictionVivek Kapur, Jeffere Ferris, John Juliano and Saul J. Berman

A study of the growth history and practices of 1,238 companies over a decade by theIBM Institute for Business Value found that top growth companies excel in three vitalareas: course, capability and conviction. Successful growers set the right growth

direction the course by forming a clear point of view on the future, evolving theproduct-market portfolio without being limited by history, building a competitive model to win

and pursuing reinforcing initiatives to sustain growth. They truly understand their capabilities based on realistic assessments of their strengths and limitations and evolve theiroperational model to support the growth strategy. Finally, while many companies developexcellent plans, truly successful growers build organization-wide conviction that translatesintent into action for everyone from top leaders to front line managers.

This is part two of a two-part series of articles. Part one described how limits to growth areoften self-imposed and, as such, can be overcome (Vol. 33, No. 6). Contrary to conventionalwisdom, rms with the will to be successful growers can break free of perceived constraintsrelated to size, industry boundaries and geographic neighborhood.

How do the most successful growth companies put their risk taking into practice? How dothey overcome the limits of neighborhood and size? What practices create both growth andvalue? After a close examination of the growth history and practices of more than 1,200

global businesses, IBM research has identied the winners formula course, capability andconviction.

The companies with the best record of growth focus on:

B Course : the identication and selection of opportunities, the development of a winningmodel and the creation and funding of initiatives sufcient for sustaining growth. In settingcourse, executives should consider questions such as: where is the industry headed?Where do we play in this future? How will we win and keep winning?

B Capability : the activities, skills and assets that support the operational model and enablethe successful execution of the growth strategy. Here, executives must ask: what do weneed to win?

B Conviction : the creation of organizational belief, momentum and resilience in moving

toward growth goals. The key question here is: how will we generate action, maintainmomentum and bounce back from failure?

Course: The paths to growth are many

Most would agree that a clear strategic direction is fundamental to success. Yet the practiceof formulating and adapting a course generates many schools of thought and muchdebate. But what does a close examination of successful growers reveal? What strategicprinciples are associated with their success, and what sort of levers do they use? Our

VOL. 34 NO. 1 2006, pp. 11-23, Emerald Group Publishing Limited, ISSN 1087-8572j STRATEGY & LEADERSHIPj PAGE 11

Vivek Kapur is a partner in theStrategy and Change practice ofIBM Business ConsultingServices (BCS) and leads itsGlobal Growth Initiative([email protected]).Jeffere Ferris is a consultantwithin the Strategy & Changepractice at IBM BCS([email protected]).John Juliano is a strategy &operations consultant with IBMBCS ([email protected]).Saul J. Berman is a partner atIBM BCS, and is also thestrategy and change leader forIBMs Global Media &Entertainment industry([email protected]).

More information on this IBMresearch is available atwww.ibm.com/iibv

Copyright IBM Corporation


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examination of successful growers suggests four principles are critical to shaping andadapting a successful course.

1. Develop a point of view on the future

Successful growers have a clear point of view on their industry, addressing both where it isheaded and how they will create value in its new form or environment. Regulations change,customers exhibit new behavior patterns, new technologies proliferate and new competitorsarise. Successful growers are attentive to these dynamics and have a point of view on how toexploit them. That said, they recognize they are not clairvoyant and do not hesitate to revisittheir point of view as reality unfolds. We found some of the greatest strategic failuresoccurred when CEOs heeded advice to be visionary, made big bets, but failed to notice orreact decisively when unfolding events diverged from their view of the future.

Successful growers use a number of levers to put this principle into action. They:

B Understand the forces impacting the industry and how they will shape its future.B Demand and recognize insights from the business units and senior management on

where value will be created.B Acknowledge areas of uncertainty and frequently reassess the point of view.B Create internal forums for industry and strategic discussion that are separate from

operational reviews.

Consider the example of Staples. When Staples founder Tom Stemberg looked at the ofceproducts industry, he saw a multi-step, high-cost value chain. He envisioned a future wherehe would create immense value for customers and for Staples shareholders by shorteningthe chain to capture margin, while offering small businesses lower prices, wider selectionand more convenience. Staples enabled this value proposition with a model that supportedits retail stores with its own central distribution centers. The centers required greateroperational scale, but allowed Staples to eliminate middlemen and increase margin. Theyalso consolidated inventory in low-cost locations to reducesquare footage and labor in moreexpensive store locations. Of equal importance, this model allowed Staples to differentiateby placing smaller stores closer to customers where they were more accessible.

2. Continuously evolve the product-market portfolio

Successful growers are iconoclasts who evolve their product-market portfolio on an ongoingbasis. Even seemingly rock-steady and unchanging rms exhibit a level of restless changebehind the scenes. But they stay grounded by understanding their true strengths and are

careful not to stray too far from them. In fact, they nd opportunities to leverage theircapabilities beyond the segments in which they traditionally play. They deploy severalactions to bring this principle to life. They:

B Take an expansive, customer-based view of markets not limited by current denitions ofproduct and service categories.

B Understand the potential and respect the limits of the companys capabilities.B Realign the portfolio based on the attractiveness of opportunities and their t with

capabilities.

After a close examination of the growth history and practicesof more than 1,200 global businesses, IBM research hasidentied the winners formula course, capability andconviction.

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B Consider alliances, acquisitions and divestitures, if necessary. Build strong ability toexecute and integrate transactions.

B Develop an internal venture capital capability and an external new business network.

General Electric (GE) constantly evolves its portfolio to drive growth despite its large sizeand already signicant presence in major markets. It encourages its executives andbusiness units to take an expansive view of its markets as a means of unlocking growthinitiatives that a product-centric view would miss. Often, when its market share exceeds 10percent, it seeks to redene the market more broadly to include adjacent products orservices[1]. This continual questing and restless energy lies behind its successful movesfrom manufacturing to services for example, from manufacturing aircraft engines toservicing and nancing them. It is the kind of thinking that has allowed GE to keep growingeven in relatively low-growth industrial markets.

3. Develop a competitive model

Bold industry-level visions notwithstanding, successful growers keep a sharp eye on theircompetitive proposition and how it is working on the ground, market by market, deal by deal.They:

B Use customer, competitive and technology insights to create compelling valuepropositions.

B Dene how to beat competitors in delivering and capturing value.B Inuence the environment to shift the game.

Consider the example of Xilinx and Altera, both successful growers in the market forprogrammable logic device (PLD) semiconductors. For several computing applications,industry customers had a choice between custom application-specic integrated circuits(ASICs) or standard microprocessors. ASICs are customized chips that can be optimized forperformance against specic tasks. However, their custom design requires up-front timeand investment. Standard microprocessors are available off the shelf and without up-frontxed cost, but their general logic may not be suitable for specialized applications. Alterarecognized the trade-off customers were forced to make and found a way to compete withestablished players in both markets. It championed new technologies to create a complexprogrammable logic device (CPLD). This solution was based on easy-to-use software that letcustomers customize the design of chips and transfer the design code to the manufacturer.

Customers were able to lower their design costs and shorten time-to-market for customchips. This approach allowed Altera to compete with larger established players and emergeas the leader in the new PLD market[2].

As the market matured, Xilinx saw the potential to leapfrog competitors by offeringcustomers an even higher level of performance by leveraging another emerging technology:eld-programmable gate arrays (FPGA). This technology beneted fully from Moores law,enabling a steeply rising performance curve. Xilinx also inuenced the ecosystem, teamingwith partners in silicon fabrication, design automation, system-level tools, intellectualproperty (IP) and design services to deliver a complete value chain for its customers[3]. Thisproved highly attractive to a performance-sensitive group of customers. Within the PLDmarket, the FPGA segment has now overtaken CPLDs, driving Xilinxs growth. In turn, Alterahas responded by developing strong capability in FPGAs and by seeking to lower its costs

even further. As this rivalry between the Coke and Pepsi of the PLD market has played out,they have both emerged as leaders, creating value for their customers and realizingsuccessful growth themselves.

4. Create and sustain multiple growth initiatives

Every strategy has a limited shelf life. Successful growers sustain the growth quest bydeveloping multiple growth initiatives that are backed by ongoing cost and assetmanagement to create funding. This allows the company to draw from a portfolio of optionswhen an existing strategy inevitably reaches its expiration date. However, each company

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must take care that its portfolio is not simply an aggregation of disconnected initiatives, butrather adds up to a reinforcing whole. Successful growers:

B Create multiple, mutually reinforcing growth initiatives sufcient to achieve growth goals.

B Build management systems to nurture initiatives through development stages, each withdifferent needs.

B Maintain ongoing focus on cost and asset management to create funding for growthinitiatives.

The IBM research team studied four common growth paths: product and service innovation,customer intimacy and market penetration, channel management, and new markets andglobalization. We found that within a given industry, companies tend to cluster around a fewpaths. For example, much of the electronics industry follows a path of product and serviceinnovation (see Exhibit 1). Yet each growth path is capable of yielding success. Thissuggests there is a strong case to be made for broadening the growth gene pool. Greaterstrategic creativity can contribute to the sustainability of growth by avoiding me-toostrategies.

One way to increase potential is to combine mutually reinforcing initiatives. A number ofsuccessful growers in the electronics and telecom industries, for example, have craftedmutually strengthening innovation- and globalization-related initiatives. Nokia dedicates 39percent of its personnel to R&D, an exceptional investment in innovation. Recouping this

investment requires scale, which the European company achieves through an aggressivelyglobal approach that attracts nearly half of revenue from the USA and Asia[4]. Similarly, inthe telecom industry, Telecom Italia Mobile (TIM) maintains its reputation as a pioneer in Italywhile extending innovation to the rest of Europe and Latin America[5]. Companies like theserecognize the growth potential of regulatory changes that have opened new markets. Forthem, the alignment of innovation and globalization presents an opportunity for synergy: awinning formula at home can now be projected into new markets.

Exhibit 1 Industries tend to cluster around growth paths



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What paths should you consider? Exploiting the full potential of your current business is anatural starting point. This includes actions to increase market penetration and customerintimacy in current markets, as shown in the bottom left quadrant of Exhibit 2. Strategies toenter new product/service businesses represent a second direction of growth. These aremost meaningful when there is rapid change in technology and customer needs that offersopportunity for new products and services. This direction succeeds most often whenbacked with strong innovation expertise and relevant technologies. Kodak is pursuing thispath as it offers digital imaging products and services to its customers. Kodaks currentchallenge, of course, is to rapidly retool its capability to exploit very different photographic

technologies than lm, and do so fast enough to outpace the erosion of its analog business.The company has realized some success in this area with its line of EasyShare cameras[6].

Projecting current products into new customer segments, geographies and channels is athird growth direction. This is most valuable when existing markets are saturated anduntapped customer segments and geographies areemerging. The targeting of fast-growingethnic populations within the USA, the emergence of sub-prime lenders to low incomehouseholds, and the rush to tap Chinas developing markets, are all examples of pursuingnew customer and geographic markets. Channel innovation is often necessary to servethese new segments and geographies, especially when technology or regulatory changesallow disintermediation of existing channels. Adding services content to product businessesalso often requires the development of channels to deliver complementary services.

Diversifying into new products and markets simultaneously takes companies farther from

home ground and adds risk. This should be considered only when changes in buyerbehavior patterns or technology are linking previously distinct markets, a pool of M&Acandidates are available at attractive valuations and the acquiring company has strongintegration experience and capability.

Consider how Procter & Gamble harnesses its different growth initiatives into a coherentwhole. First, it mines its traditional core categories of laundry, hair care, diaper and feminineproducts. It pursues growth through innovation in its current businesses, introducing regulartechnology upgrades on brands like Tide and Pantene. It has also not hesitated to acquirenew brands as a means of driving growth in these core categories, where it can leverage itscost base to create advantage, as P&G did with the acquisition of Clairol and Wella to driveits hair care business.

Exhibit 2 Choose your growth course



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Second, P&G has used acquisitions to enter other household product categories, as it didwith the Iams pet food brand. In these businesses, P&G exploited its established strengthsto create value. It increased Iams distribution by 50 percent shortly after its acquisition andlaunched several new product initiatives. These actions have doubled sales to US$1.6billion, taking the brand from number ve to number one in the category[7,8]. P&G has alsocreated new categories, as with the introduction of Swiffer, an alternative to mops andbrooms.

Third, it has focused on large, emerging geographies. For example, the companys recentgrowth in China is double its average across all geographies. This array of growth initiativeshas been backed by actions to cut costs and create funding[9]. In 1999, with theOrganization 2005 program, it created shared services centers to streamline back-ofcecosts[10]. Reaching the limits of that strategy, it has now outsourced these shared servicescenters to an external provider who can offer even greater scale and lower costs.

Capability: The paths to growth rest on a foundation of capabilities

Whichever growth path a company chooses, it is vital to line up the operational model withthe capabilities that enable it. As Exhibit 3 shows, each of the major growth paths requires adifferent set of capabilities. Capabilities are the sustaining foundation of a strategy. Theyrequire more than the ad hoc efforts of individuals, no matter how clever or committed theymay be. Successful growers develop their capabilities methodically, harnessing process,

organizational and technology elements to create an ingrained, repeatable strength. Theyseek alliances when needed capabilities reside outside the company. These companiestake several actions to develop and align their capabilities:

B Dene the operational model and capabilities against chosen growth strategies; identifyrequired changes as strategies evolve, and close gaps.

B Overcome the inertia of existing power structures to realign the model where necessary.

B Consider alliances and acquisitions, if needed, to develop timely capabilities.

For example, ve capabilities support a product and service innovation strategy:

1. Market planning : picking the right market segments and developing the right productsand services for them.

2. Portfolio management : making the right investments in development; balancing return oninvestment (ROI), strategic direction and risk.

3. Platform management : creating product and process architectures that increasespeed-to-market, knowledge reuse and leverage of development investments.

Exhibit 3 Each growth path requires distinct capabilities



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4. Pipeline management : striving for speed and efciency across the total lifecycle, fromconcept to service, including people, processes and technology.

5. Partner management : building the organizational capability required to exploit thephysical and intellectual assets of partners for mutual gain.

IBM Institute for Business Value research demonstrates that building these capabilities candrive growth that outpaces industry performance. Exhibit 4 illustrates one example:electronics companies that develop strong innovation capabilities and align them with theirproduct and innovation strategy consistently outperform their peers[11].

Consider how Intel developed its capabilities to sustain its growth path of innovation. Forcedto exit the dynamic random access memory (DRAM) chip market in the late 1980s byJapanese competitors, Intel knew it had industry-leading logic circuit design skills but hadbeen outclassed on its manufacturing platform[12]. Each of its chip fabrication plants, orfabs, was different, requiring different processes and a new learning curve at each fabwhen new products were rolled out. In response, the company launched CopyExactly[13], an initiative to enable the transfer of new products and process ows intomass production with minimal variation.

This philosophy represented a signicant change for the company. In practice, real-worldlimits typically prevent exact copying. For example, differences in European and US supplyvoltages and frequencies had to be accommodated. With Copy Exactly, change control isinitiated before technology transfer, and all changes are implemented directly into both the

R&D and production lines within one week, or according to an approved schedule. As aresult, products can be rolled out across fabs quickly, at low cost, and with faster diagnosisand correction of quality issues. By tying R&D and manufacturing into a common,end-to-end pipeline capability, Intel can now roll out a package of product and processinnovation rapidly across its facilities. The resulting time to volume is a critical differentiatorin an industry where the prots are made in the rst few months of a products life. Today,even as rival AMD catches up on design and products, Intels end-to-end pipelinecapability gives it an additional layer of advantage to drive superior results[12].

In the very different business of telecom services, Sprint has set out to drive growth throughcustomer intimacy and market penetration. The company has set a goal of increasingcustomer satisfaction via superior service while reducing cost. To achieve this goal rapidly,Sprint has leveraged a strategic partner[14] and charted out a transformational program that

features a number of customer-facing and enabling initiatives. These include better

Exhibit 4 Companies that develop innovation capabilities outgrow their peers



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segmentation and the redesign of service treatments and processes against them, increasein self-service options for customers and the retooling of applications to enable them,reduction of call handling time by upgrading call routing processes and agent desktoptechnology. As a result of this program, Sprint expects to improve customer satisfactiondramatically while reducing customer service costs by US$550 million over three years[15].With these enhanced capabilities, Sprint can move forward simultaneously on its toppriorities improving customer satisfaction, driving new sources of revenue and operatingits business with greater efciency and exibility.

Finally, consider Starbucks actions to develop its capabilities in support of its path ofchannel innovation. The company has launched two initiatives: the rst to expand its foodservice accounts and the second to build its presence in grocery stores. To support the rstinitiative, the company has transitioned the majority of its food service accounts to broad linedistribution networks and aligned its current food service sales, service and supportresources with SYSCO Corporation, an established player in food service. To enable thesecond initiative, Starbucks is developing an alliance with Kraft Foods to market anddistribute its whole bean and ground coffees to grocery stores. Starbucks is alsostrengthening its web management capability (via starbucks.com) as a customer interactionvehicle that allows coffee drinkers to reload Starbucks stored-value cards.

Conviction: are you for real?

Course and capability are necessary but not sufcient conditions for successful growth. Acompany must also make its commitment to growth real in word and action. The blunt realityis that sustaining successful growth requires change. This is where so many otherwisecoherent plans fail to produce the intended results. Change can be wrenching, andorganizations often resist it. Successful growers foster a culture that responds to thenecessity of change, and a cadre of leaders with the passion and follow through to make thechange stick. When inevitable setbacks occur, these companies have the resilience tobounce back. They exploit several levers to drive conviction deep into the organization.They:

B create an inspiring purpose and ambitious goals;B communicate a believable and consistent growth strategy to employees and investors;B establish an effective system of metrics and incentives against market and capability

initiatives;B foster a culture of honest, fact-based debate on strategy and performance, and create

the management forums and processes to support it; andB stay alert to organizational impediments and act quickly to unblock them.

As we have seen, Staples created huge momentum with a breakthrough insight and anoperational model to deliver competitive value. But as the market matured and it faced likecompetitors, the company recognized the need to evolve its model from an operationalfocus to include elements of advanced customer care. The company made a serious andconcerted effort to craft the right mission statement, involving the best people from aroundthe company. This promoted a shift in culture toward a high-value-add, customer serviceorientation. The program projected a vision where every associate would focus primarily oncustomer service and sales[16]. Staples redesigned its employee incentive system andtraining to support this shift to customer service. As a result of these changes, it continued to

Successful growers have a clear point of view on their industry,addressing both where it is headed and how they will create value in its new form or environment.



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prosper in a changed environment. What it took was commitment from the top, andleaderships willingness to stay involved and help clear snags.

This ability to identify and overcome organizational impediments is one of the leastcelebrated yet most critical aspects of driving growth. Consider the case of a global,multi-division technology business. This company is pursuing a strategy of differentiationbased on deals of broad scope and global scale. In analyzing its wins and losses, thecompany discovered that its metrics and incentives were oriented largely towardsingle-business and single-country performance. The very largest of multi-country andmulti-division deals enjoyed the visibility and top management sponsorship needed toovercome these hurdles. However, the more numerous middle-tier deals the ones holdingpotential for breakthrough growth weregetting bogged down. In one case, a deal required13 different approvals from country and business P&L owners. Each approver judged thedeal entirely on the merits of his or her own business, and any of them could have said no. Infact, several did. That the deal survived was testament to the dogged follow-through of itsadvocates. The enterprise has now committed actions to examine and address theseissues. How aggressively it does so, will be a vital factor in the growth it delivers.

This is not the glamorous stuff of business legend, of visionary CEOs buying and sellingbusinesses, assembling the right pieces on the chessboard, amplifying the buzz aroundhigh-prole new products or inaugurating a new facility in Shanghai. Nevertheless, the abilityto identify and overcomeorganizational impediments is a vital aspect of turning potential intoreality and translating a good strategy into real growth.

In turn, this ability requires a truth-telling culture that sees things as they are. During histenure as CEO of Intel, Andy Grove introduced a culture of constructive confrontation thatfrowned on ambiguity and stressed dealing with issues as they arose. He encouragedemployees to challengeeach others assumptions and even interrogated managers to probehow informed they were about their products and projects. Never one to mince words, Grovewould render detailed judgments (known as blast reviews) to rouse managers fromintellectual stagnation[12]. Groves somewhat combative style shaped Intels culture into onethat shuns wishful thinking and holds fact-based debate in high regard. In 2004, whenmissteps in execution hurt results, the company saw some plain talk from CEO Craig Barrett.

Putting it together

We have examined each of the three Cs individually. How do successful growers put themtogether in practice?

High achievers

As part of our maturity assessments, we found that successful growers not only score higheron the three Cs in aggregate, they score higher on each of the three Cs, with a far lowervariation in performance than other companies (see Exhibit 5). This nding suggests onereason why growth is often so difcult: to succeed, businesses like triathletes need toexcel in all three areas of the game, all the time.

In other words, course, capability and conviction are equally fundamental to achieving andsustaining growth over the long term. Over a sustained period, a smart strategy will notcompensate for weak capabilities. Neither will a superior combination of strategy and

capability lead to growth if the organization does not believe the commitment is real, or ifmanagement is unable to convert its intent into corresponding action.

Consider the experience of AT&T Wireless. It developed arguably one of the most effectivestrategies in the industry, but fell short in the areas of capability and conviction. Early in thewireless industrys development, the company set a course for robust growth byaggressively buying spectrum to establish a broad presence across the US market andbuild its AT&T Wireless (AWE) brand. The company recognized that its superior networkcoverage offered the potential for rate plans without roaming charges. Its launch of the USmarkets rst national one-rate plan drove rapid share gains[17].



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Despite positioning itself for strong growth, and in fact building signicant market share, itfailed to fully develop corresponding capability by way of network and customer servicecapacity to support the increased volume. It fell behind competitors in building out adequatecoverage to support a genuinely national service, instead remaining dependent on other

providers for coverage in key markets. When quality began to suffer and complaintsmounted, AWE was unprepared to respond[19]. Over time, the strong sense of convictionthat AWE had originally inherited from its founding entity, McCaw Cellular, waned. Increasingcontrol from AT&T corporate and a series of leadership changes depleted the companysentrepreneurial spirit, prompted the departure of employees and, eventually, underminedthe companys commitment to its course.

By 2003, AT&T Wireless, at this point an independent company spun off from AT&T, wasreeling from high-prole customer service missteps, such as its slowness to fully implementwireless line number portability. It suffered declining growth and negative shareholder returnover the period. In 2004, Cingular acquired AWE.

Align the 3Cs

To be effective, the three Cs must also be aligned in a coherent whole. As a successfulgrower, Procter & Gamble (P&G) works hard to develop each C in an integrated manner. Inthe late 1990s, based on its strengths in branding, innovation and go-to-market capabilitywith global scale, P&G decided to pursue a new course. It moved to steadily shift its portfolioaway from staid categories like food toward categories like beauty and healthcare thatoffered higher returns on innovation as well as global scale.

P&G realized that winning in these markets would require a fast pace of product introductionand sought to streamline the organization to strengthen this capability. In 1999, it launchedthe Organization 2005[18] initiative that shifted authority from country general managersto newly created Global Business Units that would drive new innovations globally,unconstrained by organizational boundaries. While this realignment was central to its goal ofenabling faster deployment of innovation, it altered the companys long-established

management structure in fundamental ways. The associated turmoil contributed to anabbreviated tenure for CEO Durk Jager, and momentum faltered[19]. But the newmanagement demonstrated conviction in following through with the initiative. Now, ve yearslater, it is evident the radical shift was a success. P&Gs organization combines theinnovation excellence of integrated business units with the global reach and scale of itsMarket Development Organization (MDO).

P&G also realized that, to meet its growth goals, it needed to drive a greater number ofproduct introductions than it could generate in its own labs. So it adopted an explicit courseof driving half its innovations from ideas sourced outside the company. To develop the

Exhibit 5 Successful growers perform well on each of the three Cs



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required capability, it created a network of external partners that included contributions fromacademia and even competitors. Making this happen required the conviction to change aproud R&D culture that valued its unique capability. The new R&D leader has explicitlystated that the best ideas need not come from within the company[20]. As visible proof,when P&G reinvented the cleaning category with the introduction of Swiffer in 2001, thesuccess owed much to technology licensed from a Japanese competitor, Uni-Charm[21].This was no isolated instance. P&G management has since broken new ground in exploitingits own technology in new ways by forming a joint venture with competitor Clorox tocommercialize technologies it developed. These instances are a far cry from its previousgo-it-alone R&D culture.

The results of these changes speak for themselves. Not only did P&G outperform its industryduring the decade, achieving annualized shareholder return of 15 percent over the period, ithas also corrected missteps and accelerated its growth in each of the last three years. Whileremaining an iconic leader in its industry, behind the scenes, the P&G of today is very

different in terms of portfolio and organization than the P&G of a decade ago.

Evolve the 3Cs

No competitive model is successful forever. Sooner or later, every growth path runs itscourse and needs reinvention. Successful growers not only align the three Cs to begin with,they also evolve them over time.

Another successful grower, Vodafone, demonstrates this well. In the 1990s, it sought toproject its mobile only business model on a global scale, pursuing an aggressive,acquisition-led course in major mobile markets. It acquired established players in maturemarkets and newer entrants in developing markets. At the same time, it divested businessesobtained through acquisition that did not t with its mobile-only strategy. To enable itsacquisition-driven strategy, Vodafone developed strong capability to identify and execute

large global acquisitions. It sought the CFO role in acquired companies to drive nancialintegration and control cost and nancing. Vodafones success at nancial integrationearned it the respect of the investment community. This, in turn, translated into highervaluations, providing currency for subsequent acquisitions[22]. Leadership demonstratedconviction in driving Vodafones culture of growth by acquisition. It liberally dispensedoptions to align employee interests with the growth agenda.

But the game is different now, and Vodafone is in the midst of evolving its model signicantlyon each of the three Cs. As the company recognized it was lling out the white space of itsacquisition strategy, it moved to adapt its course from conquest to consolidation. It nowseeks to exploit the global scale it has built to create greater global leverage of technology,procurement and customers. The new course requires new capabilities, and Vodafone isintegrating its technology platform across markets as well as converging its phone models to

better leverage its clout with suppliers. Despite struggling to overcome some barriers, inanother show of conviction, management under the new CEO is seeking to replace thecompanys deal-making focus with an operations focus, and has communicated resolve tosee the changes through.

Vodafone has enjoyed a very successful decade, boasting almost 50 percent compoundannual growth rate (CAGR) and 16 percent annualized shareholder return over the period.While its recent transformation remains a work in progress, and the results are not yet known,the companys willingness to retool, and its thoughtfulness in doing so, is a necessaryingredient for sustained, successful growth.

Successful growers are iconoclasts who evolve their product-market portfolio on an ongoing basis.



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Get going now

How are you positioned in the growth triathlon? What do you need to win? Consider thefollowing actions:

B Assess your status against your growth ambitions and the 3C model winners follow.B Develop a point of view on the future and its opportunities.B Evolve your product market portfolio and initiatives.B Develop a competitive model.B Get to know your capabilities and align them with opportunities.B Embed your strategy in your words and actions.

Study methodology

The IBM research team developed a database of growth and shareholder returnperformance for companies included in the S&P Global 1200. Starting with the 2003 list,the team added the rms that fell off the listing over the preceding decade. Several ofthese had ceased to exist as independent companies or did not have data available. Thisapproach helped mitigate survivor bias to some extent, but these companies stillrepresent a more successful group than a random choice. The study worked with a nal listof 1,238 companies with complete data over the decade. Collectively, this group recordedmedian annual revenue growth of 8.5 percent and median TSR growth of 8.8 percent.

The team analyzed the patterns of revenue growth and shareholder value creation over thedecade, segmenting results by four component geographies and 18 industry groups. Itselected three industries (consumer products, telecom services and electronics) fordetailed assessment, developing cases studies for about 20 companies in each industry,picked to represent a range of successful and unsuccessful results.

The team formulated hypotheses to explain the variation in outcomes and analyzed thesecompanies using primary and secondary research, culminating in two workshops withseasoned experts in each industry. After each of these six workshops, the team rened itshypotheses, a process that eventually yielded the 3C model proposed here.

Based on the nal model, the research team created a diagnostic scoring tool and formallyapplied it to the companies included in the study to conrm the models explanatory poweragainst growth and TSR results. Finally, the team assessed the choice of growth pathsacross these companies to identify patterns and collaborated with functional experts todevelop the capabilities required for each path.

Notes

1. Buss, W. Christian, Jack Welch took more than one punch in the nose; you dont have to, The Business Review , May 30, 2003.

2. Altera celebrates 20 years of innovation, PR Newswire , June 20, 2003.

3. Xilinx, Company overview, available at: www.xilinx.com/company/about/overview.html

4. Nokia 2003 annual report.

5. Telecom Italia Mobile 2003 annual report.

6. Dobbin, Ben, Kodak growing in digital camera market, BizReport.com. August 6, 2004. availableat: www.bizreport.com/news/7776/

7. Neff, Jack, P&G claims Iams is top dog in pet food: brand sales overtake giant Purina in Q4,Advertising Age , March 10, 2003.

8. Procter & Gamble 2003 annual report.

9. Shobhana, Chandra, P&G ready to post 40 percent prot rise: sales growth in China, acquisitionsdrive earnings spurt, Bloomberg News , August 2, 2004.

10. Peale, Cliff, P&G cuts restructuring time, The Cincinnati Enquirer , December 13, 2002.



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11. Cooper, Jonathan, Dan Greenberg and Dan Zuk, Reshaping the funnel: making innovation moreprotable for high-tech manufacturers, IBM Institute for Business Value, 2002.

12. Ladendorf, Kirk, Intel architect Grove to step down. Visionary leader will take more long-term viewas chairman; president will take CEO job, Austin American-Statesman , March 27, 1998.

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2004. available at: www-1.ibm.com/industries/telecom/doc/content/news/pressrelease/ 1005755102.html

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19. Nelson, Emily, Rehab takes toll on Procter & Gamble: one of rst tasks for new CEO is to boostmorale, plug management holes in wake of globalization upheaval, The Wall Street Journal ,September 1, 2000.

20. P and G How AG Laey is revolutionizing a bastion of corporate conservatism, BusinessWeek ,July 7, 2003.

21. Japan proves new-product gold mine for P&G, Nikkei Weekly , July 12, 2004.

22. Vodafone posts 4bn prot, BBCNews Online , May 29, 2001, available at: http://news.bbc.co.uk/ 1/hi/business/1356896.stm

Corresponding authorVivek Kapur is the corresponding author and can be contacted at: [email protected]


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