Adhesives Magazine

STRATEGIC SOLUTIONS: Delivering Profitable Growth

May 1, 2004
Delivering consistent profitable growth is difficult even in the best of times. Successful companies have shown that uncertain times, however, provide unique opportunities.



Balancing Core “Little Box” & Periphery “Big Box” Opportunities
Delivering consistent profitable growth is difficult even in the best of times. In times of economic uncertainty, it is instinctive to retreat to the core and search for profits by cutting discretionary costs. Successful companies have shown that uncertain times, however, provide unique opportunities. I'm reminded of GE's former leader Jack Welch, who responded to such a situation by stating his intentions to increase his efforts because it was a "great opportunity for GE to outdistance itself" when the rest of his competition was pulling in its horns.

So how do successful companies manage to seize opportunities during uncertain times? We've learned that the answer to that question is the ability to balance focus with opportunism.

It was only two short years ago, following a decade-long effort of cost cutting, reorganizations and restructuring, that companies began focusing on top-line growth, pursuing the principle that companies cannot "save their way to earnings." Before the bubble burst, the market space was full of neighbors trying to outdistance the Joneses. Companies were tripping over each other to attract investors by trumping each other's moves with one blockbuster deal after another, not to mention creative accounting practices. But once the bubble burst it was "back to basics"- slashing costs, cutting heads, and refocusing concentration on the core.

What was true two years ago is still true today: "You cannot shrink your way to greatness." Today's investors are even shrewder than they were two years ago - they demand focus, leanness and profitability, topped off by healthy growth.

How can a company manage for both earnings and growth? The answer lies in managing both the interface between core opportunities ("Little Box") and periphery expansion ("Big Box") (see Figure) simultaneously.

Our research indicates that most organizations tend to emphasize one facet at the expense of the other. In fact, within many organizations the core is regarded as stagnant, as something to be defended at best, while the periphery holds the seductions of the Promised Land.

Instead, we would like to outline six principles to help manage such interaction opportunities:

1

Begin by developing knowledge of your customers' total economic equation. Knowing this space will provide advanced indications of required new offerings, new skills based on trends, and discontinuities, e.g., disruptive technologies. More importantly, however, knowledge of your customers' total economics will allow your organization to offer solutions that capture more value per customer.

2

Develop a single holistic approach -"One Strategy" - but plan two different paths to execution. Develop and comprehend the boundaries of your vision, i.e., what's within the scope of your capabilities and what's out of bounds. While this exercise varies by company, most don't exhibit the discipline to truly understand or communicate the dimensions of their playing field. Next, overlay the business opportunities to determine:

a) Opportunities within the bounds of your scope that apply to the core vs. those that are peripheral; and

b) How to allocate the investment between core and periphery

Execution of the plans requires two approaches, primarily because the business processes vital to the core are distinctly different and more cumbersome than the periphery. Often we find companies squashing new opportunities before they find out if the "bud" is a flower or a weed. Peripheral opportunities require quick and insightful analysis designed to assess market information, economics, customers' needs definition and value mapping. This is a "hit and run" process - lean, flexible, focused, and objective. Avoid burdening this process with the weight of analysis required by running a core business.

3

Develop your strategic technology plan. Analyze the business opportunities that lie within the core, e.g., technology extension and those within the periphery, e.g., technology mapping and visioning.

a) Technology Assessment/Product Mapping - This process provides an evaluation of current technical projects and checks the alignment of the technical plan with business goals.

b) Technology Extension - The development of a new product that requires the extension of an existing formulative technology and perhaps the extension of one or more component technologies.

c) Technological Visioning - The development of a new product that requires the development of a new formulative technology with either the extension of component technologies or the development of new component technologies.

Throughout this process, it is crucial to manage the disruptive technology process. Disruptive technologies threaten the core. Therefore, a monitoring process should be used that scans the periphery for potential disruption and develops reasonable scenarios that activate a company's emergency response plan in the event of occurrence.

4

Develop a business design process to identify and select the appropriate business model, as well as key capability needs. The output of this process should be relatively straightforward, designed to answer five key questions:
  • Who pays the bills?
  • What is the customer paying for?
  • How do we protect our profits?
  • What scope of functions do we perform, and what activities are required to execute them?
  • What is needed to make it happen?

    5

    Evaluate capability needs. Identify the best-in-class capabilities needed to execute the final business design choices and the resultant performance gaps within your organization.

    6

    Align the organization. It is crucial to develop internal communication means and metrics to align the organization in support of the execution plan.

    Balancing the focus on the core with the opportunism of growing the periphery is vital to steady profitable growth, and to overcoming the knee-jerk reaction of retreating to slashing costs, cutting heads, and returning concentration to managing the core in a singular dimension.

    Dan Murad is President of The ChemQuest Group Inc., an international strategic management consulting firm specializing in the adhesives, sealants and coatings industries, headquartered in Cincinnati.

    For more information, phone (513) 469-7555 or visit http://www.chemquest.com .