Grow or Go
by Patrick Viguerie, Sven Smit and Mehrdad Baghai
In order to achieve this goal, you need to think through the growth challenges your organization faces and follow a detailed approach that will allow you to uncover, understand and capture potential growth opportunities.
Top experts in the field of growth show readers how to do that and more. Based on an extensive quantitative study of corporate growth, this reliable resource offers powerful new insights on how companies can excel in this essential endeavor. It skillfully demonstrates the problem with the broad-brush way that many modern companies describe their business opportunities and discusses how real growth can be found at a much more granular level within all industries.
INTRODUCTION: GROW OR GO
“Grow or go” dynamics represent an unforgiving environment for large companies. The odds of sustaining performance and growth over the long term are indeed long ones: high-growth companies tend to have 5-6 times higher survival rates than low-growth companies.
Growth is a tricky topic, so it’s important that your company should have a view on the best way to think about it. We all know intuitively that growth is good. It creates healthy companies, opens up opportunities, excites talent and rewards shareholders. But do we know how to achieve it?
Performance is granular, which means it is driven by growth in the sub-segments and categories of industries in which a company competes as well as by the revenues that it acquires through mergers and acquisitions (M&A) activity. These drivers are generally much more important than market-share gains in determining how fast you grow.
This seeming counterintuitive finding has important implications. A typical management team needs to change the way it thinks about company resources, not least its own time. It needs to pay more attention to which businesses the company is in, and particularly the sub-segments in which it competes.
YOUR GROWTH AMBITION
A GRANULAR WORLD
Granularity isn’t a term traditionally used in business. In the world of science and engineering, it is used to refer to the size of the components within a larger system. If we take what we might call a non-granular (or “course-grained”) view of the system, what we might see is the system as a whole or perhaps the larger sub-systems within it. In a granular (or “fine-grained”) view of the system, on the other hand, we might see more of the individual small components that go to make it up.
Why Granularity Matters
Granularity conveys two important and related ideas: first externally, a fine-grained understanding of markets and growth opportunities and, second internally, a sharply focused, precise and detailed way to manage discrete initiatives and activities across the corporation. Applying both these ideas greatly increases a company’s chance of success in identifying and pursuing growth opportunities.
A company formulating its growth strategy needs to develop insights into trends, future growth rates, and market structures at much greater depth than the aggregate industry level. Insights into sub-industries, segments, categories and micro-markets are the building blocks of portfolio choices. They are indispensable for companies seeking to make the right decisions about where to compete.
Six Levels of Granularity
All of which poses a practical question: When you make these decisions, what level should you be looking at to get the insights you need? How deep should you go? A framework can help you find an answer.
Here are the six levels of granularity:
* Granularity level G0: World Market. The global marketplace is the highest level of aggregation with the least granularity: the ultimate segment of one. The world economy is growing by roughly 6.2 percent a year in nominal terms.
* Granularity level G1: Sectors. If we want to investigate why some companies grow at a rate that is faster or slower than about 6 percent, the first step is to divide up the economy. The Global Industry Classification Standard (GICS) carves it up into 24 broad industry groups ranging from telecommunications services to energy to biotech.
* Granularity level G2: Industries. To get to a deeper level of granularity, we can break down the 24 groups into 151 industries by using other readily available GICS statistics. For instance, the “food, beverages and tobacco” group breaks down into the component industries “food,” “beverages” and “tobacco.” The resulting G2 segments have an average size of roughly $500 billion — much more granular than the G1 sectors, but still fairly large.
* Granularity level G3: Sub-Industries by Region. Each industry can then be divided up again both by sub-industry and by market (country or region). Within the food industry, for instance, two examples of sub-industries might include frozen foods or savories, oils and dressings. At the G3 level, market selection becomes more important than a company’s ability to beat the market, and portfolio composition is the chief factor determining why some companies grow and others don’t.
* Granularity level G4: Categories by Region. The definition of the G4 level of granularity varies slightly from industry to industry, but, in essence, it’s the level of categories within sub-industries (such as ice cream within frozen foods) or customer segments within a broad product or service category (such as weight-conscious snackers). The G4 level is important: It represents the minimum level of granularity at which companies need to operate when setting growth priorities and making decisions about resource allocation.
* Granularity level G5: Individuals. This is a view of the world at the level of individual customers and transactions — the ultimate segment of one, numbering many billions. Although some companies have developed systems that permit highly personalized interactions with individual customers, few, if any, are able to allocate resources at this level of granularity. For most companies, most of the time, G5 will be a level too far.
Setting your growth direction requires you to move freely between the different levels of granularity while keeping your overall destination in view. Companies often describe their growth direction to the market at the G2 or G3 level, but specific granular strategies need to be put into action at the G4 and G5 level.
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