Synopsis
Book by Ram Charan Noel M Tichy
Extrait
Chapter 1
Thinking Clearly About Growth
In mid-1997, we were talking with a group of Ford Motor Company's top people about how to grow profitably. It was the second day of a six-month senior executive leadership development program launched by CEO Alex Trotman. We had designed a program that would help them to think about new ways to create shareholder value, and to develop leadership skills that they, in turn, could pass on to the rest of the organization. Later stages of the program would reach throughout the company.
Ford has transformed itself heroically over the past decade--cutting costs, raising quality, reducing cycle time, and making good money, especially with its highly profitable trucks and sport utility vehicles. In the segments that count, it is a market leader.
But leader of what? The auto industry is considered mature: it has tough competitors, increasing worldwide overcapacity, and viciously cyclical demand. No company playing the established game can hope to grow profitably and sustainably much faster than the broad economic growth rates in its markets. Trotman knew that the successful present was already history; in the future, he was sure, Ford had to do something different. He was determined to transform his company into one that could grow and make money reliably in the twenty-first century.
Alex Trotman knew he needed more than a game plan. Ford's people were terrific at playing the old game--and that was part of the problem. Whatever the new game might be, it would require a whole new way of defining opportunities. Everybody at Ford would have to learn how to think differently.
The leadership development program was a beginning. Trotman and his executive committee aimed to do nothing less than develop a generation of leaders who could escape from the company's old view of the business. In this first stage, we were working with two dozen "high-potential" executives chosen by top management to team up and develop proposals for everything from lowering fixed costs and finding new growth to exercising corporate citizenship. Trotman was with us for this early morning session, awaiting his turn to work with them as teacher and coach.
Trotman was listening carefully but quietly. Suddenly he began scribbling notes. What had caught his attention was a favorite story of ours--how the late Roberto Goizueta transformed Coca-Cola in the early eighties.
Most people have forgotten just how bad Coca-Cola looked when Goizueta took over. At the time, the company dominated the U.S. soft-drink market, with roughly a 35 percent share1, and everyone knew the market was mature. The game involved fighting for tenths of a percent of market share--at exorbitant cost to the bottom line--or defending each tenth of a percent, since PepsiCo was kicking Coca-Cola's can in marketing. Security analysts and business writers were all but composing its obituary.
Goizueta didn't buy it. But how does one break the mindset of a mature business--the deeply ingrained set of beliefs that circumscribes everyone's thinking and hopes, dulling their minds and imaginations? His company was full of talented people butting their heads against a stone wall--the inexorable logic of squeezing out drops of market share in a zero-sum game.
Goizueta had an insight--a simple but stunningly powerful one that he shared with his senior executives in the 1980s. What, he asked almost casually, was the average per-capita daily consumption of fluids by the world's 4.4 billion people? The answer was: 64 ounces. And what, he asked, is the daily per-capita consumption of Coca-Cola? Answer: Less than 2 ounces.
Finally, he asked: What's our market share of the stomach? Not Coca-Cola's share of the U.S. cola market or the world soft-drink market, but of all the fluids everyone in the world drinks on a given day. Coca-Cola's share was scarcely measurable.
Coca-Cola's people had invested a lot in the idea of PepsiCo as their enemy. But Goizueta led them to see that the enemy was coffee, milk, tea. The enemy was water.
With a few simple questions, Goizueta redefined Coca-Cola's
market to be vaster than anybody had imagined. And he changed the psychology of its people. They saw that their company was not a large fish constrained in a small pond, but a small fish in a huge pond. Rather than facing the depressing chore of struggling to not lose more fractions of market share, they could set their sights on winning a larger share of a huge opportunity.
Obvious? Yes--but not until Goizueta pointed it out. It was the beginning of Coca-Cola's transformation from a threatened leader in a mature business to the greatest market value creator ever. (Goizueta's stockholdings at the time of his death were worth over $1 billion, making him the first "hired hand," or nonfounding head of a company, to become a billionaire.)2 PepsiCo, the comer when Goizueta took over, is no longer in the same league.
After our presentation, the leaders--Ford executives from around the world, from all functions--broke into groups to work on the growth exercises. Gathered at four round tables, six people to a table, they were teaming up for an hour to start developing the new ideas and strategies that they would eventually present to top management as actionable plans.
Trotman started the session by telling the assembled teams: "We have to have quality. We have to have low costs, and we have to get to the market faster. We have to satisfy our customers. But that's not enough.
"We have to become innovative. We have to find new trajectories of profitable growth.
"This is what I want you all to think about: What is Ford's water?"
As Trotman moved from table to table, asking questions, listening, engaging in informal dialogue, he was totally immersed in the energy and excitement that filled the room.
That's something we observe every time. When people shift from talking about holding the fort and cutting costs to talking about growth, they come alive.
Once again, a simple question redefined how a company's leaders could and should look at their opportunities and possibilities. In the months that followed, Ford's executive groups met and worked through long weekends, simultaneously developing their leadership skills and a new view of the possible.
First, they took a hard and realistic look at the limits of their traditional business. In terms of a vehicle's lifetime usage and total cost, the company's value added is less than 15 percent. Profit margins are typically less than 4 percent--about the same as the grocery business, but with only a fraction of the inventory turns. Moreover, the cyclicality of the business causes automakers' balance sheets to take a terrible beating during recessions; as earnings tank, they usually have to borrow money. So even though they're big and their products are permanently in demand, returns on investment are mediocre, and the relative valuation of their stocks is among the lowest on the market. Automakers' p/e ratios are typically well under half those of the S&P 500.3
Next, the executives stepped outside of the box--away from their customary ways of looking at their businesses and markets--to expand their view of the possible. Over the life of a vehicle, consumers' major expenditures are for financing, maintenance and repair, and all of the other services associated with use and ownership. Such opportunities forlucrative growth amount to the best part of a vehicle's full profit
potential. Profit margins are much higher, and capital intensiveness is lower. These after-purchase businesses are dramatically less cyclical than manufacturing.
And so they came up with Ford's water: the lifetime use of the product, including all of those other associated services. Ford's challenge now is to identify the likeliest ports of entry to this richer territory.
It's too soon yet to know what will happen. An enormous amount of hard work and radical change lies ahead, not only for the company's leaders but also for every Ford employee. Formerly, their careers were steeped in a certain inevitability--the limits to growth, the poor returns, cyclical downturns, and underperforming stock. Such long-held ways of thinking die hard. But the leaders have taken the critical first steps away from muddling along in a mature industry and toward coming alive with growth prospects. They are identifying opportunities, developing criteria, and selecting the avenues for profitable growth.
Growth is a hot topic today. Business leaders who have been through the wringers of repetitive downsizing, reengineering, and all the rest, are discovering that they must now focus not only on operational excellence but also on growth. Incremental market-share gains won't secure a future for their companies. There's nowhere else to go now; literally, they either grow or die.
There are five crucial points to the story above. They're what this book is all about, and they set it apart from anything else you'll read or hear about creating growth opportunities for your company. They are the hidden secrets behind many familiar success stories. When you understand them, you will have a real understanding of how, say, a GE or a Coca-Cola or a Compaq grows. These crucial points are:
1. There's no such thing as a mature business. Get the ideas about mature businesses out of your mind forever. Any company of any size in any industry--no matter how "mature" the industry--can grow, once its leaders learn how to look beyond their traditional definitions of industry and markets.
2. Not all growth is good. Growth at all costs, or growth for its own sake, can be a recipe for disaster. Good growth is sustainable, profitable, and capital efficient; don't confuse it with feverish spurts of volume that ravage earnings or steal from the future.
3. Growth is a mentality created by a company's leadership. It starts with the spark of a new point of view, and it catches fire when everyone buys into what the leaders are teaching and coaching.
4. Balanced growth is the key to prosperity in the twenty-first
century. Sustainable growth--growth for the long haul--requires meticulous attention to the basics: cost structure, quality, product development cycle time, productivity, asset utilization, investment of capital, supply chain innovation, customer service satisfaction, and all the other components of operational excellence. Never-ending focus on these generates the resources for growth.
5. Growing is less risky than not growing. You'll hear people say that growth is about taking risks, but they're wrong. Personal risks, yes; it takes courage to stand up for new ideas. But a sustainable growth strategy, based on tightly defined customer needs, is far less risky than rearranging the furniture while a competitor grows at your expense.
This book challenges you as a leader to develop a clear point of view about growth, and to make it a part of your company's genetic code--a concept we'll elaborate on later in the book.
The lessons and principles are universal. We talk mainly about big, complex corporations because that's where we've gotten most of our experience. But what we've learned is invaluable for companies of all sizes and in all stages: small or large, publicly or privately held; not growing but needing to grow, or growing now but needing ways to sustain growth.
The principles are the same; in general, so are the practices. Even leaders of nonprofits will find the thinking and tools offered here valuable in focusing, energizing, and strengthening their organizations.
We're not giving you yet another potpourri of tactics, strategies, slogans, and convenient examples, nor a theoretical view from 50,000 feet. This book is reality-based; it is a journey to the very roots of the corporate psyche and human behavior. It brings together the best practices and ideas within a new framework forged from our combined fifty years of experience working with companies struggling to change.
Our central theme is common sense, a much-abused term. People tend to dismiss it as too subjective to take seriously. Or, they confuse it with conventional wisdom, which, because it looks to the past, usually is not commonsensical at all. Common sense is very uncommon.
Yet there is a business common sense, and it informs the views and actions of all true businesspeople, whether they run giant corporations or trinket stands in the third world. Roberto Goizueta literally urged his people to act with "the common sense of a shopkeeper."
We offer two original, fundamental, and common sense insights into the secret of creating and perpetuating a growth company:
1. Our fresh approach to strategic thinking cuts through the muddle of conventional planning to provide a clear path for identifying market opportunities. We call it strategy from the outside in.
2. The distinction between growth companies and also-rans starts with leadership. Growth companies' leaders create operating mechanisms, behaviors, attit...
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