Mehrdad Baghai

Sven Smit

Patrick Viguerie

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">The Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <p>Your company’s best growth opportunities may be hidden by the big picture. To find those opportunities, look at markets and performance under a microscope. For example, a large industrial company suffered stagnant growth until a highly granular market analysis identified 4,000 growth pockets with $10 billion in revenue potential.</p>
  <p>To grow your business:</p>
  <ul>
   <li>Identify micro-segments of customers, geographic regions, and products where performance is increasing.</li>
  </ul>
  <ul>
   <li>Invest resources (R&amp;D, advertising mix) in areas with the strongest growth momentum, and jettison low-growth areas.</li>
  </ul>
  <ul>
   <li>Restructure your organization to focus on the expanded number of growth priorities. For example, assign each micro-segment its own accountable leader. Some companies will need an executive team of 200 or more to lead new product clusters or geographic slivers.</li>
  </ul>
  <p>The Idea in Practice</p>
  <p>A closer look at how to grow your business through a more granular approach:</p>
  <h2>Create a “Heat Map” for Your Business</h2>
  <p>Plot each of your company’s $50–$200 million growth opportunities (“pockets”) on a two-dimensional graph—a “heat map.” The <em>y</em>-axis represents market growth; the <em>x</em>-axis, market share compared with competitors’. Use circles to represent each pocket, and color code them to indicate in which of your company’s divisions or units the opportunity lies; size the circles to show the relative value of the business your company currently does in each pocket.</p>
  <p>Once you’ve used your heat map to gain a more detailed view of your business, start managing your business in a more granular way:</p>
  <h2>Reallocate Resources</h2>
  <p>Invest the lion’s share of your resources in the areas with strong market share and growth. Draw on insights about where growth pockets <em>will</em> be, not where they are now (for instance, GE announced that by 2010, it would be investing $1.5 billion annually in renewable-energy businesses.)</p>
  <p>Beef up your M&amp;A capabilities so you can quickly move into a high-growth market space through a targeted acquisition. Jettison low-growth businesses in unattractive market spaces.</p>
  <h2>Assemble a Big Leadership Team</h2>
  <p>Companies’ usual inner circle (CEO, unit heads, sales and functional leaders) isn’t large enough to make all the where-to-compete choices that arise every day. So devolve responsibility for the pursuit of fine-grained opportunities to your 200-plus top leaders.</p>
  <p>These individuals might lead product clusters, geographic slivers, or special initiatives. They’ll focus your organization on important growth opportunities, while inspiring and motivating relatively small teams who’ll develop a strong sense of ownership.</p>
  <p>But to manage the resulting complexity, ensure members of your extended leadership team fully understand how their individual goals fit with the company’s strategic priorities. Make certain they’re well versed in granular measurement approaches, such as the market heat map.</p>
  <h2>Review Performance</h2>
  <p>During regular operations reviews, push the conversation beyond high-level financial and operating numbers for a business’s multiple product lines and markets. Dig down into the underlying drivers of growth and profitability in the different component businesses. Ask questions such as:</p>
  <ul>
   <li>How is each growth driver changing?</li>
  </ul>
  <ul>
   <li>How likely is each component business to win in its market?</li>
  </ul>
  <ul>
   <li>Do resources need to be reallocated?</li>
  </ul>
  <ul>
   <li>Is it time to exit a market?</li>
  </ul>
 </div>
</article-ideainbrief><p>In early 2007, U.S. senators asked then–Lieutenant General David Petraeus how much sectarian violence might erupt if U.S. forces withdrew from Iraq. He admitted being uncertain: “It’s hard from this distance,” he said, to understand “the real granularity of what’s going on.”</p>

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<p><span class="reprint">Reprint: R0905G</span></p>
<p>Despite an abundance of raw data, few organizations have figured out how to parse and analyze all that information to reveal the best opportunities for growth. Even fewer have attempted to structure and manage themselves to match the texture of the markets in which they play. But a fine-grained understanding of company performance and markets is critical, especially during an economic downturn, which calls for a nuanced approach to cutting costs and making long-term investments.</p>
<p>Baghai, Smit, and Viguerie urge firms to target narrower market slices and to measure sources of growth&#8212;market momentum, mergers and acquisitions, and market share gains&#8212;in a more detailed way. When they reviewed growth patterns of global firms from 1999 to 2006, they found that companies can get a much more accurate picture of growth prospects by digging deeply into micromarkets (typically ranging from $50 million to $200 million in value) than by looking at the division-level performance numbers commonly used for measuring, organizing, and managing.</p>
<p>The authors examine several companies&#8212;including Amazon and Ping An&#8212;that have benefitted from greater granularity. For instance, one large European manufacturer of personal-care products went beyond an aggregated view of performance and discovered that some of its higher-growth segments were lurking in the unit with the lowest overall growth rate. Another company, an integrated telecommunications service provider, retooled its marketing mix&#8212;making fewer roughly calculated media trade-offs (television versus direct mail versus radio) and instead selecting the right media within narrowly defined regions for specific lines of business. As a result, it boosted sales between 10% and 15% in several regions and increased average lifetime customer value by 15%.</p>

Is Your Growth Strategy Flying Blind?

Reprint: R0905G Despite an abundance of raw data, few organizations have figured out how to parse and analyze all that information to reveal the best opportunities for growth. Even fewer have attempted to structure and manage themselves to match the texture of the markets in which they play. But a fine-grained understanding of company performance and markets is critical, especially during an economic downturn, which calls for a nuanced approach to cutting costs and making long-term investments. Baghai, Smit, and Viguerie urge firms to target narrower market slices and to measure sources of growth—market momentum, mergers and acquisitions, and market share gains—in a more detailed way. When they reviewed growth patterns of global firms from 1999 to 2006, they found that companies can get a much more accurate picture of growth prospects by digging deeply into micromarkets (typically ranging from $50 million to $200 million in value) than by looking at the division-level performance numbers commonly used for measuring, organizing, and managing. The authors examine several companies—including Amazon and Ping An—that have benefitted from greater granularity. For instance, one large European manufacturer of personal-care products went beyond an aggregated view of performance and discovered that some of its higher-growth segments were lurking in the unit with the lowest overall growth rate. Another company, an integrated telecommunications service provider, retooled its marketing mix—making fewer roughly calculated media trade-offs (television versus direct mail versus radio) and instead selecting the right media within narrowly defined regions for specific lines of business. As a result, it boosted sales between 10% and 15% in several regions and increased average lifetime customer value by 15%.

Is Your Growth Strategy Flying Blind?

Summary.

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