Breakout Strategies in Tough Times

Entering 2013, we have larger challenges than ever.  Economic slowdowns in Europe and projected softening demand in Asia and elsewhere are forcing CEOs to pursue more challenging growth opportunities.  This is not an option: we grow or we die.

For many firms, growth has historically come from new products or innovative extensions to existing products.  The simple growth strategy where R&D generates a new widget, Marketing promotes it, and Sales introduces it to customers isn’t working that well any more.  And even if revenue is growing, profits are often generated at the expense of ever deepening cuts in personnel, core capabilities, and reduced investment in capital and equipment.  CEOs are worried that soon they will have to pay the proverbial piper.

M&A alone won’t do it either.  While firms can and often should acquire or merge to become more competitive, most M&A data shows that the combined enterprise delivers little increased profitability.  At best, results are additive, not multiplicative or geometric.  So what’s next?  Where can we find that elusive growth?

Leading companies are broadening their definition of growth beyond traditional product-based categories to include more novel growth strategies.  For CEOs to take advantage of any of them, they must consider the real impacts on their businesses and determine the capabilities they will need to succeed.

First, creative CEOs need to generate a complete portfolio of growth initiatives that include: geographic expansion and M&A; product-based extensions and positioning; integration or bundling of products and services; marketing-driven initiatives like segmentation and value-pricing; localized delivery through outsourced capabilities; value-driven arrangements like performance guarantees; and IT-based strategies like remote services.

Second, CEOs need to determine how best to apply scarce resources to these initiatives, being especially careful to avoid the trap of over-investing in existing businesses – through both capital and key resource allocation – at the expense of novel and potentially much more profitable strategies.  Communicating the necessity of and how best to implement novel strategies to their boards is a critical challenge.  Key questions include: “Do I have the right leaders in the current businesses?  Can my current team succeed in these new lines of business?  Is the plan aggressive enough?  Have we achieved the right balance of risk and projected return?”

Finally, only careful analysis will determine whether any of these breakout strategies are appropriate for your firm.  Can you get buy-in from all stakeholder groups?  Will employees get excited about the new opportunities?  Will the board support the initiatives?  Can you communicate the new direction effectively to analysts and investors?

In these especially demanding times, CEOs must gain a broader perspective and challenge their internal teams’ assumptions.  Make sure that you incorporate external research and insights into your thinking before making the hard calls.