Profitable Company

How can you turn innovation into profitable growth?

How can you turn innovation into profitable growth?

There are 5 components to innovation:

• ideation
• selection
• nurturing,
• launch, and,
• killing failures early.

Before discussing each, there are four factors to note.

1. All the factors are interrelated, although most people don't stop to realize that. You need to know all pieces tie together, because a breakdown in one can affect what happens thereafter. If you can improve the nurturing and launching of ideas, for example, you can improve their flow.

2. This is an observable process. You can observe and diagnose how well your organization deals with each component. You can rank your firm's ability to handle each function on a scale of one to ten. And you will also be able to observe how well your company, or business unit, handles the overall flow within each of these 5 components. The selection process should be transparent. Everyone should know the criteria that will decide whether the concept will be funded.

3. You can't pursue every idea, and not all ideas are created equal. After you have surfaced as many ideas as possible, pick the best ones to fund. Kill off the rest. There are criterias you use to make that decision.

4. Finally, these are 5 distinct steps to getting an idea into the marketplace. Each requires a unique set of skills.

All revenue growth starts with an idea.

All revenue growth starts with an idea. The idea could be for a new product or a new service. Or it can be an addition to a product or a service that already exists. Or it can be an idea that begins as almost idle speculation - "I wonder what would happen if...."

Employees, from the rawest recruits to crusty veterans of the business, have ideas, and many of them have the potential to help the enterprise. The leadership challenge is to have a social process that helps draw them out. After all, those ideas don't do your company any good if people won't voice them.

The social engine can help, of course. The interactions among the various departments - marketing and R&D, for example, or customer services and sales - will spark more ideas worth pursuing.

Your organization doesn't need to wait for the proverbial light-bulb to go on in order to come up with new ideas. Innovation can be operationalized. You can develop a process that you can follow to surface ideas and then, develop as many growth ideas as possible.

Unlike cost-cutting, growing revenues requires innovation. Many people think only geniuses can innovate. And, indeed, genius is always welcom. However, innovation is a social process and everyone can participate. Once the process is firmly integrated into the way the company does business every day, you will find more and more geniuses coming out of the woodwork.

Silicon Valley is filled with geniuses. But if you look at the successful entrepreneurs who work there, you will discover a curious thing. The vast majority of them worked - often for a long time - at established firms before going off on their own. Part of the attraction, of course, in starting their own companies was the freedom and equity ownership that come along as part of the deal. But another reason for leaving had to do with the fact that their old companies just could not accommodate them and what they wanted to do. Had their former employers handled the social innovation process better, a certain percentage of those entrepreneurs would have stayed and probably contributed in a big way to the growth of their former company.

How can you turn innovation into profitable growth?

Growth fuels the organization to even greater growth

The situations of Bill Carter and Susan illustrate both the business and personal consequences of being part of a business that is growing - or one that is not.

With growth, the organization expands and people can build a career and a future. Growth enables a business to get the best people and retain them. People who see personal growth opportunities have more energy, better morale, and enhanced self-confidence. Growing companies expand into new markets and market segments, new regions, and even new countries. Not only does all that create wonderful opportunities for talented people, but also the growth taps into all the latent psychological energy that is buried inside the employees, and the release of all that previously contained power fuels the organization to even greater growth.

The contrast to a company that isn't growing is stark. First, there is limited room for advancement. Susan could take a step down to join a growing company, convinced - rightly so, as it turned out - that she still would end up climbing further and faster up the corporate ladder at a firm tha was increasing the top line and not shrinking. Bill Carter has no such options. Susan is excited to go to work. By contrast, as Bill is learning, it's frustrating to be employed by a company that seems to be going downhill. There is no excitement as you walk through the halls. No emotional energy. Your entire workday is spent feeling as if you are moving underwater.

When there is no growth, a negative psychology permeates the organization. The best people spend a significant part of their time looking for a job, and they leave once they find one. Those that remain make macabre jokes about what form the next round of corporate cost-cutting will take and devote a large part of their days to infighting to make sure that theirs will not be the next head to roll when the cost cutting ax falls again, as it inevitably will.

If you are not in a growth situation, you are in a limiting situation.

Are you part of a growth business?

Here are some questions that can help you diagnose whether or not you are part of a growth business. Are you ready to start Monday morning?

1. What percentage of time and emotional energy does the management team routinely devote to revenue growth?

2. Are there just exhortations and talk about growth, or are there actually a lot of meetings and brainstorming sessions about how growth is going to happen? How good is the follow-through?

3. Do managers talk about growth only in terms of home runs? Do there understand the importance of singles and doubles for long-term sustained organic growth?

4. How much of each management team member's time is devoted to making effective visits with customers? Do they do more than listen and, probe for information and then try to "connect the dots"?

5. Does the management team come in contact with the final user of your product?

6. Are people in the business clear about what the specific future sources of revenue growth will be? Do they know who is accountable?

7. Would you characterise your company or business unit's culture as cost-cutting or growth oriented? If the answer is one or the other, you need to start doing both. Do people in leadership positions have the skill, orientation, and determination to grow revenues?

8. Does the company practice revenue productivity, that is, does it think through whether there are ways to more effectively use current resources to generate higher revenues?

9. How well and how regularly does your sales force - and others in the organization - extract intelligence from customers and other players in the marketplace? How well is this information communicated and acted on by other parts of your organization, such as product development?

10. How good are the upstream marketing skills - that is, the ability to segment markets and identify consumer attributes - in your business?

11. Is the head of marketing in your business an upstream marketing expert?

12. How good is the relationship and information flow between upstream marketing and product development? Between upstream marketing and R&D?

13. Do you have an explicit growth budget in your organization's traditional budget document? How well is the growth budget connected with revenue growth beyond the current fiscal year? Are there funds allocated in the growth budget for medium- and long-term revenue growth?

14. How skilled are the people in your business in creating value propositions for each major customer segment of your business? How effective is your organization in using cross-selling to accelerate revenue growth?

15. How often and how effectively is information shared simultaneously among people who make decisions about resource trade-offs?

16. How good is the flow of ideas in your business?

17. How good is the process of selecting ideas that will be funded as growth projects?

18. How well defined are the steps of the nurturing process in getting revenue growth projects ready for launch? How effective is the process?


By answering these questions, you can confirm if your company is growing, not growing or is in decline.

Start by compiling a list of simple things you could do Monday morning that would lead to "singles and doubles" - steady increases in sales.

Instead of bemoaning the fate of your company, draw upon your inner psychological reserves.

Be determined to lead and adopt a whole attitude and presence that would be 180 degrees from what it had been in recent weeks.

Profitable growth can be everyone's business.

Profitable Growth

"In our unstable world of today, achieving sustainable and profitable revenue growth is not easy. How can you improve bottom line and energy, personal growth for the people involved, and creating value for your company?"

"Growth is a constantly achievable result for an organization that is properly focused and empowered. The CEO's job is to provide the organization with the vision and confidence to deliver it."

"CEOs require a fresh reconceptualization of what sustainable growth looks like in today's hyper-competitive world and a practical 'how to' program for achieving it."

"Every day is Monday morning for profitable growth. Monday morning starts today."

"In maximising long-term shareholder return, consistent earnings and dividend growth, as well as revenue growth, are mandated by investors. If earning growth is simply based on improving expense productivity, investors question and discount the sustainability of future earnings growth. Investors demand and reward profitable revenue growth. There are many competitive advantages that can be achieved with good growth."

"Reorient your thinking about growth to small day-to-day changes. Focusing on collaboration with customers is critical to growth. Also, important to have a practical implementation guide."

"Growth is achievable. It is in the consistency of day-to-day execution that you build the backbone of a great company. How much control you have over the growth of your business? "

"Profitable growth is now attainable for everyone who follows certain practical advice. Leaders of organization should make profitable, organic, and sustainable growth, become everyone's business. ..... a prerequisite to building shareholder value."

"The importance of execution is at the forefront of growth. Insight and knowledge of how to execute, based on management principles for profitable growth, is invaluable for the business community. "

"In an industry where 3 to 5 % growth is top quartile, we are always looking for creative ways to get the most from our existing assets, while also looking for the next big growth area. By identifying a number of internal and external obstacles to growth and then showing managers at all levels how to overcome these obstacles and create profitable growth in their businesses. The importance of hitting "singles and doubles", creating a continuous improvement mind-set throughout your organization, and maintaining a disciplined and accountable approach to growth. "

"A growth agenda is on the top of every CEO's mind. Using simple but on-the-mark tools for building a company-wide 'growth culture' are invaluable."


Ref: Profitable Growth is Everyone's Business by Ram Charan

Good growth is profitable, organic, differentiated and sustainable.

Good growth is profitable, organic, differentiated and sustainable.

Profitable

Good growth is profitable.

It is also capital-efficient, that is, it needs to earn a return on its investment greater than what the company could have received by putting its money in something ultra-safe, such as a Treasury bill.

There is growth in revenues and steady improvement in profitability. Gross margin is an important indicator of a company's profitability and often not given the due it deserves.

Increasing gross margin and at the same time growing revenues at a rate better than the overall market is what makes for a great growth company. There is a direct relationship between improved productivity and profitable growth.

The improvement in gross margin also reflects the company's ability to innovate ahead of its competitors.

A company's rapid growth attracts the best managers in the industry - managers who are committed to growth.

Organic

Organic growth is the most efficient way to create revenue growth.

When people work with customers in the search for new ideas, translating those ideas into reality requires them to cut across silos and come together to make trade-offs and decisions in launching new products. It also builds the organization's self-confidence. Knowing that it has created a successful growth project makes it easier to tackle the next challenge, and the momentum feeds on itself.

Organic growth can also be based on filling an additional customer need and/or exploiting an organization's existing expertise in products, customer segments, or geographic regions, to capture new markets.

While good growth is PRIMARILY organic, there are times when it makes sense to supplement organic growth with smaller "bolt-on" acquisitions to fill strategic gaps, such as gaining a beachhead in a geographic region, obtaining a new technology, filling an adjacent need, or adding a new distribution channel.

Differentiated

No matter how "commoditized" your business is, good-growth companies find a way to differentiate themselves.

Winners in the quest for profitable growth pay attention to differentiation, however razor-thin.

To do that, they see things through the eyes of their customers and potential customers, detect what these buyers prefer, and hook the customer through products, services, and relationships that are better differentiated than those of the competition.

Dell offers a commodity: personal computers. Yet Dell differentiated its product line by making sure its product are reliable, low-priced, and customizable - that is, customers can design their PCs exactly the way they want.

Lexus truly differentiated itself in the post-purchase experience and in mechanical reliability.

Differentiation can also take place in the service that a manufacturer provides to retailers like Wal-Mart. By helping the customer increase its sales, the manufacturer has differentiated itself from being just another firm that the customer does business with.

Sustainable

Good growth continues over time. It has a sustainable trajectory.

It is not a quick spike upward in revenues, caused by cutting prices or by throwing substantial resources against a one-shot opportunity. The goal is to have the growth continue year after year.

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The only way this growth is going to occur is if everyone in the organization believes in it to be possible. It is up to the organization's leadership to create the right mind-set.

Profitable Growth

Good growth has to be not only profitable but capital-efficient - that is, it needs to earn a return on its investment greater than the company could have received by putting its money in something ultra-safe, such as a Treasury bill. Colgate-Palmolive's growth is definitely profitable.



For more than a decade, Colgate has been on a sustained march to becoming number one in the oral-care consumer-products market, and, as mentioned, has edged out both Procter & Gamble and Unilever. As important as its growth in revenues has been Colgate's steady improvement in profitability. Its gross margin has increased from 39% in 1984 to close to 60% in 2003, an improvement of almost one point per year.



Gross margin - your revenue less what it costs to make the product to obtain those revenues - is an important indicator of a company's profitability and often not given the due it deserves. Increasing gross margin and at the same time growing revenues at a rate better than the overall market is what makes for a great growth company. It is here that you can directly see the relationship between improved productivity and profitable growth. Colgate for more than a decade has been able to find ways to consistently enhance its competitive position by making its operations more productive and streamlining its processes.

The improvement of Colgate's gross margin also reflects its ability to innovate ahead of its two chief competitors. Colgate has created a corporate "growth group" with two major responsibilities.

1. The first is to be continuously focused on developing new products, extending existing products, and improving packaging.


2. The second, equally important, job is to concentrate on logistic, production, delivery, and speed and responsiveness to retailers through the effective use of data warehousing, information technology, and cost productivity.

Again, it is an example of a top company recognizing that it must simultaneously improve productivity costs and grow.



Both processes resulted in Colgate's winning shelf space. It also meant lowering costs not only for Colgate but for retailers as well. Colgate reduced what it cost retailers to stock and sell its products while increasing retailers' inventory turns of Colgate products, thereby reducing the retailers' cost.



Colgate grew and grew more profitably than the competition, despite the huge lead that Procter & Gamble and Unilever had at the beginning of the race. It did so by continually focusing on the core business and findinng ways to make it better. It emphasized "singles and doubles." Colgate obsessed about what was happening to its brands in each retail outlet, focused on :

• the needs of retailers,


• created consumer awareness,


• continued to improve its products, and


• persuaded the consumer to prefer its products.

The growth path that Colgate chose has been good for shareholders and employees. The company's rapid growth has allowed it to attract the best managers in the industry - managers who are committed to growth.

****Seek good growth and avoid bad growth

I love to invest in good quality long-term profitable growth businesses available at reasonable or bargain prices. Yet, growth can be good and can also be bad. Let's take a look.

A framework for distinguishing good from bad growth is a crucial element in generating revenue growth.

Good growth:

• not only increases revenues but improves profits,
• is sustainable over time, and
• does not use unacceptable levels of capital.
• is also primarily organic (internally generated) and
• based on differentiated products and services that fill new or unmet needs, creating value for customers.

The ability to generate internal growth separates leaders who build their businesses on a solid foundation of long-term profitable growth from those who, through acquisitions and financial engineering, increase revenues like crazy but who create that growth on shaky footings that ultimately crumble.

Many acquisitions provide a one-shot improvement, as duplicative costs are removed from the combined companies. But few, if any, demonstrate any significant improvement in the RATE of growth of revenues.