(Photo by Frank Kovalcheck)
On the surface, it looks like the global economy is slowly making a come-back. Inventory investments are up, consumer spending is up, and exports are up. However, corporate profits fell 7.4 percent across the world.[i]
This begs a few questions:
How will the economy grow if corporate profits are down?
How will consumer spending remain strong if corporations are not doing well?
What can corporations do to enter a growth position?
A recent article published by strategy+business titled “How Ready Are You for Growth?”[ii] provided some answers. In order for a company to move into a growth position, three things need to happen:
- They need to have a clear, coherent strategy that is well articulated and that speaks to the differentiating capabilities they will need to win in the marketplace.
- They have an optimized cost structure and approach to capital allocation, continually investment in the capabilities that are critical to success, and actively cut costs in less-critical areas to provide funding for those investments.
- They build supportive organizations by redesigning their structures, incentives, decision rights, skill sets, and other organizational and cultural elements so their behaviors are more aligned to their strategy in order to harness the collective actions of their people.
Currently, “only 17 percent of companies are poised for a profitable future.” This statistic came from a study performed by Booz & Company (the parent company of strategy+business) in which 197 European and North American companies were surveyed using the Fit for Growth Framework.[iii]
This framework measures five different business archetypes:
- Strategically Adrift: Little strategic clarity.
- Distracted: Don’t possess a clearly articulated “right to win” and a set of differentiating capabilities.
- Capability Constrained: No theoretically strong strategy and capabilities set has been set into motion.
- In the Game: Doing almost everything right; possess a clear, distinct, and well-articulated strategy; distinctive capabilities; likely held back by problematic organizational attributes.
- Ready for Growth: The strategy is clear, differentiated, well-articulated, and the company has demonstrated resilience to change; capabilities are highly advanced; resources are directed to areas that will yield the highest strategic and financial returns; organizational structures support key capabilities; success rests on a set of well-founded fundamentals rather than on transitory factors.
What to do Next
If only 17 percent of the companies surveyed are in a growth position, 83 percent are not. An argument could be made that it is the responsibility of those companies to do the work necessary to move into a growth position, not only for the sake of their stakeholders and shareholders, but also for the sake of the overall economic vitality of their home countries.
Obviously, those companies have a lot of changes to make and work to be done. Where should they begin? The authors of the article give four ideas they call “action items” that will help under-performing companies down the oath to growth:
- Complete “a rigorous review of the capabilities needed to achieve a leading position in their industry versus those that are secondary.”
- Complete “a dispassionate assessment of where they stand against these capabilities on two fronts: their level of effectiveness, and their relative levels of funding and investment.”
- Create “an action plan to scale back in the less-critical areas, and a corresponding plan to redirect funds from [those] areas to [the areas determined to have a] more critical” need for the increased funds.
- Create “a series of targeted interventions within their organization to increase speed and quality of decision making.”
Most companies don’t have the in-house capability to do this work. According to this study, there is an 83-percent chance that your company lacks these strategic capabilities.
Do you have the in-house capability to create a strategy that will move the company to a growth position?
Do you have the experience required to roll the strategy out to all levels of the organization to begin its execution?
What do you think it would be worth to your organization to build those skill sets in all of your people?
Let us know what you think and what you have experienced.
CMOE has experienced facilitators that help companies create strategy at all levels of the business, that help determine areas of improvement, and that will help with targeted interventions so the company will begin to deliver greater results, financial returns, and customer satisfaction. If your company requires these services, contact CMOE today for more information on what we can do for you.
[i] Aversa, Jeannine. Bureau of Economic Analysis, “GDP Growth Accelerates in First Quarter: Second Estimate of GDP.” Last modified May 30, 2013. Accessed June 21, 2013. http://www.bea.gov/newsreleases/national/gdp/2013/pdf/gdp1q13_2nd_fax.pdf.
[ii] Divakaran, Ashok, and Vinay Couto. “How Ready Are You for Growth?.” strategy business, June 18, 2013. http://www.strategy-business.com/article/00199?gko=edc83 (accessed June 21, 2013).