The 10 Rules of Growth

From McKinsey’s article: “One of the surest signs?of a thriving enterprise is robust and consistent revenue growth. That has not been easy to accomplish over the past 15 years. Corporate growth slowed dramatically after the global financial crisis, with the world’s largest companies growing at half the rate they did before 2008. Furthermore, increases in capital investments outstripped revenue expansion, compressing returns. Now, with a slowing global economy, rising inflation, and geopolitical uncertainty, growth that delivers profits and shareholder value may become more elusive still.”

The article mentions a measly average of 2.8% growth during the past 10 years. But that translates into almost 32% greater sales at the end of the period. With NO cost increase, profit would have quadrupled. Profit and ROI growth depends on how much cost grows over the same period.

What follows are my remarks or additions to their 10 rules of growth. My key message is about the articles 1st point “Put Competitive Advantage First”.

• Put competitive advantage first. Start with a winning, scalable formula. Yeah, sure, but how do you do that? How can you create competitive advantages? What are the ways?

Select the right successful Projects. Your projects should successfully deliver value. How can you know in advance whether a project will deliver value AND that your customers will buy it?To evaluate your idea’s potential success, apply the Theory of Constraint’s six questions about technology.

• ?What is the power of your idea, technology, or product? What are its capabilities and features? What can it not do?
• What limitations will your product idea eliminate or reduce?
• How do your potential customers currently deal with the limitation? Are people likely to switch from their current behaviour? Why?
• ?How should your potential clients change their behaviour when using your new product? Remember: Organisations tend to have more inertia (resistance to change) than individuals.
• What additional features should you add? How many of them should we add? Will they make your product more attractive?
• How can you cause (make) people to change? It is important to understand why people resist change. It is not because of the change. It is because of valid concerns and fears for their well-being. (The 6 levels of resistance to change can help you understand how to deal with concerns and fears.)

Accelerate your projects. Deliver more projects within the same period without adding cost or investment.

Most project environments have plenty of potential for improvement. Their primary cause for lost capacity and speed is unnecessary and inappropriate task switching or multitasking. There is a lot of literature about the cost of multitasking. Read some of that or devise a small simulation to test the cost of task switching in a live environment.

Choose a methodology (and project management software) that helps you reduce task switching by a lot. Critical Chain Project Management (CCPM) is my recommended methodology. Have a look with an expert!

You can achieve 25-50% shorter lead times and analogous gains in capacity.

Make your production and supply chain more capable, faster, and more reliable.

A more capable organisation uses its resources to deliver the maximum possible Throughput (the Theory of Constraints calls gross margin Throughput. It is the rate at which you make money. You calculate it as sales less totally variable costs (like materials and components). A more capable organisation is also faster and more reliable.

There is potential for improvement:

• Most organisations do not recognise their system’s constraint. It is seen more as a problem area rather than an opportunity. A sales organisation that cannot deliver enough demand is blamed for the less than satisfactory bottom line. (Beware of the finger-pointing that will ensue!)Rather than finger-pointing what can product development, production and the supply chain do to help?
• New product development – see above.

The supply Chain:

• Operations frequently complain about missing materials and components that delay production and cause missed due dates. It is not impossible to have near-perfect material and component availability when production needs it.
• The story is very similar in distribution – customers, distributors and retail often suffer shortages and surpluses. Both are costly, shortages even more so.
• The problem stems from static aggregated inventory targets, and a policy to produce in big batches. Large batches delay (urgent) demands. Often, a big part of a large batch is for the less certain distant future.
• Dynamic Inventory Management (DIM – it is not dim at all!) helps inventory managers come close to the optimum stock levels. It helps achieve near-perfect availability and much less stock.
• What is the value of no shortages and no surpluses? How much more will you sell? How much less will be discounted and written off? Will your CFO and sales director be happy?

Production

• Greater production capability is often found at the production lines’ constraints.
• Properly protecting your constraint is key. A constraint or bottleneck resource must never stop due to a lack of work. Its capacity must not be wasted by faulty products.
• I have often found 30 – 50% capacity by properly protecting the system’s relevant constraint(s).
• Products waiting to be processed are the potential for significantly shorter and more competitive lead times.
• Queues more than 90% of an item’s production lead time are easy to cut. A 50% cut reduces queue time to 80% of lead time.
• Without investing much cash, a factory can quite easily find 30 – 70% capacity and cut lead time by 50%.?The factory becomes more competitive.

Make the trend your friend.

Prioritise profitable, fast-growing markets

Don’t be a laggard.

It’s not enough to go with the flow—you need to outgrow your peers. If you implement the above, you will not be a laggard. Only a small percentage of businesses have implemented it successfully.

Turbocharge your core.

Focus on growth in your core industry—you can’t win without it.

Look beyond the core.

Nurture growth in adjacent business areas. Adjacent business areas are those that are technically similar. Your engineers should have no problems developing these not-so-different products. The same for your sales organization.

It is not easy for salespeople to sell technically very different products and product applications. Adjacent business areas can be very lucrative. Make sure they are not a resource trap.

Grow where you know.

Focus on growing where you have an ownership advantage. (see point E.)

Be a local hero.

Commit to winning on the home front. Not sure what the authors of the article mean. I believe that all your locations and their people should be heroes in their community.

Go global if you can beat local.

Expand internationally if you have a transferable advantage. Speed, reliability, and capacity (with the lower unit cost capacity brings) are transferable capabilities. Speed can be an issue when the client is on the other side of the World. Consider a local warehouse, product completion (customisation/finishing) and even local production. The competitive advantages of capability, reliability and speed will hold you in good stead.

Acquire programmatically.

Combine healthy organic growth with serial acquisitions. Use the recommendations from A with every acquisition.

It’s OK to shrink to grow.

Prune your portfolio if you need to. Think carefully about the Throughput you will lose and how to replace that. A low or even negative profit margin is not by itself a reason to prune. Even a negative profit margin can contribute to your bottom line. (Profit margins are an accounting construct and do not represent your cash flow or the impact on cash. Cash flow and profit are related of course. Be sure that pruning does not harm your cash flow. The actions described in A can easily turn a marginal product or business around – without the pain of firing people.)

Of the 10 rules the first one is the key! Create a competitive advantage. The advantages you create are useful when implementing the other 9 rules. You need to implement the suggested advantages to not be a laggard, to improve acquisitions to improve what is left after you have shrunk to grow.

Overall, It seems that after creating competitive advantage you have a base from which the rest can follow naturally.

[1] The McKinsey article subtitle is, “Empirical research reveals what it takes to generate value-creating growth today.” The article is by Chris Bradley, Rebecca Doherty, Nicholas Northcote, and Tido R?der