Concentric vs. Venn-based Growth

The September-October 2019 edition of Harvard Business Review includes an article – “Put Purpose at the Core of Your Strategy: It’s How Successful Companies Redefine Their Business”, by Thomas W. Malnight, Ivy Buche and Charles Dhanaraj (HBR Reprint R1905D) – describing differences in growth strategies that yield disproportionate amounts of growth when also distinguished by guiding purpose. 

I’ll call one such strategy ‘concentric growth’ – where companies expand on what they already do well, in a race to outsmart, outlast and outperform others in their field that are doing the same thing. Problem is, eventually the field becomes crowded and growth becomes limited -- like an overcrowded forest.     In terms of an organizational chart, there are far fewer VPs than Directors, far fewer Directors than Managers, far fewer Managers than . . . And like fish in a pond, you only grow as big as the total space available – combined with the number of other fish, the number of predators, and the food supply – allows.  It’s a closed system.  Perhaps that is why in some quarters organic growth is being replaced by mergers and acquisitions. 

The article explains what I’ve called ‘concentric growth’ this way: “What’s a key difference between low-growth and high-growth companies? The former spend most of their time fighting for market share on one playing field, which naturally restricts their growth potential. And because most aggressive battles take place in industries that are slowing down, gains in market share come at a high cost, often eroding profits and competitive advantage as offerings become commoditized.” 

The other such strategy, I’ll call Venn-based growth – where companies expand by building and branching into different areas pertaining to a whole. And the amount or type of overlap between those different areas defines the whole.    This growth does not need to be equal in each area. The point is differentiation around a common set of principles, vision or mission. Using the forest analogy, this could be a high-altitude forest around a lake and all the different microclimates it supports. As a whole, the amount of life this combined environment can support is astounding, as well as the number of options for growth within that environment, while still being bound by the limits of the environment. 

Maui is another example of this: beach to high-altitude volcano with a deep crater you can hike across, and everything in-between, bound by an X square mile space and its geographic location. Everyone living on Maui calls Maui their home, but five miles in one direction may lead you to a completely different environment. 

The HBR article describes what I’ve called 'Venn-based growth' this way: “High-growth companies, by contrast, don’t feel limited to their current playing field. Instead, they think about whole ecosystems, where connected interests and relationships among multiple stakeholders create more opportunities.” But the article adds a statement about purpose for these high-growth companies that I think is key: “But these firms don’t approach ecosystems haphazardly. They let purpose be their guide.” This allows organizations to move within and add to the scope of the Venn while remaining true to their purpose. It also allows for flexibility. If the horizon demonstrates a needed change in approach or focus, the organization can pivot – even drastically – while still being true to their purpose. 

Faced with this kind of purpose, ‘Venn-based growth’ might be represented by situations where use of the combined environment is maximized or where moves are being made toward that objective.

In contrast, in a ‘concentric growth’ environment, as the field becomes more crowded, you seek to differentiate yourself with features or offerings others may or may not have. So growth focuses on becoming more well-rounded (e.g. by mergers and acquisitions) and/or in specializing so well that others come to depend on you over the alternatives.

In Terms of Purpose . . .

In terms of purpose, the article describes defining purpose based on your past, or taking a retrospective approach. In my opinion, this applies well to ‘concentric growth’. â€œThe retrospective approach builds on a firm’s existing reason for being. It requires that you look back, codify organizational and cultural DNA, and make sense of the firm’s past. The focus of the discovery process is internal. Where have we come from? How did we get here? What makes us unique to all stakeholders? Where does our DNA open up future opportunities we believe in?”

This can apply well when identifying how to add to your existing value proposition in a way that builds on what you already have. It helps you understand where you are and who you are, and helps you define your strengths and come up with a sound ‘concentric growth’ strategy. In my mind, it also applies well for ‘Venn-based growth’ in a low-risk environment – where you can build on who you are (your past) while identifying what can be or what needs to be as a next major growth step. 

But what if changes in the market are staring you in the face of the sort that if you don’t change, you won’t be around to talk about it or will suffer significant decline? That can require vast restructuring to stay competitive. In that case, it is possible to do so while straying true to your purpose but can require a different approach to defining purpose. In that case, relying solely on retrospectively defined purpose will not get you across the finish line. It requires what the article describes as a prospective approach to defining purpose. 

“The prospective approach . . . reshapes your reason for being. It requires you to look forward, take stock of the broader ecosystem in which you want to work and assess your potential for impact in it. The idea is to make sense of the future and then start gearing your organization for it. The focus is external, and leaders have to ask a different set of questions: Where can we go? Which trends affect our business? What new needs, opportunities, and challenges lie ahead? What role can we play that will open up future opportunities for ourselves that we believe in?” 

That might mean taking things in a whole new direction. While your past will be your jumping off point and may restrict what is possible in the future, you may need to build and grow in areas you would not consider if your growth focus was concentric only.  

Regardless of the circumstance, the retrospective approach to purpose helps keep you grounded and can guide your decision-making. However, in my mind, the potential for growth will be limited if you do not also engage in prospective definition of purpose. 

Bringing It Home

The type of growth you pursue at any given moment can be defined by many factors, not all under your control. That’s also true of life. Regardless of how large my dreams were and how purpose-driven they were, including a 'Venn-based' approach to growth, I faced an existential crisis of identity when I did not get into medical school. I went from being forced to pivot strongly just to pay my bills, to growing concentrically within my adopted field. That was a difficult transition. I had to rebuild in another field while my heart was somewhere else. During that process, I sought to make sense of my life by identifying characteristics and strengths I demonstrate and what allows me to thrive. At the same time had the opportunity to build a variety of skills within the profession that are not available to everybody. When those opportunities were no longer available due to a shutdown and acquisition, I transitioned to Corporate Quality where I have put my knowledge base to work while developing soft skills less needed in my previous environment. Those soft skills have opened other opportunities. 

Some years ago, I was challenged to start thinking in terms of purpose again (beyond soft skills development). That is requiring a slow shift from a from a ‘concentric growth’ mindset to a ‘Venn-based growth’ mindset – prospectively and retrospectively, while also based on purpose. That is in development.  In this case all I have are fuzzy goals. I don’t know where it will lead. And that is fine for now.  

Perhaps you have played a variation on Scrabble? some call “Speed Scrabble” that uses the Scrabble? tiles to similarly come up with completed crossword puzzles. What is inherent in this version of the game is also inherent in the standard version of the game: a set number of tiles; points based on individual values of those tiles; a “hand” based on the tiles you draw; to come up with any words you can based on what has already been played; and a time limit based on the total number of tiles. With Speed Scrabble, the puzzle you build is not shared with your competitors. If, as you build your own puzzle, you find that the approach you are taking is not working, you can tear down all or part of the crossword you are building and start over. However, because with Speed Scrabble, the game is also a race against others to both maximize point total and to finish up all the tiles available to you first, the time available to restructure your approach decreases as the game draws to its conclusion.  You reap the consequences of your decisions, for good or for bad.  You strategize on the whole and in the moment. This matches life but can also be true in business.  How you manage the moment in light of the whole – and based on purpose – defines what is possible . . . and in some cases your survival. 

Coming Full Circle

The last two paragraphs in the HBR article put all these things into perspective.

“Strategy involves exploring fundamental questions. Why are we in this business? What value can we bring? What role does my unit play within the bigger portfolio? Purpose creates the basis for answering those questions and defining how each unit will contribute to the organization and to society as a whole. This focus on the collective objectives, in turn, opens up many more opportunities to improve growth and profitability today and in the future.” 

“The approach to purpose that we’re recommending cannot be a one-off effort. Leaders need to constantly assess how purpose can guide strategy, and they need to be willing to adjust to redefine this relationship as conditions of change. That demands a new kind of sustained focus, but the advantages it can confer are legion.” 

Assess.  Be flexible.  Adapt.  Inspect.  Repeat . . . and Watch the time.