Steps To Delivering Growth

It was positive to see the UK economy rebound in May, after shrinking in March and April.

That does not mean the risk of recession has gone away, consumers are experiencing the tightest squeeze on their disposable incomes within their lifetimes. June’s retail sales showing a 5.8% year on year decline when factoring in inflation.

There is no denying the economy is weak.

The surge in natural gas and electricity prices over the last week has substantially raised the risk of the economy tipping into recession towards the end of this year. If Russia pulls the plug on gas to Europe that could be the next economic shock which would cause a fall across Europe of GDP (see chart below).

Don’t assume the UK would be immune, just because it’s not on this chart, GDP reductions of that magnitude across European countries would also have an impact on the UK. The IMF suggests the UK might see a loss of 0.8% of GDP as a worst-case impact.

Across our economy prices are surging while growth is stalling: the classic hallmarks of stagflation.

We expect UK interest rates to follow that of Europe and rise by 0.5% (in early August) as the US increases its rates by 0.75%. Increasing rates will slow economic growth and inflation which is the driver of these decisions.

Spiralling inflation and the overall impact of the cost-of-living crisis is set to wipe out a potential ￡25 billion of discretionary spending across UK retail, leisure, and consumer industries in 2022/23, these will be the worst hit as any recession will be narrow.

Assuming you followed the lessons from past recessions from last months newsletter, then you’re ready for growth and this month’s newsletter.

A survey by EY found that 45% of manufacturing “Thrivers” are planning business model change, compared with just 32% of “Survivors”. Whilst 73% of Thrivers plan to increase spending on general transformation initiatives, with only 32% of Survivors indicating the same.

This shows a stark difference in mindset between the two.

“Thrivers” are businesses that are growing whilst “Survivors” are those with declining revenues.

Which are you?

So where do you start on the journey to growth? Obvious as it might seem you need a clear strategy for growth, you need to make an explicit choice to grow and have a clear innovation path.

?? A growth mindset needs to be part of your organisational culture, inspiring this sense of purpose across the organisation.

?? History suggests that those organisations with a growth culture in their DNA continue to grow, even during a recession.

?? The leadership team must ensure the goal of growth is hardwired, with clear targets agreed and monitored that the whole organisation follows.

?Research shows that 84% of CEOs believe innovation is critical to growth and yet only 6% of CEOs are satisfied with their company’s innovation performance.

Innovation is vital for growth. How would you rate your level of innovation?

Creating a culture of organic growth rather than through growing by acquisition typically delivers sustained growth levels. This of course depends upon the overall value chain of your business.

Some companies want to shortcut the innovation cycle and buy innovation through acquisition rather than build internal capabilities.

All too often acquisitions are based upon buying smaller disruptors in the market, but many then lose that innovative edge when consumed by a larger organisation without an innovation mindset.

Where external acquisitions are made, they should be done to maximise value, even at the expense of short-term returns.

??It’s worth reflecting why starts ups are such good innovators, its because they can’t compete on a like for like basis, they need to be radical in their approach, this is where their innovation comes from. Larger companies tend to approach incremental gains rather than radical change….

Creating an organisation with innovation and growth at its heart also attract the best talent, which drives innovation.

With current global supply chain issues, we are seeing more and move purchases of suppliers within supply chains to minimise disruption and whilst this might provide short terms gains, this can be very costly that will not guarantee growth.

Growth is not delivered by gut feelings but by strong analytics to ensure you make the right choices and ensure synergy.

Investment in data science and digital transformation is essential to ensure the right decisions are made when it comes to acquisitions and growth strategies.

?? A word of warning for CFOs reading this, research shows that internal teams see the CFO and their finance team as blockers for innovation, rather than drivers. The reason for this, innovation can be difficult to put an ROI against, the risk adverse nature of some CFOs making innovation that much harder. If you recognise this, which I do a little from my own time as a CFO, it’s about being clear how that innovation investment will drive growth and create value.

Sustained growth that exceeds annual GDP should be the minimum target for robust growth.

To deliver sustained growth a business must invest in innovation.

To do this leaders should transition from a product mindset to a value-generation mindset. It’s this that will generate growth.

It’s worth noting even in the current inflationary environment, almost half (48%) of UK shoppers say they are willing to pay more for sustainable products, which suggests this must be part of any growth strategy, this is where value can be added.

As you understand the value you create, it’s then a question of where else you can add value. This might be what drives choices around internal capability or acquisitions.

As part of the value creation consideration, you should review if you have the right products, processes, and people to maximise value? If not, this is where investment is needed.

You should also consider how the value your product or service adds compares to that of your competitors.

And remember, creating value and innovation means you can’t stop at the first challenge or failure, rewards might not be immediate, its about investing for the long term.

Growth Strategies

Those businesses that expand into adjacent industries are 20% more likely to achieve growth than their peers.

Whilst the EY CEO Imperative Survey found that 70% of manufacturing sector respondents saw technology and digital innovation as transformation drivers, with only 30% saying that about new business models.

Which are you focusing on?

For decades, manufacturing business models focused on incremental growth, however, stagnating growth and market disruptions are leading businesses to broaden their innovation efforts to include their business operations.

Business model innovation requires companies to re-examine, and challenge, their own core competencies.

Focusing upon delivering ongoing excellence in operations supports is unlikely to be the source of ongoing growth, but it is a strong basis to build innovation and growth.

Many of the hallmarks of a recession are present in the economy.

A recession is a key time to seize opportunities as your competitors make the wrong decisions, be that buying their assets, taking their best people, or taking their best customers.

Tough economic factors will ramp up as the October price cap rise creates more inflation along with associated economic challenges.

If you are looking to invest in growth and innovation this might be the time to prepare to do just that.

As you take some time to reflect over the summer, I wanted to share a powerful question my coach would pose to me when I was a CFO.

?“Think about the actions you are personally taking and do they move your organisation

closer to delivering its goals?” ?

Thanks for reading, I hope you and your loved ones have a fantastic and restful summer.

My next newsletter will land in September.

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