Business Attributes that Make a Difference

Not long ago, three McKinsey & Company consultants revealed insights about sustainable growth in a best-selling book titled “Strategy Beyond the Hockey Stick.” Their experience in working with hundreds of businesses in a variety of industries revealed some interesting patterns.

Among the more compelling findings are what the authors call “10 variables that make the difference.” Once organizational leaders understand these items, they have a better chance of planning effectively and moving valuable resources in the direction of sustainable competitive advantage and profitable growth.

Just as important as these 10 variables are some of the factors that were eliminated from consideration (that is, those that over time had a limited impact on future growth). These include past revenue growth, changing results in your given industry overall, and geographic location and market reach. 

These 10 variables were clustered into three categories: endowment, trends, and moves.  Endowments are what you have to work with. Trends are external forces you may have little control over but have significant impact. Moves are planning decisions you act upon. How, where, when, and on what you “place your bets.”

Endowment includes three variables: the size of you company, your debt level, and past investments in new product and service development (R&D). 

Size does matter relative to your direct competitors. Having scale won’t necessarily ensure success, but it does help you plan and execute advantageous moves ahead of competitors. 

Excessive debt over time can derail success (some companies take on and retire aggressively as part of their growth strategy and as such, their debt to equity ratio may look “unhealthy” but only for a time). Liquidity helps and provides agility in acting on opportunities. This includes but is not limited to development of new product and services and strategic acquisitions.

Trends include two variables and the most significant of the 10. Industry trend is the most important of all. A significant challenge confronts businesses in declining, contracting, or rapidly changing industries. 

The final five variables are moves organizational leaders make consistently and with a focus on growth. These moves include dynamic allocation of company resources (feed the winners and starve the losers thereby avoiding the “peanut butter” approach of allocating resources evenly across all departments and activities), strategic, well planned capital expenditure, dedication to the highest levels of operating efficiency, and a commitment to differentiation. 

The authors highlight a major U.S.-based manufacturer, which has practiced resource evaluation and re-allocation over time (remember, you can’t “re-allocate” until you “de-allocate” utilizing processes such as “the abandonment matrix” or the “strategic renewal process”). This is often the most difficult step for business leaders to take. There always seems to be a “valid” reason to continue offering and even supporting activities that do not (and likely will not) contribute to the growth aims of the enterprise. But there they are and there they stay (think: “accounts with potential”).

They have institutionalized resource liquidity as a corporate priority. Their management team acts as a private equity firm spending 50% of their time evaluating M&A opportunities, organic investments, and divestures. Spending time on these three critical activities always matters and is especially needed when the industry you’re in is contracting and/or facing major stress and transformation. 

What would happen if you and your leadership team dedicated more time to these activities? 

Robust, structured strategic planning has never mattered more than it does now.  To find out how your organization can benefit from a proven, comprehensive, planning process contact me at joe@ajstrategy.com or visit ajstrategy.com.