New research identifies how star performers grow from within

The Marketing Society defines marketing as 'the creation of customer-led demand, which is the only sustainable form of business growth' and puts marketing at the centre of this imperative. The study, summarised here, has clear implications for how marketers can help achieve this growth.

Much has been written about organic growth as a key to success. Less has been published about how to achieve it, and at Oliver Wyman we therefore undertook a study to:

• learn what organisational practices best support organic growth and what types of companies are employing them
• determine which practices can be tied to actual financial growth
• Develop guidance for teams trying to grow from within, so that they can cost effectively focus their time, energy and creativity.

Oliver Wyman surveyed a total of 212 companies across the US and Europe – the largest investigation into organic growth to date. The sample included CEOs, CFOs and other members of the executive team, and our questions focused on a set of 35 practices that purport to create organic growth. In addition we also measured the extent to which companies were achieving growth goals on three key financial criteria: sales, earnings and cashflow.

This then enabled us to establish a final pool of 'growth champions', companies with apparently outstanding growth performance; performance that was also checked against long-term financial information.

THE GROWTH CHAMPIONS

Out of our 212 companies we eventually identified 23 'growth champions'. On average growth champions hit more than twice the growth rate of the other companies on the three financial dimensions and not only did they have tremendous revenue growth performance, they also accomplished it without compromising net operating income.

Furthermore, the market rewarded the publicly traded growth champions with improved financial performance leading directly to improved share price. Another important conclusion was that company size is irrelevant: the correlation between the deployment of key practices and annual revenues was close to zero.

THE BEST PRACTICES FOR GROWING FROM WITHIN

Having identified this group of high-growth companies, we then looked in more detail at the best practices for organic growth. The total sample rated their company's deployment of 35 organic growth practices. The diagram below shows how the scores of our 'growth champions' compared with the rest, illustrating dramatically the areas that closely associated with successful organic growth.

THE GROWTH CHAMPIONS: WHAT THEY DO – AND WHAT THEY DON'T

The growth champions have clear and well-articulated profit models which are linked with strong metrics and feedback. They are very clear on their sources of growth and make effective trade-off decisions about where to invest for growth. These businesses focus on a few things and this focus is reinforced by a commitment to superior execution at all levels. These practices are noticeably less present in the remaining 189 companies, who put effort into a variety of other practices. It is also worth noting the practices the growth champions do not pursue.

• Very few of them focus on building radically new products or services. They stick to what they know.
• They do not support multiple business models simultaneously, preferring instead to operate a single clear business model. Just over half report that they foster innovation, but this is not significantly different from the non-growth champions (see Figure 1).
• Few of them have an internal venture capital process or share resources across the organisation to fund initiatives.

THE KEY ENABLERS OF HIGH GROWTH PRACTICES

We also identified a series of four enabling practices that support the high growth practices.

1. Growth champions build leaders to grow from within. They put considerable effort into building leadership capability that will focus on organic growth.
2. A significantly large number have fewer levels of management.
3. They engage in cross-cutting forums to drive innovation.
4. They have developed a culture of adaptability, and encourage employees to be adaptable and flexible to a changing environment.

THE KEY PRACTICES FOR ACHIEVING SALES, EARNINGS AND CASH GROWTH

We also used regression analysis to look at how the best organic growth practices correlate with the financial performance outcomes used to rate companies. The results show that sales growth is associated with disciplined execution and a culture of adaptability (see Figure 2).

Earnings growth is linked with good decision making and focus, while cash flow growth is strongly related to measurement and promoting excellence in execution.

These findings provide insights for organisations who are interested in launching internal efforts to grow particular financial outcomes. However, while different practices correlate more strongly with one outcome than another it is important to remember that the practices themselves are contingent on one another. Leaders who focus their companies on growth and who pay attention to the ten growth practices are likely to see the needle move on all three dimensions.

THE IMPLICATIONS FOR MARKETING

This study has some clear and dramatic implications for marketing, many of which have already been recognised in the Marketing Society Manifesto for Marketing, published in 2006.

For marketers to contribute more effectively they need to clearly understand the drivers of organic growth and learn how to help and support the wider organisation in terms of business delivery.

A core strand is the need for rigour in selecting innovations, in execution, profit and in measuring performance. Marketing is well placed in terms of its unique abilities to distil and clarify communications, develop KPIs, analyse and substantiate tradeoff decisions and produce simple measures of success.

In addition to its focus on creating customer-led demand, marketers should also be working out strategies to help build culture and engage the numerous constituencies, particularly consumer, employee and investors, to deliver business results.

IN SUMMARY

There are clear and distinctive practices that differentiate growing companies and that are mutually reinforcing. They transcend size, sector and history, but the growth is consistent year on year.

The practices are characterised by focus, simplicity and discipline, and dispel some misunderstandings about the importance of, for example, risk taking and radical innovation. Not only are they mutually reinforcing, but they also reflect a clear difference in priorities between growth champions and other businesses.

These conclusions represent not a threat but an opportunity for the new style of marketing espoused by the Marketing Society; a marketing that focuses on organic growth generated from an understanding of the profit drivers in the total business and is focused on rigorous execution, relevant innovation and strong metrics.

THE EXAMPLE OF PROCTER & GAMBLE

The $60 billion Procter & Gamble company, now the world's largest consumer goods company, is a good example of this. Its health, beauty care, household and food products are used an estimated two billion times a day by consumers around the world.

Its success in sustaining growth is based on continuous attention to detail, sound processes and conservative decision making. Disciplined leadership, disciplined execution and remaining faithful to the consumer are the keys to success. Among growth champions, the organisation arrangements are simple, with few management levels and strong metrics and feedback loops. P&G has reorganised from five divisions into three to simplify its operations and is quick to eliminate brands that aren't profitable and growing.

P&G is remarkably centralised and aligned towards a set of shared goals. Divisions don't head off on their own. Shared processes have a lot to do with this, as does the fact that P&G executives are grown from within; they know each other and they understand the procedures that need to be followed.

While some companies would find this centralisation a barrier to creativity and innovation, P&G uses its structure to do just the opposite: force innovation where it is required and cut off unsuccessful investments early on before they drag the division or company down.

The cultures of execution and adaptability are mutually reinforcing: if the workforce is selected, developed and rewarded for its adaptability, executing new sources of growth is more likely to succeed. Similarly, if you understand your profit model and focus on a few key initiatives, this gives a solid basis for having strong measures and feedback loops.

This article featured in Market Leader, Summer 2007.

NOTES & EXHIBITS

FIGURE 1

FIGURE 2