Last year, I worked with Accenture on a study of its largest clients to learn what the leaders of these mega-corporations had on their minds amidst all of the uncertainty they face.
The headline: After years of taking a back seat to survival skills, growth is back on the agenda in a big way. All the responding companies reported that growth is either explicitly or implicitly part of their strategies, a big shift from large organizations’ attitudes in the downturn. Most reported that growth is even more important for them now than it was before the downturn, and that their companies are willing to take some risks to make it happen. So, they’re looking to get out there again, which is refreshing for those of us who have been suggesting that the time has come to get out of the deep freeze.
Further, companies seem to recognize that sticking with the core businesses alone will not get them to their growth objectives. They expected only 45% of their growth to come from extending existing lines of business to existing customers. The rest would be made up by new products and services (24%); entry into new geographies (17%); and appealing to new customer segments (14%). In particular, most respondents expected growth in emerging markets to become more important, as the underlying growth rate in developed economies remains sluggish. Interestingly, the work of many observers suggests that venturing into such new spaces may be far more difficult and risky than companies anticipate, particularly if they are counting on substantial growth.
But while these leaders reported they were ready to grow again, they were less sanguine about their ability to execute growth strategies. Only half the respondents said that they met or exceeded their growth targets over the last five years. While that is stronger-than-average performance, it certainly isn’t what a CEO would like to report. When they were asked how effective their capabilities for driving growth were, there was a fair amount of realistic self-criticism. All the firms thought that identifying new ideas was critical, but only half were confident that they had capabilities in place to do this well. Likewise, most of the respondents said that scaling innovation was crucial, but nearly half rated themselves as either low or below average in this area.
The capability gap manifested itself again and again. Most recognized the importance of top management support, project management expertise, identifying unmet customer needs, and understanding new segments in emerging economies, and most said they didn’t perform as well as they needed to in these areas.
Indeed, only one firm was confident in its capacity to practice “entrepreneurial management” and “controlled risk-taking.”
Well, if you can’t create growth yourself, you can always buy it. The firms looked forward to making acquisitions — perhaps responding to the attractiveness of a hot M&A market, loads of cash on the typical corporate balance sheet, and still-historically-low interest rates.
But there’s an acquisition gap, too. The responding firms’ lowest-rated capabilities were in managing merger integrations. (This response matches tomes of academic research that cite integration as the devil in the merger details.) Companies are better at hunting down targets and bringing them home than they are at figuring out what to do with them after that.
Finally, the firms were asked about the leadership practices that we know are associated with effective management of growth. The companies did reasonably well on making decisions using a formal process and managing projects using a disciplined approach (such as the stage/gate methodology). Where did things start to get ugly? Only a few respondents said that they had equally systematic processes for ending projects or for capturing the value created in projects that were discontinued (a critical gap that my colleague Thomas Keil and I wrote about for HBR). This gap is especially critical when one remembers that over half of growth in the next 3-5 years is expected to come from new geographies, new customers, and new products.
So, growth is once again part of the corporate conversation. That’s terrific. To win at this game, however, firms are going to have to think hard about filling those capability gaps, or their ambitious ideas may never be realized.