Smart Growth

Ed HessProfessor of Business AdministrationBatten Executive-in-ResidenceHesse@darden.virginia.eduwww.EDHLTD.com

Leading Edge Executive Forum

LondonSeptember 6,

2012

GOALSDiscuss the science of business growth

Discuss the historical role of technology in creating growth

Explore the future role of technology in creating growth

Growth or Austerity is a FALSE choice: technology can enable both simulataneously

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10 YEARS OF RESEARCH

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MY THEMES

To be a high performance global business of the future one must

have two world-class competencies:

Human Capital and Technology Capital

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MY THEMESTechnology diminishes the competitive advantage

of size and scale

Technology diminishes the power of the mass production business model

Technology enables the mass collaboration and mass customization business model

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LEADING EDGE TECHNOLOGY BASED ORGANIZATIONS

One can see these themes playing out today in the quant hedge funds like Renaissance Technologies, LLC

One can see these themes playing out today in military special ops and the intelligence community

Technology based “new growth” companies: Amazon, Google, SalesForce.com

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TRADITIONALLY The fields of strategy, finance & economics have dominated

growth thinking:

Sustainable competitive advantage

Unique products or services

Japanese production model or High value - add niche model

Growth is a linear reductionist production model

ROI, ROA, EVA, IRR

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WHAT IS SMART GROWTH?

Research-based : What we really know about growth and how it occurs

What do the following disciplines say about growth ?

Neoclassical, new growth, industrial, ecological, and behavioral economics; strategy, finance, OB, OD, innovation, biology & complexity theory

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7 SMART GROWTH FINDINGS1) Growth is not a linear reductionist process

2) Biology & complexity theory model growth better than economics, finance, and business disciplines

3) Consistent growth is rare

4) Consistent organic growth is learning-based

5) Growth requires the Right Mindsets, System & Processes

6) High employee engagement & customer-centricity drive growth and innovation

7) Growth is behavioral- financial results come from behaviors

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WHY IS CONSISTENT GROWTH SO HARD?Individuals are hard-wired to be anti-growth:

Cognitive Blindness & Cognitive Dissonance

The reasons organizations exist are anti-thetical to growth:

To produce reliable, predictable, standardized results with low variance and low risks

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DNA OF GROWTHMost consistent high growth companies

Do not sell unique products or services

Do not have the best talent

Do not have visionary leaders

Are not the most innovative

Do not have the lowest costs

Do not have complex diversified strategies

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HPOS: 30 YEARS OF RESEARCHThe “best” 8 studies:

1982, Peters &Waterman, The Search for Excellence1994, Collins & Porras, Built to Last1997, DeGeus, The Living Company2000, O’Reilly & Pfeffer, Hidden Value2001, Collins, Good to Great2003, Joyce, et. al., What Really Works2007, Hess, The Road to Organic Growth2009, Simon, Hidden Champions

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9 CONSISTENT FINDINGSThe “Not so secret sauce”:

1) Simple focused strategy- an “elevator pitch” business model

2) Structures that enable entrepreneurial behavior- “Small company soul in a large company body”

3) Higher purpose than shareholder value/profit- Money is not enough

4) Culture of relentless constant improvement- better, faster, cheaper

5) High employee engagement- an implied social contract – an accountable “family”

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6) Customer centricity – Inside the customer-

7) Humble passionate value-based leaders

8) Execution & service champions- excellence everyday every way by everyone enabled by technology- TECHNOLOGY LEADERS in Their industry

9) An Internal aligned self-reinforcing System that enables, motivates, and rewards desired behaviors

9 CONSISTENT FINDINGS (CONT.)

GROWTH IS Growth is a dynamic iterative ziz-zag feedback-

double loop learning process

Growth is a bottom-up & top-down process

Growth results from experimental learning

Growth requires constructive inquiry, critical thinking, diversity of views, a tolerance for failure, permission to speak freely

Growth requires flexibility, adaptability, speed, and organizational agility and ambidexterity

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FORMULA FOR GROWTH

Growth = Mindsets + System + Processes

A Growth Mindset : Individuals & Organizationally

An internal enabling System linking in a consistent seamless self-reinforcing manner strategy, structure, culture, leadership behavior, HR policies & processes, measurements, & rewards to drive growth BEHAVIORS

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GROWTH PROCESSES

Dynamic strategy making

Ideation

Opportunity exploration- what if

Customer co-creation

“Learning Launches”: Business’s scientific method

Growth Portfolio creation & management

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THE COMMON GROWTH PROGRESSION*Geographical expansion

Sell complementary products to existing customers

Expand to new customer segments

Add complementary services

Cost efficiencies

Technological productivity in supply chain, logistics, & manufacturing

Strategic acquisitions (small)

Move to solutions selling

* McKinsey and Hess Research Projects 18

TECHNOLOGY’S HISTORICAL ROLE IN CREATING GROWTH

1) Driving efficiencies & productivity

Manufacturing

Supply chain

JIT Inventory

Logistics & distribution

2) Providing financial & performance data to manage variances

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TECHNOLOGY IS THE COMPETITIVE ADVANTAGE AT

Wal-MartUPSGoogleSyscoPaccarADPWalgreenAmazon

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TECHNOLOGY HASDecreased response timesDecreased the importance of physical proximityIncreased the reach of every businessDecreased the power of physical & financial scaleDestroyed the false choice of size v. niche playerDemocratized business globallyGiven customers more powerChanged the velocity of product lifecyclesMade mass speedy customization possible

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TECHNOLOGY NOW IS A GROWTH ENGINEWHY?

Technology is moving from the “back of the house” to the “front of the house”:

Technology now makes scenario planning ( 40+ years old) and knowledge management ( 30 + years old) and organizational learning ( 40+ years old) realizable

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TECHNOLOGY CAN DRIVE

Growth Experimentation

Evidence-based management Analytics into dynamic strategy making,

marketing, customer engagement, and human capital recruitment, training, and engagement

Technology can make employee and customer co-creation realizable on a broad scale

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TECHNOLOGY ENABLES

1) A Learning Culture – A data-driven decision system at all levels

2) Early warning risks management systems

3) Mass collaboration with customers

4) Open innovation

5) Higher employee engagement

6) Destruction of business silos

7) Agility, adaptability, and makes speed a competitive differentiator

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THE ROLE OF THE CIO

Prediction: In great growth companies of the future, the CIO will report directly to the CEO.

Technology is a growth engine- both top-line & bottom-line

Ladies & Gentlemen: Start Your Engines !

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