Edward D. Hess
For Virginia Business
I have spent the past six years studying why consistent, industry-leading growth is hard to produce over long periods of time. And I have tried to understand the “DNA” of companies that have been able to put together an impressive string of industry-leading growth. Among others, these companies include SYSCO, Best Buy, UPS, Stryker Corp., Total Systems Services, Tiffany & Co., Outback Steakhouses, American Eagle Outfitters and Walgreens.
My work has focused on who seems to create earnings the old fashioned way — more customers, more products/services, more operating efficiencies — in contrast to earnings created by serial acquisitions or generated by financial engineering, currency gains, or accounting elections or reversals, etc.
What I found was that consistent, organic growth is much more than a strategy — it is both a process and an internal system. This system is aligned in that it is seamless, consistent and self-reinforcing. The critical components of the system are one’s strategy, structure, culture, execution processes, employee policies, leadership philosophy, and measurement and reward procedures.
These systems are designed to drive desired behaviors and seek to measure much more than just financial returns. Likewise, these systems are aimed at getting every employee emotionally engaged in growth, not just the executives. The “magic” or beauty of these systems is that line employees take “ownership” and act more entrepreneurially, leading to higher loyalty, emotional engagement and productivity, which results in incremental growth.
When I began my research, my hypotheses were that consistent growth companies had:
(1) differentiating and diversified strategies;
(2) the best talent;
(3) visionary leadership;
(4) unique products or services;
(5) outsourced non-core competencies;
(6) the lowest labor costs; and
(7) the best innovation.
To my surprise, I found none of those hypotheses to be necessary for creating a consistent, high organic-growth company. Instead, I discovered the six keys to organic growth, which are discussed in my book “The Road to Organic Growth” (McGraw-Hill, 2007).
High organic-growth companies had an internal system made up of:
(a) simple, focused strategies;
(b) high employee engagement leading to an ownership mentality and high levels of execution excellence;
(c) humble operators as leaders committed to being better each day;
(d) best of class technology to drive efficiency, productivity and measurements;
(e) an iterative, incremental improvement culture and process mentality focused on being better, faster, and cheaper; and
(f) a resistance to complacency, executive elitism, and in most cases, an avoidance of big-change initiatives and big acquisitions.
Leadership was focused inward on the details of execution and outward on customers. There was less emphasis on industry trends, the competition or Wall Street. The leaders understood that, no matter how good a strategy is in theory, it still has to be executed, and execution happens on the front lines, not with consultants or by executives.
These companies did not necessarily have the “best talent” but they did have engaged talent because of an “ownership” mentality, a stable measurement and reward system, and a promotion-from-within policy buttressed by the devaluation of executive perks other than compensation.
The creation and management of this internal growth system is hard. It takes a heightened sensitivity to ward off inconsistent messages, which lead to hypocrisy that destroys employee trust in the system.
It all comes down to drilling down deep to understand what behaviors drive value creation in your business and learning how to measure and reward those behaviors by creating the right environment that enables, rewards and reinforces those behaviors closely in time to their occurrence.
Growth is much more than a strategy — it is an aligned, internal growth system that enables and rewards execution excellence.
Edward D. Hess is professor of business administration and Batten Executive-in-Residence at the Darden School of Business. His writings can be found at http://www.EDHLTD.comTweet
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