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Achieving Growth in Low Growth Markets
AIMCAL Fall ConferenceOctober, 2004
Frank PerkowskiBusiness Development Advisory770-643-9081frank@bd-advisory.comwww.bd-advisory.com
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Today’s Agenda
Breakthrough concepts, new space. Adjacent segments
Improved Quality
Expanded Services
Improved Service Delivery
Line Extensions
Product Improvements
Improved Quality
Expanded Services
Improved Service Delivery
Line Extensions
Product Improvements
New ProductApplication
New Services
Increased Product Functionality
Niche Marketing
New ProductApplication
New Services
Increased Product Functionality
Niche Marketing
Strategic Alliance / Joint Development
Expansion intoAdjacent Markets
Integrated Customer Solutions
BreakthroughProduct Concepts
Strategic Alliance / Joint Development
Expansion intoAdjacent Markets
Integrated Customer Solutions
BreakthroughProduct Concepts
Maturity Stage
Growth Stage
Development Stage
Successful Implementations
Current Growth Dynamics
New Strategies are Required
Making the Change
Company Market Growth Approach Result
General Motors
Auto Production and Assembly
Created new "OnStar" service business that leveraged company's installed customer base
$1 billion in new revenue within five years. Launching pad for new businesses
Johnson Controls
Car Seat Assembly
Expanded product line to provide integrated solutions that solve customer problems
Grew from minor foam supplier to major integrator of interior auto components for US industry
UPS Package Shipping
Leveraged existing systems to expand into related businesses and profitable service offerings
Since 1999, created a $3 billion service business with earnings growth rate of 15%
Virgin Low Cost Airline
Built and leveraged its brand and image across different markets and product segments
Grew from start-up to a 29 division $6 billion company at average growth rate of 12% over 35 years
More Examples of Companies Growing Significantly in Low Growth Markets
Economic Drivers
Provide Integrated Solutions
Segment Customer
Base
Product Line Gaps
Share of Wallet
Areas of Customer Opportunity
Economic Drivers
Provide Integrated Solutions
Segment Customer
Base
Product Line Gaps
Share of Wallet
Areas of Customer Opportunity
Market demand declines
Competitors introme-too product
Product improvements introduced
Competitors reduce priceVolumes
decline
Temporary share increase
Alternatives become available
Production costs increase
Customers reduceconsumption
Market prices decline
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Changing Dynamics Have Made Historic Growth Strategies Obsolete
• Brand and product proliferation• Over investment and availability of new global
suppliers• Mega retailers and customer buying groups• Educated consumers with higher expectations• Channel developments and disintermediation• Electronic commerce and communications
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Slower Growing Markets Create a Vicious Cycle
Market demand declines
Competitors introme-too product
Product improvements introduced
Competitors reduce priceVolumes
decline
Temporary share increase
Alternatives become available
Production costs increase
Customers reduceconsumption
Market prices decline
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Traditional Growth Strategies Are Less Effective in Maturing Markets
• Lower prices via cost reduction
• M&A
• Product Improvements
• Channel Development
• Service Enhancements
• Competitors match, reduced loyalty, commoditization
• 70% fail, synergies usually do not materialize, competitive response
• No proprietary R&D, limited customer value, substitutes
• Competitors already established, market saturated
• Competitors match, become expected, higher costs
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Different Growth Strategies Should be Employed When Markets Mature
Breakthrough concepts, new space. Adjacent segments
Improved Quality
Expanded Services
Improved Service Delivery
Line Extensions
Product Improvements
Improved Quality
Expanded Services
Improved Service Delivery
Line Extensions
Product Improvements
New ProductApplication
New Services
Increased Product Functionality
Niche Marketing
New ProductApplication
New Services
Increased Product Functionality
Niche Marketing
Strategic Alliance / Joint Development
Expansion intoAdjacent Markets
Integrated Customer Solutions
BreakthroughProduct Concepts
Strategic Alliance / Joint Development
Expansion intoAdjacent Markets
Integrated Customer Solutions
BreakthroughProduct Concepts
Maturity Stage
Growth Stage
Development Stage
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Emerging Trends Will Present New Challenges and OpportunitiesGlobalization
- Lower cost foreign suppliers- Overseas opportunities more accessible- New high growth markets
Substitutes- Lower cost / more effective electronic communication
media- Film / synthetic /composite / nonwoven materials offer
increased functionality for demanding applications
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… And Require the Development of New SolutionsTechnology
- Digital printing growth requires new substrates, coatings, and coordination with other suppliers
- Print technology developments and applications require more uniform substrates and investment
- Coating / barrier / developments have created increased functionality and new applications
Demographics- Aging population means different requirements- Higher living standards and lifestyle changes translate
to new / different applications- New business formats will generate different needs
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Many Companies Have Adopted Practices that Discourage Growth
• Over-expanding with investments that do not provide a competitive / unique advantage
• Assuming that low cost production will result in above average returns
• Assuming that future needs will be similar to those in the past
• Selling what can be easily made versus what the customer will need in the future
• Thinking too narrowly about core competence • Under-estimating the significance of hidden and intangible
assets• Creating cultures that discourage true innovation
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Why is it Important for Companies to Realize Above Average Growth?
• Translates to higher valuations that provide above average shareholder returns
• Attracts the best employees and capital investment
• Creates a virtuous circle that promotes continuous improvement
• Ensures stable organizations that provide jobs and enrich communities
But…….. Growth alone (without higher margins) is not the solution!
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Success in Other Industries
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Other Companies Have Successfully Implemented New Growth Strategies
• Even the “worst” industries have winners and losers
• Companies in weak or low growth industries have succeeded by leveraging market dynamics and finding unique new opportunities (Southwest Airlines, GM Onstar, GE Medical, Virgin, Clarke American, UPS)
• Company success is mostly determined by internal, management factors versus external, market related factors
Research by Bain & Co. shows that about 70% of a company’s performance is controlled by internal, management factors versus external / market factors
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The Most Successful “Non Traditional”Growth Approaches
• Expand into related products and services• Develop a breakthrough efficiency improvement• Leverage customer relationships / access to
expand into new businesses• Leverage a unique competence or capability and
apply to new area• Focus directly on providing customer solutions
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Many Companies Have Successfully Implemented these Strategies
Company Market Growth Approach ResultAir Liquide Industrial
GasesApply technical expertise to expand into services and fix customer problems
10% / 14% annual growth in revenue / income from 1996-2001
American Standard
Bathroom Fixtures
Significantly improved efficiencies of its declining core business which allowed it to profitably expand into related segments
Increased earnings by 14% / year over ten years while growing stock price from $4 to $75
Cardinal Health
Wholesale Drug Distribution
Expansion into adjacent markets and services
$25 billion in market creation over 5 years
Clarke American
Check Printing Leveraged customer access to provide new bank services
Enlarged target market from $1.8 billion to $14 billion. Grew business by 70% in 5 years in declining market
GE Medical Systems
Medical Imaging Equipment
Expanded into related service businesses that leveraged core expertise
Grew from one division and $4 billion in sales to 3 segments with $8.5 billion in sales
Some Examples of Companies Growing Significantly in Low Growth Markets
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The Best Growth Solutions For You Depend on Particular Circumstances
Company Market Growth Approach Result
General Motors
Auto Production and Assembly
Created new "OnStar" service business that leveraged company's installed customer base
$1 billion in new revenue within five years. Launching pad for new businesses
Johnson Controls
Car Seat Assembly
Expanded product line to provide integrated solutions that solve customer problems
Grew from minor foam supplier to major integrator of interior auto components for US industry
UPS Package Shipping
Leveraged existing systems to expand into related businesses and profitable service offerings
Since 1999, created a $3 billion service business with earnings growth rate of 15%
Virgin Low Cost Airline
Built and leveraged its brand and image across different markets and product segments
Grew from start-up to a 29 division $6 billion company at average growth rate of 12% over 35 years
More Examples of Companies Growing Significantly in Low Growth Markets
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Making The Change
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A Key First Step is Trying to Figure Out How To Get Started
Which Oppes to Pursue
Process for
How to Increase Success Probability Core Competencies and Unique Cibitors Sig
ortunitiIdentifying Opportunities
apabilities
Organizational Enablers and Inh nificant Risks and Mitigating Actions
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Growth Companies Have a Few Things in Common
Common Element BenefitGrowth plans are based on in-depth understanding of customer needs
Better solution to business problems helps customer be more successful
Leverages hidden / intangible assets Provides a more complete, unique solution that leverages existing capabilities
Growth initiatives built on a strong core business
Expands successful methods while making the base business stronger
Create a unique / meaningful market position
Competitors cannot easily duplicate
Entire organization mobilized behind strong leadership
Customers receive consistent messages and well executed programs
Successful Growth Initiatives Have Common Elements
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Factors that Determine Successof Growth Initiatives
Strong core business
Organizational Enablers and Inhibitors
Growth idea meets success requirements
Idea can be repeated / expanded
Effective management processes and capabilities
Business is healthy and sustainable
Customer profit, unmet need, related to core
Builds on existing strengths and processes
Entrance / exit process, capabilities
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Key Requirements for Successful Growth
1. Must change to customer orientation2. Must build off existing core business3. Must develop broad consensus within
organization on strengths, weaknesses, and core competencies
4. Must develop reasonable expectations and objectives
5. Must be driven from top
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The Switch to a Customer Focus Changes the Perspective
FROM TO• View your business from a
product lens• Creating growth using traditional
tools (products, factories, personnel)
• Thinking of company size as a growth inhibitor
• Relying on blockbusters to change your market
• Worrying that growth programs will cannibalize the base business
• Focusing on small margin improvements
• Studying customers and the drivers for their business
• Creating growth based on hidden assets (market position, information, relationships, access)
• Thinking of company size as a multiplier of opportunities
• Implementing incremental moves that are creative and solution oriented
• Implementing growth programs that reinforce the base
• Expanding your focus to incorporate market arenas that are 5-10 times larger than your current space
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Changing the Focus from“Asset Based” to “Customer First”
ProductsAssets Methods Channels
MethodsChannelsCustomer Need
Typical Industry “Asset Base” Orientation
Required “Customer First” Orientation
Products Assets
Customer Need
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Uncovering Customer Growth Opportunities
Economic Drivers
Provide Integrated Solutions
Segment Customer
Base
Product Line Gaps
Share of Wallet
Areas of Customer
Opportunity
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The Probability For Success Is Related to Distance From the Core
Breakthrough concepts, new space. Adjacent segments
Core
30-40%
20-30%
0-20%
Close - in
Strongly related
Common Thread
Adjacency Distance Factors
•Customers•Competitors
•Cost Structure•Channels
•Capabilities
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Look Before You Leap When Expanding Beyond Your Core
Requirements for Successful Moves
into Adjacent Areas
Robust Profit / Market
Dynamics
Potential for Leadership Economics
Strong Relationship to
Existing Core
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It is Critical to Pick One Area of Focus With the Best Potential
Core
New Channels
Support Services
New Services
New Geography
New Products
New Customers
Direct / Indirect
New Businesses
E-Commerce
Re –Segmentation
New Markets
New Applications
Substitutes
Breakthrough
Regional
Global
Integrated Solutions
White Space
New Value Proposition
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Hard Assets are Rarely the Most Important Ingredient for Growth
Successful growth initiatives leverage hidden and intangible assets
Customer Relationships
Information Corporate Identity
Strategic Real Estate
Market Networks
Access to Buyers Market Understanding
Intellectual Property
Value Chain Position
Product Installed Base
Interaction History / Process
Technical Know-How
Corporate Competency
Market Position User Community
Customer Insight Software & Systems
Brand Equity Information Portal / Access Point
Third Party Networks
Expert Reputation / Authority
By product Information
Deal Flow / Access
Hidden / Intangible Assets
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Characteristics of Successful Growth Initiatives
“The most successful growth initiatives are implemented by companies with strong core businesses in weak markets”
– Chris Zook, Beyond the Core
The most common characteristics of successful growth: 1. Based on a strong core business2. New markets have the right characteristics:
- indicate the potential for leadership economics- have a robust profit pool- are strongly related to the core business
3. Employ a repeatable formula that relates to the organization’score competence
4. Companies have business processes / capabilities that are adaptable
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Implement a Systematic Growth Process1. Diagnose the problem – Understand the current situation2. Define objectives – What does success look like?3. Understand capabilities and constraints – What are my core
competencies?4. Identify the best opportunities – What options best satisfy
success criteria?5. Avoid roadblocks – Identify and address potential obstacles6. Take short-term actions – Gain experience and position
yourself for success7. Develop plans – Ensure the pieces fit8. Execute – Manage, focus, regulate, control.
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“75% of all Growth Initiatives Fail”
The major reasons for failed growth initiatives include the following:
1. Organizational barriers 2. Poor linkage to core business and
competencies3. Lack of a compelling value proposition4. Growth initiative does not satisfy key selection
criteria5. Lack of required capabilities and organizational
support
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Key Issue is Not Lack of Opportunities but Making the Right Selection
Hidden Assets
Adjacent Segments
Strategic Alliances
Reseg- mentation of
Markets
Services Customer Intimacy
Traditional Intangible Assets
Related Equipment / Supplies
Equipment / Material Suppliers
Global Customers
Supply Chain Management
Product / Service Bundling
Customer Relationships
Alternative / Related Materials
Complem- entary Paper Grades
Specific Industry Segments
Machine Maintenance / Operations
Reorganize around Key Processes
Strategic Real Estate
Paper Converting
Paper Converters / Processors
Large / Small Business
Equipment Leasing
Integrated Solutions
Enterprise Networks
Complem- entary Goods / Services
Supply / Value Chain Partners
End Use Applications
Production Management Services
Growth Enabling Support
Information Solution vs. Material Focus
Logistics Services
Non- Product Focus
Examples of Growth Opportunity Sources for North American P&P Companies
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Short-Term Actions Can be Taken Before You Begin
1. Implement the planning process -- Collect facts, focus, define goals, develop contingencies
2. Innovate -- process, service, product
3. Develop customer orientation -- Solve one nagging customer problem
4. Re-define core competencies -- Apply existing capabilities in a new way
5. Take small actions / calculated risks
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In Conclusion……
1. What obstacles are preventing your company from moving forward?
2. What actions can you take today to grow your business?
3. Just do it!
“Helping Companies Grow their Business”
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