“Watch the doughnut, not the hole” is one of those sayings that exhorts us to maintain the proper perspective, and thus avoid missing the important issues. It is about focus on the right things and ensuring we don’t miss the bigger and more substantive picture that surrounds us.
Business strategy is littered with examples of how perspective has been misguided or confused and poor decisions made as a result. Growth strategies are a case in point. Blind spots have appeared in management thinking where sad and sorry decisions have been made around growth strategies despite reams of analysis and quantification.
Growth is the rallying call for organisations at various times, and often gains additional airplay in times of economic or industry challenge. How many CEOs have proclaimed “we cannot ‘cost-save’ our way to recovery – rather we must grow the business”. One of my distinguished colleagues used to say the “only way to get ourselves out of a tight business situation was to sell our way out”. This was sage advice indeed.
But growth strategies can be elusive in delivering results, or they can be clouded in motherhood statements and aspirations. Growth strategies can be viewed in four broad categories of focus:
- Existing products in existing markets – the Exploit strategy
- New products in existing markets – the Innovate strategy
- Existing products in new markets – the Expand strategy
- New products in new markets – the Aggressive strategy.
Each of these strategies creates its own challenges around organisation capabilities, business models, people and technology. Most of these issues will be recognised and discussed in the development of the business strategy, but two problems often emerge, namely:
- Different scenarios in these strategies are not rigorously tested
- There may be an insufficient understanding of how competitors will react and respond.
So what are the risks of a growth strategy falling flat?
The chart that follows shows the four growth strategies from above and positions them around two dimensions, namely the products/services offered (the “what”) and the markets where the business is operating (the “where”). It also highlights the possible management blind spots that could compromise success.
Quadrant #A is a perfectly valid growth strategy, and can be highly successful in further exploiting current products and markets. We see many national or locally based organisations operating very successfully in this frame. Organisations such as utilities, local retailers and niche manufacturers can find a strong positioning in this quadrant. The blind spot here can be where current competitors quickly develop and deliver a different proposition for customers. Complacency can be a real trap.
Quadrant #B however is far more challenging. This is about being innovative in pushing new products/services in existing markets. The key here is innovation and finding a winning point of difference in products/services. The consumer products business that launches a new product in its current markets, or the services business providing a new set of activities for its clients would be in this quadrant. The blind spot is often the speed of innovation from existing competitors that is often underestimated. Assessing how competitors might innovate in retaliation is a key part of shaping the growth strategy.
The move into new markets as shown in Quadrant #C is a common approach. Expansion into new customer segments or new geographies is seen as a strategy that builds on the strengths of an organisation. For example, the expansion strategy is often seen in organisations growing geographically such as accounting and engineering, and now more frequently with legal firms. The blind spot in this situation is often that existing competitors in those markets will fiercely defend their niche positioning far more than expected. Those existing competitors can really exploit customer loyalty and market knowledge to their advantage.
The strategy in Quadrant #D is the most challenging and complex, and requires special capabilities to be successful. Major technology and aerospace organisations frequently operate simultaneously in driving both new products and markets. In this case, existing competitors may dig in and focus even more on their strengths, thus seeking to fragment the impact of any new entrant.
Growth strategies especially in challenging times can appear very enticing, and may almost suggest a panacea for difficult day-to-day business demands. But two questions need to sit at the forefront of any discussion of growth strategies. One is to carefully consider which strategy is right for the organisation, and the second is to seriously ask what competitor reactions could destroy the effectiveness of the growth strategy.
Indeed, how many times have we seen where the focus of the growth strategy has been more on the hole rather than the doughnut, and where this blind spot compromised an otherwise solid strategy.