An excerpt from the first chapter, "Desperately Seeking Growth."
In a world of turbulent economies and scarce resources, are you wondering where your next wave of proﬁtable growth will come from? Perhaps your industry is changing in a way that makes you wonder whether it might be time to redeﬁne the business model that has been so productive for so many years. Or maybe your resources are spread too thin and you are ﬁghting competitors on too many global fronts. Perhaps you suspect that your core business still has untapped proﬁt growth potential, but you are not sure where it is.
If you can see your company in any of these situations, the ﬁndings of this book may surprise and interest you. The most important issue faced by all management teams is how to grow their companies proﬁtably over the long term. Today, the odds for winning the long-term growth game are worse than ever. Many management teams need to reconsider and even rediscover their real core. Consider how the goal posts have moved for management:
- Investors are giving management teams less time than ever to prove themselves. For instance, shareholders are shifting in and out of stocks at ﬁve times the rate they did a few decades ago, demanding not merely growth, but growth each and every quarter.
- Even in the best of times, our analysis shows that nine out of ten management teams fail to grow their companies proﬁtably. Given investor expectations of quarter-by-quarter growth, ninety-nine out of one hundred management teams will fail to meet shareholder expectations.
- Shareholders tolerate failure less than ever before. Between 1999 and 2006, the average tenure of departing CEOs in the United States declined from ten years to just over eight. One study of departing CEOs in America found that the 40 percent with the shortest tenure had lasted an average of fewer than two years. The lower half of this group had stayed on the job for only eight months.
The rules of the game are continually changing. As we demonstrate later in this book, turbulence in industries has increased by a factor of more than three over the past few decades. An unprecedented two-thirds of businesses and more than 50 percent of proﬁts (reinvestment funds) in the world are in turbulent industries such as telecommunications, media, newspapers, airlines, and automobiles.
It is no wonder, then, that participants in a game that’s impossible to play, much less win, are now particularly receptive to the soothing, dulcimer tones of pundits who suggest deceptively simple (and consistently incorrect) strategies for winning an extremely complex, multifaceted game. Their siren song seduces with its revolutionary appeal: “Discard the old, leave your historic core business behind, and set out for the promised land.” Sometimes this advice leads to the right course. Yet, as we argue in this book and demonstrate with examples and extensive empirical data, it usually does not solve the fundamental problem and can even aggravate the underlying cause of inadequate proﬁtable growth. Like the ancient mariners of the Iliad, those managers who respond to the siren song of growth can experience brief periods of euphoria. But when they ﬁnally awaken to reality, they often ﬁnd themselves heading straight for the shoals.
Moreover, during and following the world economic crisis that started in 2007, the weaker businesses are proving to be the “shock absorbers” of the system. These businesses face far greater swings in margin and drops in valuation than the leaders, and they risk losing it all. During such times, it is especially incumbent on each management team to understand its core and remember that in strategy and the application of force in business, it is the choice and depth of focus—and not the breadth and speed of expansion—that lead to sustained, proﬁtable growth.
We have found that the key to unlocking hidden sources of growth and proﬁts is usually not to abandon the core business but to focus on it with renewed vigor and a new level of creativity. We have also found that often the most successful businesses are at greatest risk of succumbing to the siren song. Ironically, our research shows that the management teams running the strongest core businesses are the ones who most consistently underestimate their full economic potential.