"YOUTH SERUM" for Organizations
The exciting, energetic days of our youth are precious, aren’t they? I’m talking about those times the absence of which we feel acutely as we move on to “maturity”… That “youthfulness” most people try to regain with immense anxiety and effort taking “cosmetic” measures, mostly without solving “the real problem”…
Organizations, too, go through almost the same natural process of change that human beings experience physically and spiritually. Every business model is bound to repeat itself, and age along with its industry once it reaches the stage of maturity after some time. What’s more, this change/aging process that organizations go through cannot be reversed with “cosmetic solutions”.
What, then, is the youth serum that will eradicate “the real problem”, and make organizations both profitable and sustainable?
“Continuous renewal”... Hard to implement, there is also no guarantee that it is there to stay… However, if it works, it is virtually a “growth elixir” for the organization.
I would like to share with you real-life examples from my own experience to explain to you the chronic problem of organizations in the “maturity” stage, which is “the unsustainability of profitable growth, and its reasons”, as well as the “continuous renewal approach” that can solve this problem, and “critical success factors” for its execution.
"UNSUSTAINABLE" PROFITABLE GROWTH
Once established, organizations grow fast and eventually reach maturity. At that stage, both profitability and growth become more difficult to achieve. You know why?
- Most organizations do not cross the borders of the target market – let’s call it “playing field – they identify from the outset, and the growth of that playing field eventually slows down. When growth slows down, it has a negative impact on profitability. This is literally the “end of the ocean”.
- The inevitable reflex at this point is devising optimization plans (cost efficiency, process improvements, etc.) to protect profitability. Although organizations try to overcome this bottleneck with innovation and entrepreneurship, these efforts usually suffocate, and profitable growth cannot be sustained because the playing field is still the same.
There is a very fundamental dilemma at the roots of the problem: While growth requires “entrepreneurship/investment into the future and new areas”, profitability requires “optimizing today and focusing on current business”. Organizations that resolve this dilemma, and manage both ends of the spectrum separately and in fact simultaneously are in that “privileged 1 percent”.
You might say, “Well, if it’s that difficult, we might as well bow to our fate”. But there is also this being in that privileged 1 percent… So, if it is that attractive to stay young, let’s continue to explore!
THE YOUTH SERUM OF ORGANIZATIONS: "CONTINUOUS RENEWAL"
What do these organizations in that privileged 1 percent do differently? First and foremost, they are aware of this dilemma, and try to manage sustainability and profitability separately as much as they can. More importantly, they organize their business and playing field with a focus on “continuous renewal”. You wonder how?First, they define all their profitable growth projects in two dimensions: Capabilities (technologies, sales channel, production system, etc.), and markets (geography, segments). These are then managed with four strategies depending on whether they are “existing” or “new”. The factor that ensures “continuous renewal” is either investing in new capabilities in existing markets (i.e. the “build” strategy), or entering new markets with existing capabilities (the “leverage” strategy). Because once these steps are taken successfully and maintained, organizations enter new markets with new capabilities (the “transform” strategy), which virtually leads to the rebirth of the organization.
In a nutshell, the formula of continuous renewal is as follows: You invest in new capabilities and markets using your existing business advantages, and you do it for the long term (10+ years), on a continuous basis. Hard it is indeed, but not impossible.
SUCCESS FACTORS FOR CONTINUOUS RENEWAL
There are three basic factors in the formula of our youth serum: Corporate entrepreneurs, dedicated structures in the organization, and an ambitious goal.
- Corporate entrepreneurs: As a general rule, there are two types of executives in all companies: those that optimize existing business, and those that develop new opportunities, i.e. the "entrepreneur-managers". The critical point here is to discover those corporate entrepreneurs, and encourage and develop them.
- Dedicated structures in the organization: Just discovering and supporting those corporate entrepreneurs will not do the job. In order to protect them from the attraction (and risk of destruction) of existing business, they must be structured separately for a specific strategy. Because, just like living beings facing extinction, innovative projects are both unique, and do not generate any turnover/write losses at the beginning, and therefore need to be protected.
- Ambitious goal: Let's assume you have successfully put in place the first two factors, unless you set an ambitious goal to extend your playing field, you might still fall short of continuous renewal. I will use a real example from my professional life to explain that: The existing playing field of one of our companies was USD 8 billion, and its market share there was 12%. However, it was quite a striking experience for all of us to see through our lens of new capabilities and new markets that we could easily increase our playing field to USD 80 billion, and that even a target of increasing our market share (1.2%) by two percentage points could triple the size of our company!
I would like to share with you a professional anecdote that I witnessed myself 10 years ago so that you can visualize all I have written so far: I was leading a new business unit, the medical accessories business, of a global medical devices company with over USD 2 billion turnover, and an average product value of nearly USD 1 million. We were constantly chasing organic/inorganic business development opportunities to accelerate our growth. One day our CEO came in with great excitement, and asked, “Why don’t we enter the medical supplies business?”
He was right; supplies used together with the large devices we produced was big business, but there were several problems: the business model was significantly different; and it was a business that required constant delivery, generated sales based on usage, and worked by the mantra, “many a little makes a mickle”. At first glance, it looked insignificant compared to our core business, and was not an attraction for sales teams that sold large devices.
However, we were all passionate and ambitious about growing this business: Our CEO attached importance to and supported this business that would start with USD 20 million turnover as much as he did our core business of USD 2 billion. He motivated us, saying, “We can grow this business five-fold in a short period of time.” For this business not to be neglected next to our core business, we started to manage it autonomously from a different location. We defined the target business model, and acquired a company in the pilot market to accelerate the process. The synergy with our existing business was crucial. Therefore, we needed a sales leader who would be “both seasoned, and entrepreneurial”. And we found that person immediately when we took a closer look at the organization.
Setting up a young and enthusiastic team, in three years we eventually created a business unit that generated USD 100 million turnover. Retrospectively speaking, I can say that we achieved this success by realizing the three fundamental factors of continuous renewal.
If you are looking for a permanent youth serum, you should try continuous renewal. Even starting this journey makes one feel young.Isn't this what it all boils down to?
Kind regards,
Mehmet N.Pekarun
* Source: Profit Or Growth?: Why You Don’t Have to Choose,
Bala Chakravarthy, Peter Lorange; Pearson Prentice Hall, 2008