The Inside Story on Organic Growth

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2 The Inside Story on Organic Growth There are various ways to measure a company, but the real test of business acumen comes down to whether or not you get organic growth right. Growth is far less dependent on outside factors and more about a company s internal actions. A.T. Kearney EXECUTIVE AGENDA 25

3 FROM OUR RESEARCH AND WORK on more than 180 sales, marketing and growth projects, we have drawn many conclusions about organic growth. We know, for example, that organic growth does not necessarily result from supreme innovation, quantum leaps or even miracles. It does not require major investments or painful cost cutting. Indeed, companies can meet and even exceed their growth targets, and they can do it with moderate investment and comparably low risk. Strong and successful growth is possible in any industry, in any region, at any time. Our insights are reinforced every day by companies that have achieved their ambitious growth targets. American Express and 3M are experts at identifying attractive new customers, generating more value from current customers, and recapturing lost customers. Cisco and Centrica manage their product portfolios dynamically to exploit current strengths, foster new ideas and develop their portfolios in line with customer needs. T-Mobile and Microsoft have used value-based and bundled pricing to improve their growth scores significantly. How did these companies do it? How can the average company realize similar growth? Which tools are most successful in achieving organic growth? To help answer these questions, we devised a strategy for capturing organic growth that companies can use not only to reach their aggressive growth targets but also in many cases to exceed them. This tested strategy is built on a three-pronged plan: capture shortterm growth opportunities, eliminate barriers to growth, and continually manage for sales and marketing excellence. By securing short-term growth opportunities, you can get into growth mode and build momentum across the organization. Nothing ensures success faster than a few quick wins. Eliminating growth barriers can open up internal and external avenues to growth that many companies do not even realize are blocked. And FIGURE 1 Three key elements to start the growth engine Growth Strengthen market performance by continuously improving the sales and marketing organization Get the fundamentals right by eliminating barriers to growth Unleash potential throughout the organization by capturing short-term growth opportunities Time Source: A.T. Kearney 26 THE INSIDE STORY ON ORGANIC GROWTH

4 by continually managing for sales and marketing excellence, you learn to measure and benchmark your organic growth progress until you finally reach world-class levels of performance. Working all three elements simultaneously can result in the most growth (see figure 1). Capture Short-Term Growth Opportunities In our work with clients, we have identified more than 100 fast-to-implement growth initiatives. Each is based on proven actions used by top companies to achieve their ambitious growth targets. They reflect strategies for pursuing attractive customer segments, shifting sales resources to areas with the greatest market potential, penetrating new regional markets, expanding and professionalizing partnerships, stopping price erosion, exploiting opportunities within existing product portfolios, boosting cross-selling, and aligning processes to meet customer needs more effectively. Figure 2 illustrates the results a company can achieve. The following are three quick wins fast-to-implement initiatives that can lead to significant benefits: Pursue attractive customer segments. Want the biggest growth impact in the shortest time frame? Keep it simple: Strengthen sales activities with your most valuable customers, pursue new high-value customers, and reduce all efforts around your less-valuable customers. This is Marketing 101. Yet surprisingly few companies pursue new customers or distinguish the high-value from the low-value ones, either because they do not think they have the resources or because their sales teams balk at the prospect. FIGURE 2 Companies growth rates can exceed market growth Growth initiatives Customer segments (new segments, more focused approach) Growth impact 100% 25% 35% 30% 9 Example 10 Geographic coverage Channels and partnerships (new partners, improved partners) Cross-selling Pricing Product portfolio Solution portfolio 6% 8% 11% 4% 8% 15% Growth rate 25% 20% 15% 10% 5% Service portfolio Processes and tools Resources, skills and incentives Source: A.T. Kearney analysis 15% 2% 6% 0% 5% 10% 10% 5% 0% 5% 10% 15% 20% 25% Market growth A.T. Kearney EXECUTIVE AGENDA 27

5 NOTHING ENSURES SUCCESS FASTER than a few quick wins. Once in growth mode you CAN BUILD MOMENTUM ACROSS THE ORGANIZATION. A European IT service provider discovered this when it performed a three-way comparison of its active customer base against prospective customers known to the sales staff and against database search results of all potential customers. Even after identifying potential new customers, the sales force approached only a handful of them. What s more, salespeople could not identify the most profitable customers. When the company solved this problem through better sales force training, it saw a 25 percent rise in top-line growth in less than two years. Deploy the existing portfolio. Companies often do not fully leverage their entire portfolio, especially when it comes to more complex solutions or services. Nevertheless, small changes can make a difference. In the case of multinationals, for example, gaps in one market can easily be closed by transferring solutions established elsewhere to another market (rather than reinventing the wheel). Product bundling and customization can also increase revenues in the short term. Additionally, a quick way to increase revenues is to define clear, unique selling propositions and to ensure that the sales force applies them. Even without major product changes, training the sales force to communicate customer benefits effectively can make a significant difference in hit rates and sales success. Many of these issues are discussed in more detail in Avoiding the Sales Scapegoat on pages of this issue. Expand the geographic footprint. When growth in established markets slows, emerging overseas markets can provide a quick boost. Top growth companies obtain market intelligence and prioritize their strategies according to the development level of the country. For example, when moving into emerging markets, these companies first build partnerships with local companies to ramp up sales and only later expand their resources to ensure broad geographic coverage. To capture share in mature markets, they expand and tailor their offerings by providing advanced solutions and services to their most profitable customers. Eliminate Barriers to Growth Barriers to growth are everywhere. A lack of preconditions for growth means that many actions the company undertakes will fail. The sheer size of a company can stifle growth, especially when office politics and bureaucracy get in the way. Miscommunication can lead to a lack of understanding of local market needs and the misalignment of regions and headquarters. While such misunderstandings are common, they are not acceptable. In our research, when we asked salespeople what they considered their most significant growth barriers, most said pricing and when pressed could not answer basic questions about their price positioning. This type of barrier can 28 THE INSIDE STORY ON ORGANIC GROWTH

6 be addressed with some quick fixes, including introducing easy-to-realize won and lost order assessments, defining price corridors, implementing escalation mechanisms, and applying price-enhancing techniques. Lack of product knowledge can suppress growth as well. In one notable example, salespeople at a high-tech components manufacturer confessed to not promoting the company s most sophisticated, most complex and most profitable products in some overseas markets because they were not familiar enough with the products attributes for those markets. Adequate training and interaction between local sales staff and experts at headquarters made a huge difference. An unproductive work environment can also compromise growth. Just ask sales representatives at a company where a new IT system required them to spend one additional hour per day to input their orders, which meant one hour less with customers. On a larger scale, a culture change will help eliminate growth barriers. If the corporate focus is on cutting costs and improving EBIT, then managers will probably not suggest making targeted investments in growth. So for real change to happen, the management team must be prepared to set the direction and clearly communicate targets. Growth as a business priority must be proved with commitment and success stories. Experience shows that even persistent and complex barriers can be removed when broken down into smaller, addressable elements. For example, a sales management problem can be solved by prioritizing customers and ensuring that salespeople spend more time with the most attractive customers. Problems with organizational complexity can be solved by assigning clear roles and responsibilities and eliminating undue bureaucracy. In our work with one company, for example, we found that almost 50 percent of reporting requirements were completely unnecessary. When salespeople are relieved of mundane administrative tasks, they can do what they do best pursue customers. Manage for Sales and Marketing Excellence Pushing for marketing and sales excellence is essential to a company s market performance and growth. Although continuous improvement initiatives are common in other corporate functions most notably in manufacturing such as the now-famous Toyota Production System they are often a new notion for sales and marketing. In general, a comprehensive system that focuses on continually improving sales and marketing performance requires the following: Measure the sales organization. Most companies measure their sales performance by using quantitative key performance indicators, such as sales or contribution per salesperson and number of new customers. Although these measures are useful in understanding overall performance, it is equally important to identify the underlying levers that drive success. With this in mind, we developed a qualitative stages-of-excellence-based measurement system that pinpoints specific strategies and guides the organization toward a level of performance that supports overall growth. The framework includes all relevant capabilities for marketing and sales and defines companywide standards for each. In partner management, for example, companies that operate at the basic level of performance lack a structured partner-selection process and make intuition-based decisions (see figure 3 on page 30). At the other end of the spectrum, companies such as Cisco take a hard-nosed approach A.T. Kearney EXECUTIVE AGENDA 29

7 FIGURE 3 Stages-of-excellence approach measures qualitative characteristics Market, competitor and customer intelligence Example Marketing categories (examples) Sales processes and concepts (examples) Customer segmentation and target setting Product or service offering Value proposition or unit sales price (USP) Channel management Customer approach and sales force specialization Partner management Sales techniques Identify partner areas Build partnership model Select partners Create partnership agreement Develop operational setup Manage partnership Basic Partners selected based on intuition Standard Partners selected on a case-bycase basis; occasionally using a suitable partner model(s) and crossfunctional teams Advanced Partners selected using strategic and operational criteria World class Partners selected based on harmony of regions and divisions, and considering operational and strategic criteria Enablers (examples) Training Incentives Source: A.T. Kearney to partnership management issues and are able to assess a potential partner s suitability. True sales excellence occurs when a company understands the differences in selling products, services or solutions and tailors its sales approach accordingly. This is discussed in more detail in the next section. Identify and prioritize improvement measures. A key challenge in implementing a continuous improvement process is identifying and prioritizing the necessary measures and knowing which growth levers to pull and when. Is key account management the right lever? Should you focus first on improving your solution offerings or on sales training? Our framework assesses the impact of key growth levers by showing how marketing and sales excellence can correlate with growth (see figure 4). We found, for example, that moving up one stage in a selected category can result in 2.6 percent annual revenue growth. Improving product and service offerings contributes the most to revenue growth (about 12 percent per stage). Accelerating marketing and sales capabilities and the skills base has a similarly large impact. Companies that substantially improved several marketing and sales capabilities at once increased total sales by more than 25 percent per year. Because most levers cannot be pulled at once, we recommend prioritizing the improvement measures based on three criteria: growth potential (quantified), time and effort to implement, and strategic value (based on management judgment). In other words, define minimum standards for most marketing and sales capabilities and establish world-class measures for a select number of priority capabilities. Implement the measures. Once the measures and concepts are prioritized, the next challenge is to deploy and institutionalize them. At this point, companies often run into 30 THE INSIDE STORY ON ORGANIC GROWTH

8 FIGURE 4 Optimizing sales and marketing can result in tangible growth Categories Market intelligence Customer segmentation Product, service or solution offering Value proposition or unit sale price Sales force management Channel management Customer approach and sales force specialization Key account management Cross-sales Vertical market teams Farmer and hunter approach Telesales Service staff as salespeople Partner management Pricing Sales techniques Performance management Customer retention strategy Incentives and compensation Funnel management Training Communication strategy and channels Source: A.T. Kearney Low Growth impact Growth enabler High tricky questions: How should we assign organizational responsibilities? What is the best way to make the transition from selling products to solutions? How do we improve the alignment between marketing and sales? These questions are most difficult for global conglomerates with different businesses and decentralized sales organizations. To help with the answers, we developed a comprehensive tool set that defines many of the issues surrounding growth, offers examples of best-practice solutions, and provides detailed implementation steps. In our experience, typical growth companies do the following: Develop unique value propositions. The core of every market-driven strategy should be to develop unique value propositions tailored to meet customer-specific requirements. In fact, unless products or services are customized to meet customers needs, up to 25 percent of a company s growth potential could remain untapped. Determining and articulating the value of a new product or technology and what people (or industries) will pay for it is the largest hurdle in meeting customers needs and creating solid profits. If the seller cannot fully identify the value that a product or service brings to its customers, then its set price will inevitably be off the mark. If the customer is not familiar with the offering or its value, and is not given a clear and compelling case for spending a certain amount on it, he or she is unlikely to buy. Rather than overemphasizing the features of a product, growth companies focus on the perceived benefits to the customer. Employ customer-oriented sales approaches. Companies that use basic customer-oriented A.T. Kearney EXECUTIVE AGENDA 31

9 COMPANIES THAT SUBSTANTIALLY IMPROVED several marketing and sales capabilities at once increased total sales BY MORE THAN 25 PERCENT PER YEAR. sales approaches can raise their growth rates significantly. Among the most popular approaches is consultative selling, also known as selling solutions. Rather than look at the situation from the outside in, you must concentrate on the customer s business first and then work outwards. What does the customer need to achieve long-term advantage? When a major telecommunications equipment supplier began using a consultative selling approach in its enterprise solutions business, revenues grew by 5 percent in just one year. In addition, companies that establish dedicated hunting and farming sales teams can entice new customers (and market share) while nurturing their established customer base. Hunters are experts at opening up doors and winning over new or even hostile customers. Farmers tend to existing customers, managing the longer-term relationships to increase revenues and thwart prospective competitors. Vodafone applied this concept to its business customer segment and boosted market share in a market long dominated by an incumbent. What happens when a product becomes a commodity? The natural response is to please the customer at all costs, including offering more features, which increases complexity and costs and further hampers growth by making the products and services even less competitive. So while we recommend focusing on customerperceived benefits, you should also and perhaps more importantly focus on how the product or service gets to the customer. In the insurance industry, for example, as more property and loss insurance offerings have become commodities, firms are standardizing their offerings. They are making the basic product as cost effective as possible (not loading it with features) and focusing all efforts on distribution and services. Build and manage effective partnerships. When sales are not realized directly with end customers but indirectly via partners, selecting the right partners and managing their performance can have a significant impact on growth. Consider the results obtained by a multinational company that produces technical equipment for utilities. Just two years after introducing a formal partnership management program, the company improved its partnerbased business by 30 percent without making a single major investment. How did it do it? By developing a segment-specific partner selection and support concept, in which the best partners obtained the most benefits. They received volume discounts, access to training programs, expanded documentation on products, and pre-product launch information. The arrangement was reciprocal. These top partners were expected to help increase customer demand for the company s products, which in turn motivated the company to bond even closer to the partner. 32 THE INSIDE STORY ON ORGANIC GROWTH

10 Companies often struggle to set up distribution partnerships because the business model creates a sales-pull situation. But acknowledging and fostering the importance of pull marketing for your distributors can actually help increase your market share. Consider the case of a German supplier of technical infrastructures. The company managed to outperform its competitors by providing real-time marketing and sales support to its distribution partners. Because its main rival failed to recognize the importance of pull marketing to distribution partners, it subsequently lost business and market share. Manage the sales force for efficiency. The backbone of solid sales performance is sales force management. To achieve maximum performance, you must define sales territories correctly, ensure that the sales force is properly utilized, apply a structured coaching approach, and secure interactions between the sales force and support. The best sales force management programs are supported by performance measures and target setting. Johnson Controls is a good example of a company that relies on support tools to formulate sales management principles and ensure sales force effectiveness. Large companies with several types of businesses have to manage their sales forces differently, applying the right sales concept for each business type. Selling products requires pull marketing and building long-term partnerships with suppliers. Selling solutions requires knowledge of advanced consultative selling techniques, and selling services requires state-of-theart management capabilities. Monitor performance consistently. Of course, once the new practices are implemented they need to be deployed continually, consistently and stringently. Quantitative and qualitative monitoring will alert management to the need for corrective actions. The final challenge in a continuous process, then, is to begin the improvement cycle over again and lead the sales organization to the next level of excellence. Tapping into Growth Strong and successful growth is possible in any industry, in any region, at any time growth isn t dependent on outside factors but on a company s internal actions. By taking the steps outlined in this article, companies can begin to tap into their existing resources and abilities and achieve organic growth rates that have long eluded so many companies. Consulting Authors JUERGEN ROTHENBUECHER is a partner and head of A.T. Kearney s merger strategies practice in Europe. Based in the Munich office, he can be reached at juergen.rothenbuecher@atkearney.com. MARTIN HANDSCHUH is a principal in A.T. Kearney s merger strategies practice. Based in the Frankfurt office, he can be reached at martin.handschuh@atkearney.com. BERNHARD KICKENWEIZ is a principal in A.T. Kearney s communications and high-tech practice. Based in the New York office, he can be reached at bernhard.kickenweiz@atkearney.com. A.T. Kearney EXECUTIVE AGENDA 33