The Discipline to Grow
April 2007
Michael Treacy
Treacy & Company Inc.
781-400-5050
mtreacy@gen3.com
Could my business grow steadily at double-digit rates?
Most
Most companies
companies only
only see
see barriers
barriers to
to growth
growth
Market
Market
Opportunity
Opportunity
• The demand isn’t there
Competitor
Competitor
Resistance
Resistance
• We’d start World War III
Operational
Operational
Capacity
Capacity
• We couldn’t add that much capacity
Financial
Financial
Capacity
Capacity
Management
Management
Capacity
Capacity
Copyright Treacy & Company, 2007
• We couldn’t afford the cash costs
• I don’t have the management discipline to grow
2
But many firms are achieving even stronger growth
Growth
Growth
Celebrities
Celebrities
Emerging
Emerging
Stars
Stars
Little
Little Known
Known
Successes
Successes
•
Wal*Mart (15.6%)
•
H&R Block (27.2%)
•
Mohawk (12.4%)
•
Harley Davidson (18.4%)
•
Lowes (21.2%)
•
Paychex (19.0%)
•
Starbucks (25.9%)
•
Medtronic (17.0%)
•
Oshkosh Truck (20.6%)
•
Southwest (11.3%)
•
Johnson Controls (13.9%) •
Copyright Treacy & Company, 2007
3
Biomet (13.8%)
What Does it Take to Grow at Double-Digit Rates?
Key Question
How It’s Answered
Value
Value
Leadership
Leadership
• Why will customers do
business with us?
• Develop and deliver
superior customer value
Growth
Growth
Strategy
Strategy
• How and where are we
going to achieve
growth?
• Build a growth portfolio of
individual initiatives
Growth
Growth
Discipline
Discipline
• How do we achieve
steady growth results?
• Develop a growth discipline
in the management team
Copyright Treacy & Company, 2007
4
Key Findings
•
Commit to superior customer value in everything you do
Why
Why should
should customers
customers do
do
business
business with
with you?
you?
Copyright Treacy & Company, 2007
5
Unmatched Customer Value
Why
Why should
should customers
customers do
do business
business with
with you?
you?
Benefits
Costs
Products
“What we
sell”
Price
Uniquely Better
Product
Hassle-Free
Results
Expertise
Service
“How we do
business”
Copyright Treacy & Company, 2007
6
Value Leadership is built on Operating Model innovations
Traditional PC Manufacturer
Component
Component
Supplier
Supplier
Raw
Material
Assembly
Finished
Goods
Distributor
Distributor
Dealer
Dealer
Dell
Component
Component
Supplier
Supplier
Integrate
Suppliers
Copyright Treacy & Company, 2007
Assembly
Assembly
Build to
Order
Sell
Direct
Customer Intimacy – The architecture of customer value
Why do you
need us as a
partner?
How do we
drive results for
you?
What are we
competent at?
Copyright Treacy & Company, 2007
Customer
Business
Problems
“The Merrill Lynch point of
view on these problems”
“How Merrill Lynch
drives results – what
needs to get done”
Enabling Programs
(things that drive client performance)
Service Engines
(the things we’re good at doing)
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“Why we’re
qualified - our
capabilities”
Key Findings
•
Commit to superior customer value in everything you do
•
Focus on five, and only five, sources of revenue growth
Copyright Treacy & Company, 2007
9
There are only five sources of revenue growth
Base
Base
Retention
Retention
• To grow we first have to stop shrinking
• Exploit the advantages of incumbency
What
Whatisisyour
yourcustomer
customerchurn
churnrate?
rate?
What
Whatare
areyou
youdoing
doingabout
aboutit?
it?
Copyright Treacy & Company, 2007
10
There are only five sources of revenue growth
Base
Base
Retention
Retention
• To grow we first have to stop shrinking
• Exploit the advantages of incumbency
• The toughest way to grow – to win, someone else must lose
• Use better value to take business directly from competitors
Share
Share
Gain
Gain
How
Howstrong
strongisisyour
yourvalue
valueproposition?
proposition?
How
Howeffective
effectiveisisyour
yourmarket
marketcoverage?
coverage?
Copyright Treacy & Company, 2007
11
There are only five sources of revenue growth
Base
Base
Retention
Retention
• To grow we first have to stop shrinking
• Exploit the advantages of incumbency
• The toughest way to grow – to win, someone else must lose
• Use better value to take business directly from competitors
Share
Share
Gain
Gain
Market
Market
Positioning
Positioning
• Half of success is showing up where growth is going to happen
• Find the new growth segments before anyone else
Which
Whichmarket
marketsegments
segmentswill
willgrow
growmost
moststrongly
strongly
over
overthe
thenext
nextfive
fiveyears?
years?
How
Howcan
canwe
weget
getpositioned
positionedin
inthose
thosesegments?
segments?
Copyright Treacy & Company, 2007
12
There are only five sources of revenue growth
Base
Base
Retention
Retention
• To grow we first have to stop shrinking
• Exploit the advantages of incumbency
• The toughest way to grow – to win, someone else must lose
• Use better value to take business directly from competitors
Share
Share
Gain
Gain
Market
Market
Positioning
Positioning
Adjacent
Adjacent
Markets
Markets
• Half of success is showing up where growth is going to happen
• Find the new growth segments before anyone else
• Attack neighboring markets
• But, only when immediate and practical advantage is in hand
In
Inwhich
whichmarkets
marketsdo
dowe
wehave
haveweak
weakcompetition
competition
and
andleveragable
leveragableadvantage?
advantage?
Copyright Treacy & Company, 2007
13
There are only five sources of revenue growth
Base
Base
Retention
Retention
Share
Share
Gain
Gain
Market
Market
Positioning
Positioning
Adjacent
Adjacent
Markets
Markets
New
New Lines
Lines
of
of Business
Business
Copyright Treacy & Company, 2007
• To grow we first have to stop shrinking
• Exploit the advantages of incumbency
• The toughest way to grow – to win, someone else must lose
• Use better value to take business directly from competitors
• Half of success is showing up where growth is going to happen
• Find the new growth segments before anyone else
• Attack neighboring markets
• But, only when immediate and practical advantage is in hand
• Acquire in unrelated markets
• But, only when management has superior investment skill
14
Key Findings
•
Commit to superior customer value in everything you do
•
Focus on five, and only five, sources of revenue growth
•
Manage a portfolio of growth opportunities
Copyright Treacy & Company, 2007
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Copyright Treacy & Company, 2007
se
gm
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ow
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eg
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is
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Base
Retention
m
ar
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ift
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sw
re
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in
Percentage Revenue Growth
How might your business grow 20% per year?
One illustration
Share
Gain
Market
Position
20.0
16
Adjacent
Markets
4%
New Lines
Of Business
0%
0%
3%
3%
5%
10.0
2%
0.0
0%
Key Findings
•
Commit to superior customer value in everything you do
•
Focus on five, and only five, sources of revenue growth
•
Manage a portfolio of growth opportunities
•
Build the management discipline to grow
Copyright Treacy & Company, 2007
17
People processes are key enablers of growth
Culture
Do we have our best
talent in the roles
where they will have
the biggest impact?
Deployment
Do we have
enough talent to
“fund” our growth
initiatives?
Copyright Treacy & Company, 2007
Leadership
Recruitment &
Development
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Do our shared attitudes
and beliefs about risk
taking and collaboration
support our growth
ambitions?
Incentives
Are our people
focused on the right
measures of
performance that will
drive growth?
Build the management discipline to grow
•
Talent Management
– Recruiting, development, deployment, and retention built for where
we’re going, not where we’ve been
•
Innovation Management
– Management that allows us to identify, create, test, refine, and
deliver improvements in customer value quickly and effectively
•
Performance Management
– Management control built on actionable revenue information and
root cause analysis of performance shortfalls
Copyright Treacy & Company, 2007
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Better information is needed to manage growth
Prior Period Revenue
$7,689.0
Revenue Lost to Churn
(9.0)
-0.1%
$7,680.0
99.9%
Share Gain Revenue
(0.1)
0.0%
Market Positioning Revenue
9.7
0.1%
Adjacent Market Revenue
7.5
0.1%
New Line of Business Revenue
4.5
0.1%
$8,721.0
13.4%
Base Retention Revenue
Current Period Revenue
Copyright Treacy & Company, 2007
20
Everyone should use a Sources of Revenue Statement
Prior Period Revenue
$7,689.0
Revenue Lost to Churn
(1,692.0)
-22.0%
Base Retention Revenue
$5,997.0
78.0%
Share Gain Revenue
1,647.0
21.4%
Market Expansion Revenue
1,076.0
14.0%
Adjacent Market Revenue
0.0
0.0%
New Line of Business Revenue
0.0
0.0%
$8,721.0
113.4%
Current Period Revenue
Copyright Treacy & Company, 2007
21
Conclusions
•
Growth opportunities abound
•
The challenge of growth isn’t in the marketplace – it’s in the
management team
•
Growth demands a management discipline - just like cost control
•
Engage the whole management team in the challenge of growth
•
Certain principles underlie all forms of growth:
– Your choice of markets shapes your fate.
– New revenue only comes from customers
– The best management team beats the best strategy every time
Copyright Treacy & Company, 2007
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The Discipline to Grow
April 2007
Michael Treacy
Treacy & Company Inc.
781-400-5050
mtreacy@gen3.com