Smart Growth - EDH, Ltd. Edward D. Hess

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Smart Growth

Ed Hess

Professor of Business Administration

Batten Executive
-
in
-
Residence

Hesse@darden.virginia.edu

www.EDHLTD.com

Leading Edge Forum

Washington, DC

March 8, 2012

GOALS

Discuss the science of business growth


Discuss the historical role of technology in creating growth


Explore the future role of technology in creating growth



2

10 YEARS OF RESEARCH

3

MY THEMES

To be a high performance global business of the future one must

have two world
-
class competencies:





Human Capital and Technology Capital




4

MY THEMES

Technology diminishes the competitive advantage of size and scale


Technology diminishes the power of the mass production business
model


Technology enables the mass collaboration and mass customization
business model


5

LEADING EDGE TECHNOLOGY BASED
ORGANIZATIONS

One can see these themes playing out today in the quant hedge
funds like Renaissance Technologies, LLC



One can see these themes playing out today in military special ops
and the intelligence community


6

TRADITIONALLY

The fields of strategy, finance & economics have dominated growth thinking:





Sustainable competitive advantage


Unique products or services


Japanese production model or High value
-

add niche model


Growth is a linear reductionist production model



ROI, ROA, EVA, IRR






7

WHAT IS SMART GROWTH?

Research
-
based

:

What

we

really

know

about

growth

and

how

it

occurs


What do the following disciplines say about growth ?

Neoclassical, new growth, industrial, ecological, and behavioral
economics; strategy, finance, OB, OD, innovation, biology &
c
omplexity theory

8

7 SMART GROWTH FINDINGS

1)
Growth is not a linear reductionist process


2)
Biology & complexity theory model growth better than economics,
finance, and business disciplines


3)
Consistent growth is rare


4)
Consistent organic growth is learning
-
based


5)
Growth requires the Right Mindsets, System & Processes


6)
High employee engagement & customer
-
centricity drive growth and
innovation


7)
Growth is behavioral
-

financial results come from behaviors



9

WHY IS CONSISTENT GROWTH SO HARD?

Individuals are hard
-
wired to be anti
-
growth:




Cognitive Blindness & Cognitive Dissonance


The reasons organizations exist are anti
-
thetical

to growth:


To produce reliable, predictable, standardized results with low
variance and low risks


10

DNA OF GROWTH

Most consistent high growth companies


Do not sell unique products or services


Do not have the best talent



Do not have visionary leaders



Are not the most innovative



Do not have the lowest costs



Do not have complex diversified strategies


11

HPOS: 30 YEARS OF RESEARCH

The “best” 8 studies:

1982, Peters &Waterman,
The Search for Excellence

1994, Collins & Porras,
Built to Last

1997, DeGeus,
The Living Company

2000, O’Reilly & Pfeffer,
Hidden Value

2001, Collins,
Good to Great

2003, Joyce, et. al.,
What Really Works

2007, Hess,
The Road to Organic Growth

2009, Simon,
Hidden Champions

12

9 CONSISTENT FINDINGS

The “Not so secret sauce”:


1)
Simple focused strategy
-

an “elevator pitch” business model

2)
Structures that enable entrepreneurial behavior
-

“Small company
soul in a large company body”

3)
Higher purpose than shareholder value/profit
-

Money is not enough

4)
Culture of relentless constant improvement
-

better, faster, cheaper

5)
High
e
mployee engagement
-

an implied social contract


an
accountable “family”



13

14

6)
Customer
centricity


Inside the customer
-


7)
Humble
passionate
value
-
based leaders


8)
Execution
& service champions
-

excellence everyday every way by
everyone enabled by technology
-

TECHNOLOGY LEADERS in Their
industry


9)
An
Internal aligned
self
-
reinforcing System
that
enables, motivates,
and rewards desired behaviors

9 CONSISTENT FINDINGS
(CONT.)

GROWTH IS

Growth is a dynamic iterative
ziz
-
zag

feedback
-
double loop learning
process


Growth is a bottom
-
up & top
-
down process


Growth results from experimental learning


Growth requires constructive inquiry, critical thinking, diversity of
views, a tolerance for failure


Growth requires flexibility, adaptability, speed, and organizational
agility and ambidexterity

15

FORMULA FOR GROWTH

Growth = Mindsets + System + Processes

A Growth Mindset : Individuals & Organizationally


An internal enabling System linking in a consistent seamless self
-
reinforcing manner strategy, structure, culture, leadership
behavior, HR policies & processes, measurements, & rewards to
drive growth BEHAVIORS

16

GROWTH PROCESSES

Dynamic strategy making

Ideation

Opportunity exploration
-

what if

Customer co
-
creation

“Learning Launches”: Business’s scientific method

Growth Portfolio creation & management



17

THE COMMON GROWTH PROGRESSION*

Geographical expansion

Sell complementary products to existing customers

Expand to new customer segments

Add complementary services

Cost efficiencies

Technological productivity in supply chain, logistics, & manufacturing

Strategic acquisitions (small)

Move to solutions selling





*
McKinsey and Hess Research Projects


18

TECHNOLOGY’S HISTORICAL ROLE IN CREATING GROWTH

1) Driving efficiencies & productivity

Manufacturing

Supply chain

JIT Inventory

Logistics & distribution

2) Providing financial & performance data to manage variances

19

TECHNOLOGY IS THE COMPETITIVE ADVANTAGE AT

Wal
-
Mart

UPS

Best Buy

Sysco

Paccar

ADP

Walgreen

Amazon

20

TECHNOLOGY HAS

Decreased response times

Decreased the importance of physical proximity

Increased the reach of every business

Decreased the power of physical & financial scale

Destroyed the false choice of size v. niche player

Democratized business globally

Given customers more power

Changed the velocity of product lifecycles

Made mass speedy customization possible


21

TECHNOLOGY NOW IS A GROWTH ENGINE

WHY?

Technology is moving from the “back of the house” to the “front of
the house”:


Technology now makes scenario planning ( 40+ years old) and
knowledge management ( 30 + years old) and organizational
learning ( 40+ years old) realizable





22

TECHNOLOGY CAN DRIVE

Growth Experimentation

Evidence
-
based management

Analytics into dynamic strategy making, marketing, customer
engagement, and human capital recruitment, training, and
engagement


Technology can make employee and customer co
-
creation realizable
on a broad scale

23

TECHNOLOGY ENABLES

1)
A Learning Culture


A data
-
driven decision system at all levels

2)
Early warning risks management systems

3)
Mass collaboration with customers

4)
Open innovation

5)
Higher employee engagement

6)
Destruction of business silos

7)
Agility, adaptability, and makes speed a competitive differentiator



24

THE ROLE OF THE CIO


Prediction: In great growth companies of the future, the CIO will report directly to the
CEO.


Technology is a growth engine
-

both top
-
line & bottom
-
line


Ladies & Gentlemen: Start
Your Engines !

25