Managing for growth

Stefan Bötzel, Manfred Reichl, Oliver Conze, Holger von Daniels, Christoph Kleppel, Carsten Seeliger

2004

How can companies get on track for growth? To find out, we conducted extensive one-on-one interviews with some 150 top managers of successful companies in spring 2004.

The key finding: Growth is driven by the people at a company's helm. Only managers with the management skills to promote growth, and who use them to foster a culture of growth in their company, can put and keep their company on a value-boosting growth course that will last well into the future. Successful growth is based on excellent management. Personality and management qualities determine a company's success.

Value-boosting growth does not simply happen – The age of "growth makers"

The traditional pattern of corporate management, where phases of restructuring alternate with phases of high growth, is outdated. This up-and-down movement in line with the business cycle, also known as the "V curve", is no longer a guarantee for growth. Today, companies must continuously boost their efficiency while simultaneously driving growth. How can they do this? By encouraging all employees to perform at the highest level possible, and by promoting the understanding that restructuring today must be viewed as a long-term supporting and facilitating process. This requires credible and inspiring managers – according to those we interviewed, they are the most important impetus for growth. They are cited as drivers well before a company's competencies and systems.

Organizational driver for sustainable growth: Decentralization!

However, growth also requires the right structure. The majority of those surveyed consider a decentralized organization to be the best foundation. This is because decentralized organizations rigorously delegate responsibility. They promote motivation because managers of decentralized units become entrepreneurs. They can more easily get the smaller, homogeneous units excited about values and goals. They are close to their staff and can specifically manage their manpower and their ability to innovate by giving them the room they need to maneuver. At the same time, they can establish the framework (such as budget, priorities and timeframes) for a sound strategic innovation process.

Direct communication lines within small units enable quick decisions, and simple, manageable structures create flexibility. Decentralized companies are closer to their customers, and this promotes market-centric innovation, planning and growth.

However, not every form of decentralized organization promotes continuous profitable growth. The organization must have sensible decentralized structures. That is why the managers we interviewed clearly favored one specific organizational form: product or customer-oriented divisions.

Achieving a culture of growth by establishing a trust-based organization

More than half of the managers we surveyed agree with us, and see trust-based organizations as growth drivers: openness, proactive and open communication, honesty, respect and loyalty, dynamism and an employee-centered focus are key elements of this new organization based on values.

Outperformers foster a culture of innovation

Innovation is the classic growth driver. After all, 57 percent of the companies surveyed cited that they pursue an explicit innovation strategy. Here, too, however, the old maxim applies: most people know how to do this, but outperformers do it better. They follow two specific innovation patterns: first, they play the entire field of innovation types, rather than limiting themselves to just product innovation.

Second, they do not strive to become the leader in innovation. They prefer to be "quick followers". In other words, they are quick to pick up innovations that the markets like, and to provide an individual solution to support them. This makes their innovation performance more focused and thus more efficient.

The outperformers' innovation lead may also be due to the fact that their innovation strategies are better aligned with the corporate organization. It is interesting to note that the companies surveyed used the same words to describe their innovation cultures as the companies that experience sustainable and above-average growth used to describe their entire corporate organization: decentralized structures, flexible budgets and processes that maintain a balance between thoroughness and speed, and between broad-based innovation and a clear focus.

We therefore conclude that leading companies implement their innovation strategies faster and with better results – because they are typically organized to meet the demands of innovation strategies. When asked which aspects of the innovation process are particular growth drivers, our interviewees cited precisely those components that are especially prominent in decentralized organizational structures.

Using a traditional tool correctly – Managing for growth through MbO

Management by objectives creates a willingness to grow. Outperformers manage by objectives and set ambitious but realistic targets for themselves and their staff. Their success shows that they are right: they meet or exceed their growth targets while the other companies frequently do not. Here, too, nothing motivates like success! People who fall short of their goals again and again eventually begin to have doubts – about their own skills and those of the manager who sets the goals.

Management by objectives is common in all industries. But how do outperformers (in contrast to other companies) deal with these objectives?

• They seldom set rigid target figures, and prefer instead to use quantitative ranges
• They tend to derive their targets from a creative, entrepreneurial perspective, rather than based exclusively on numbers
• Their targets are ambitious but fully realistic
• They take a more moderate approach when targets are not met

Getting on track for growth

Proper management promotes growth. According to our survey, however, there is a wide gap between awareness and implementation. A good manager must be able to develop a vision and communicate it to the entire company, yet this is where the gap between demand and reality is widest. Many respondents also cite a need for improvement in other growth-related elements, such as motivating staff, setting quantitative targets, cultivating personal relationships with customers, selecting managers and creating a culture of innovation.

Mismanagement can throw companies off any growth track. They will have employees who focus too little on the corporate vision and targets, and who thus lack motivation. Their managers will keep aloof from customers, thus obstructing the company's path to growth. Their management culture will allow too little room to maneuver and thus stifle innovation.

Companies that want to grow profitably must see their organization, culture and management as growth drivers and put them on track for growth. To make a good start in the right direction, they should take a long, hard look at their internal obstacles and work to eliminate them.

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The study "Managing for growth" has been conducted by Stefan Bötzel, Manfred Reichl and a team from Roland Berger Strategy Consultants.