It is common for firms of all sizes to reach a plateau where their revenue growth stalls out. And while political, regulatory, and economic factors beyond our direct control can have an impact on company growth, of course, research documented in the book Stall Points shows that 87% of growth stalls are preventable, and are related to the strategic decisions you made in the past.
To drive growth, it is vitally important to measure Metrics (Key Performance Indicators); the critical success factors that drive your current operating model on a daily, weekly and monthly basis. These metrics track “business as usual”. Ideally you are measuring them in real time, capturing live data, graphing the trends, and meeting every week to discuss performance and take action to improve your scores.
Keeping a close eye on your metrics may not alert you to significant changes occurring in your industry or marketplace, however. Many leaders are too inwards-focused, and get blindsided by what is happening outside their company's walls.
If you are not using a disciplined process to regularly analyze your industry you could miss key “inflection points” that are occurring, or are likely to occur in the future. Inflection points are the points in time where the prevailing trends in your industry change.
“The truly important events on the outside are not the trends. They are the changes in the trends. These determine ultimately the success or failure of an organization.” (Peter Drucker)
Most growth stalls occur because a strategic assumption that may have been true once, no longer applies to your industry or to your operating model. Usually, it is the assumptions that you hold most deeply that pose the greatest threat to your long-term growth and survival; the things you have have believed for so long that you no longer question them. The tendency for a group of people to cling to obsolete or incorrect ideas if often referred to as "groupthink".
If you fail to spot a key inflection point occurring (or about to occur) in your industry, and fail to make wise strategic choices in a timely fashion, it can be extremely difficult to kickstart things to get your company growing again. In fact, the research shows that the odds are against you ever returning to growth!
How many times have you heard this story?
The incumbent market leader enjoys a long run of success with their existing business model. Over time its leaders start to believe their own hype. They overestimate their abilities, thinking they “caused” their past success; discounting the role that luck and good timing may have played in their growth. They become closed-minded, and reject anyone who questions their decisions. There is peer pressure toward uniformity in the leadership team. They fail to consider alternative options, and filter out new information that does not match their existing view of the world. They keep expanding the features of their current offerings, adding more costs, rather than more revenues. Their companies and product lines become bloated and unfocused. They fail to spot that some of their target market customers are becoming attracted to new entrants with disruptive ideas and new business models. They mistakenly think their brand name will protect them from these “inferior” competitors. This classic trap is called the “Innovator’s Dilemma”. Revenue growth stalls out, and begins to decline.
Preventing the Stall
Every month we read about the death or decline of well-known brands who failed to adapt to upstarts with innovative business models. Industry change comes at you quicker than you think, and today leaders have to be faster at responding. Questioning your strategic assumptions on a regular basis is critical, but, in my experience, this is something leaders do poorly (if at all). At a minimum, I recommend organizations undertake a thorough industry analysis once per year. It should be done even more frequently if your industry is experiencing significant change.
A disciplined strategic thinking process helps clients to identify:
- What competitive forces will determine how your industry is likely to play out in the coming years (e.g. competitors, new entrants, substitute offerings, suppliers, customers)? What moves are they likely to make? What threats or opportunities do you see? What moves do you need to make?
- What macro forces will impact your business environment (e.g. political, economic, social, technology)? What changes do you see coming up? What threats or opportunities do you see? What moves do you need to make?
- What “core” activities do you need to invest resources in, build your capabilities, and perform in an truly excellent fashion? What activities will create a competitive advantage and differentiate you in the mind of your target market customer?
- What “non-core” activities do you need stop doing, sell off, outsource, or not get into at all? What projects do you need to abandon?
We take clients through a comprehensive strategic thinking process and yes, it takes time and discipline to work through each exercise, but the insights they gain are worth it. Only then do the leaders have the context to make wise strategic decisions.
In essence, strategy is understanding how your industry is likely to play out, and getting very clear on the key strategic moves your company needs to make in order to position yourself for future success.
How long has it been since you took a deep dive, analyzed your industry thoroughly, challenged your current assumptions, and clarified the strategic moves you need to make to position your organization for future success?