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(originally published by Booz & Company)

Strategy & Leadership: The Essentials from Booz & Company

Billion-dollar Ideas: Finding Tomorrow’s Growth Engines Today

Companies usually shift their business models only when sustained periods of poor industry returns force them to rethink the way they do business. For example, when Fuji Xerox Company was facing closure in Australia because the cost of importing parts from Japan made it uncompetitive, it changed its business model. Instead of importing parts, it began remanufacturing components recovered from its installed base of copiers. Not only did this enable the business to return to profitability, but the new model was also adopted internationally by Xerox and won global environmental awards.

The business model lens should not be reserved for crises, however. A significant source of its power is in business model innovations that surprise competitors and customers and rewrite the rules of competition for whole industries. When Dell Inc. perfected a direct-to-customer distribution model that blindsided the computer industry’s major players, it got a huge boost to its competitive position and its profitability. Southwest Airlines Company’s short-haul, point-to-point model allowed it to successfully compete at a lower price range than traditional hub-and-spoke carriers with high fixed costs.

Making a Better Choice

Every lens has its own value, and companies should use each one exhaustively before moving on to the next one. Often different lenses generate similar ideas. That’s OK. The point is to let the methodology be a “looking glass experience,” which alters perceptions, expands horizons, and redefines market boundaries.

Companies that use the five growth lenses typically generate long lists of potential growth opportunities. You may have more than 100 ideas by the time you’re done. But lists alone are of little value. You need to be able to quickly evaluate the ideas you have generated and set priorities before selecting the very best ideas for implementation. This winnowing process can involve any or all of three concurrent techniques: the use of an iterative filtering framework, facilitated workshops, and a fact-based assessment of your ideas.

  • An iterative filtering framework, in a series of efficient steps, eliminates the least attractive opportunities so you can pay more attention to the most promising ones. First, evaluate the full list with a group of “pass/fail” criteria, ideally defined in advance: a minimum threshold for revenue, a maximum length of time to profitability, acceptable margins, and a sufficient level of incumbent domination in the sector. Typically, more than two-thirds of your opportunities will fall off the list.

    Then evaluate the remaining ideas in greater detail, with a team of senior executives who have a strategic view. Your ideas must pass muster in terms of market attractiveness and the company’s competitive capabilities. Selection criteria should generally include the amount of investment required, the market growth rate, competitive advantage, and your ability to enter the market. Expert facilitation can minimize the politics and power plays that are common when executives become enamored of certain projects. Facilitators ensure all credible ideas are heard and keep the process on track.

    By the third filtering stage, you may have fewer than 20 opportunities to look at. Prepare a mini business case for each idea, incorporating details of the market, target customer segments, products, value proposition, competitors, distribution, economics, and risks. Using these cases, your senior executive team should evaluate the ideas and choose the top five.

    In the final stage of filtering, create detailed business cases for the remaining opportunities, including high-level implementation plans, growth pathways, risk-mitigating actions, financial expectations, and business partners. The executive team can then pick the opportunities and allocate investment funds.
  • Facilitated workshops are often used for brainstorming new ideas, but they can also be used to explore these ideas in more detail with a broader group — a cross-section of people from several divisions and most staff levels. Use these workshops to expand and think through those ideas that are good but underdeveloped. The sessions can also set a strong foundation for implementation, because they generate cross-boundary ownership.

    When a leading Australian construction company used the growth lens methodology, it held a series of ideation workshops attended by more than 40 staff members from different levels and departments throughout the company. (It also interviewed a number of key clients and mapped the best growth strategies among a global set of construction companies.) More than 100 growth opportunities were identified in three facilitated workshops, each conducted in a half day. The most attractive opportunity, which surfaced using the capabilities lens, was an untapped $700 million high-margin market related to climate change that is now being pursued by the company.
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