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Published: August 6, 2012
 / Autumn 2012 / Issue 68

 
 

Blank Checks: Unleashing the Potential of People and Businesses

Don’t overdo it. It is easy to get carried away by the success of blank checks and approve too many. Blank checks are powerful tools, but they are very demanding in terms of both financial resources and leadership bandwidth. They will produce revenue and profit increases in the long run, but they require significant investments in the short term. They also require a lot of personal attention from business leaders. Just as venture capitalists limit the number of startup investments they make and the number of company boards they serve on, business leaders need to limit the number of blank checks they issue simultaneously.

Create a family spirit. Blank check initiatives require every team member to put the collective good of the team above his or her ego and personal point of view. To encourage cooperation and interdependence, the team should think of itself as a family. This attitude can be fostered by adjusting incentives so that team members win when the team wins as a whole. It also helps to host “family dinners” before every major leadership team meeting. Each dinner has a clear agenda focused on two or three business issues that need input from the family. At the end of the dinner, the team arrives at a consensus on the business issues. This practice gives the team clarity on what they need to do and also promotes a sense of shared ownership of the outcomes.

Driving Organic Growth

It is not easy to find profitable organic growth. Faced with stagnant demand, intensifying competition, and greater pricing pressures, business leaders feel that their growth is constrained by the environment in which they find themselves. However, the constraints are sometimes of their own making. Even seemingly sleepy businesses hold tremendous untapped potential. If business leaders can liberate their people from the limitations of budgets and resources, they will find that their people will surprise both leaders and themselves with what they can achieve. This is the power of blank checks.

Driving the Virtuous Cycle of Growth

Although blank checks are designed to create a step change in the growth of a business, it is important that the growth in revenues and profits is lasting. There are many ways to create a short-term revenue increase, such as discounting, consumer promotions, and trade promotions. And there are many ways to produce short-term increases in profits, such as cost cutting and restructuring. But true shareholder value is created when the profitable growth is sustained over the long term.

To ensure that blank checks produce durable profit and revenue growth, it is important to embed the blank check initiatives within a well-defined process that ensures checks and balances on the initiatives. We call this the Virtuous Cycle of Growth. The virtuous cycle is based on a seemingly simple insight — the more you grow revenues and cut costs, the more resources you have available to invest in future growth. The essence of the virtuous cycle is that growth generates resources that drive more growth. The virtuous cycle consists of five steps; each step emphasizes an outcome and the means to achieve the outcome. These steps need to be followed rigorously to ensure that blank check initiatives remain on track.

— S.K. and M.S.

Reprint No. 00124

Author Profiles:

  • Sanjay Khosla is president of developing markets at Kraft Foods Inc.
  • Mohanbir Sawhney is the Robert R. McCormick Tribune Foundation Clinical Professor of Technology and director of the Center for Research in Technology & Innovation at the Kellogg School of Management at Northwestern University.

 

 
 
 
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Resources

  1. Sanjay Khosla and Mohanbir Sawhney, “Growth through Focus: A Blueprint for Driving Profitable Expansion,” s+b, Autumn 2010: Rather than seek increased revenues and profits by expanding products and markets, companies should follow a seven-step strategy for achieving more with less.
  2. Irene Rosenfeld, “Inside the Kraft Foods Transformation,” s+b, Autumn 2009: Top leaders from the largest food and beverage company in the U.S. talking about their three-year turnaround and their campaign to reorganize for growth.
  3. For more thought leadership on this topic, see the s+b website at: strategy-business.com/strategy_and_leadership.