Why do corporate growth initiatives so often founder? Why does one company succeed at opening up new markets and revenues while another company in the same industry fails? At too many companies, top decision makers don’t look beyond the “what” of a growth strategy. But these executives also need to understand the “how” — the mechanics of the growth strategy and how to put them into practice. And they need to align both “what” and “how” with their own organizational culture.
To better understand the factors underlying successful growth strategies, our research team — composed of academics and consultants — recently studied a variety of approaches to managing expansion. We conducted more than 50 in-depth interviews with managers from leading global companies, and compared our findings against the results of an extensive quantitative study of the strategic-growth practices of more than 200 firms around the world. We found four corporate growth management modes prevalent among these companies. These four growth modes are distinguished by the form of control that senior executives exert.
1. Self-organizing (low control of content and process): Companies with a laissez-faire approach give employees considerable freedom to devise and then implement new ideas. This is puzzling to many traditional managers, but it can often be very successful. Growth initiatives arise creatively from all parts of the organization; investment decisions follow a semi-democratic pattern. One example of a self-organizing growth company is the U.S. biotech firm Promega, which allows its researchers and managers to launch initiatives they deem appropriate, drawing on a substantial amount of corporate funding without board approval.
2. Agenda-setting (high control of content, low control of process): Top management establishes a clear, inspirational vision for the company’s new offerings, but stands back from the nitty-gritty of implementation. At Samsung, the Korean conglomerate, senior management challenged the staff to create “next-generation devices,” but restricted its own activities to (a) making sure that key experts within the organization connected with one another and (b) helping teams overcome organizational obstacles.
3. Context-setting (low control of content, high control of process): Top executives create a framework that nurtures the emergence of new ideas. The senior management of Allianz Global Risk, an international corporate insurance firm, invited 100 high-level managers to propose growth initiatives fulfilling certain financial targets. The most promising ideas received funding and were carefully monitored by the core through to fruition.
4. Directing (high control of content and process): Top management acts as the primary generator of growth. The corporate strategy team at Liberty Global, an international cable broadband company, determines all corporate development initiatives, reviews initiatives proposed by subsidiaries, and closely oversees execution.
According to our findings, no single growth mode consistently outperforms all others. Focus and consistency in all four modes are vital to performance. Companies that oscillate between modes or that cherry-pick elements from different modes perform less well than firms with a disciplined approach. Moreover, different growth modes fit better with certain companies, depending on their culture, their capabilities, and the needs of their industry.
A company that recognizes and develops its own preferred mode can significantly improve the likelihood of realizing its growth potential. If the growth mode is a natural fit, then specific processes — the “how” of shaping, staffing, funding, embedding, and governing an initiative — should deliberately reflect that particular growth mode. Examples of such growth-conscious best practices include:
• Shaping. Directing companies maintain a tight grip on initiative creation and development. This works well, as long as they avoid senior-management groupthink and pay sustained attention to outside perspectives. In self-organizing and agenda-setting modes, executives benefit from the energy of many minds, but need to keep ideas rigorously market-focused and coherent. In the context-setting mode — in which the corporate center retains control over idea generation while encouraging the wider organization to implement growth — best practices involve careful attention to financial guidance and measurement. SES, a worldwide television satellite services provider, granted significant leeway to its regional operating companies to pursue strategic initiatives, including mergers and acquisitions. But each initiative was measured against a defined internal rate of return overseen by the core.
• Staffing. Self-organizing firms require intrinsically motivated employees, who are not always easy to find. These companies must therefore pay careful attention to the recruiting process; at Google, for example, most new employees are approved by the founders and each of their potential colleagues. At context-setting companies, where business units often link incentives to their own financial performance, measures must be put in place to help managers recognize the benefits of supporting riskier long-term initiatives directed by the corporate center. The study revealed one guiding principle applicable to all four modes: Fostering high-quality talent for a growth initiative is more relevant to success than setting ambitious targets or maintaining tight control over progress.
• Funding. In agenda-setting environments, a visionary CEO must adjust the business units’ financial targets to match the vision. In directing companies, corporate investment in a particular project sometimes continues for such a long time that it engenders complacency; business units need to assume financial responsibility earlier than one might expect, even well before market launch. In context-setting companies, the principal challenge is how to secure funding — and enthusiasm — for company-wide initiatives when each business unit has its own ambitions. Thus, at ABB, a Zurich-based technology conglomerate, business units can opt in to support proposed corporate strategic initiatives — recently including alternative energy and railways — with a share of their own budget or staff time.
• Embedding. In directing companies, the tight control of initiatives coming from headquarters may discourage local commitment during implementation; such companies need explicit processes that encourage business unit managers’ buy-in and help a growth initiative succeed. Conversely, self-organizing and context-setting companies must watch out for silo mentality: Initiatives that cross business units tend to fragment into various “sub-initiatives” that can stray from the original intention. Because of this likelihood, SAP, a German software company, has introduced methods to embed cooperation and guarantee consistency. An internal group named Inspire helps manage innovations for up to 18 months at the outset of a new project.
• Governing. Once a strategic initiative is up and running, firms in an agenda-setting mode sustain momentum by fostering the entrepreneurial freedom of business unit managers. Samsung, for instance, has no groupwide steering committees, and it tracks targets only by business unit. Directing companies, by contrast, need formalized reporting systems and frequent communication. Otherwise, top management might find it easy to move on to a new initiative, even as local managers still struggle to implement the first one.
As these examples show, the best practices for one growth mode may not be relevant to another. But what if the current growth mode does not naturally fit the corporate culture? Then a company can change modes. Thus, E.ON, a major European conglomerate, gradually spun off noncore activities to become a focused energy company. This portfolio transformation also triggered an effective transition from a context-setting to a directing mode. The board now has the mandate to get involved in specific business issues and can effectively control the strategic direction of the company.
The current pressure on companies to innovate and grow is unprecedented. The pursuit of growth initiatives presents a significant number of intricate managerial challenges. By identifying and adopting the growth mode that best fits their company, senior management can acknowledge the specific complexities of growth for their firm and find a better way of meeting them. By contrast, haphazardly continuing to favor a mode without conscious consideration, just because “that’s the way we do things here,” is a much less desirable strategic option.
Alex Koster is a principal with Booz & Company in Zurich. Working primarily in telecommunications, technology, and Internet industries, he specializes in growth strategies and new business models.
Michael Szczepanski is a principal with Booz & Company in Copenhagen. His primary areas of activity include consumer goods and financial services, focusing on growth strategy formulation and linking growth strategy to organizational issues.
Christoph Lechner holds the EMBA Chair of Strategic Management at the University of St. Gallen in Switzerland, where he is the director of the Institute of Management. He also serves onthe board of directors of Helvetia and Hügli.
Also contributing to this article were Booz & Company Principal Ilona Steffen and Associate Christina Heck. The authors thank Booz & Company Senior Vice President Christian Burger for his insights and support.