The big question on every executive’s mind is: Where to find future growth? Whether the question is an urgent one or driven by a regular strategic planning cycle, without future growth a business can not sustain for long. In this post we’ll look at growth horizons and venture design while introducing the Ark of Commerce™ and providing context to the ROUNDMAP™ framework.
Horizons of Growth
You may remember the image (below) when we discussed Growth Activation™ ─ to illustrate how multiple horizons of growth will help plan for sustained growth. To warrant short-term growth (horizon 1), we’ll need to defend and extend our streams of revenue while managing the core operation.
Before these revenue streams become restrained, we’ll need to make sure new lines of business can emerge (horizon 2), often relying on the existing core. Additionally, we’ll need to explore viable business options ─ even if these require an entirely new core (horizon 3).
However, some companies have responded to these turbulent times by introducing a transient growth strategy: they’ve developed the capacity to launch a new line of business every 1 to 1.5 years and work relentlessly to mature these into viable ventures, causing growth cycles to overlap. This approach is known to as venture design, based on transient advantage.
This is how growth cycles of a venture-design business looks like:
Regardless if our lines of business depend on fleeting competitive advantages derived from a single core (first graph) or from transient advantage derived from multiple cores (second graph), we’ll have to take into account the causalities and interdependencies that exist within each core.
Let’s step away from these growth cycles for a moment (we’ll return to it at the end of this post) and focus on these core operating lines that need to make growth happen.
KODAK | FADING MEMORIES
Kodak was the first to explore the opportunities of digital photography. Millions of dollars were invested in developing the first digital camera while Ofoto was the first website that allowed customers to store and share their digital photos. Due to the enormous pricetag attached to a digital camera, Kodak did not expect digital photography to take off anytime soon and therefore kept its focus on celluloid films. A huge error of judgement. Merely 4 years after the introduction of the iPhone, the company had to file for bankrupcy. Kodak had not only failed to understand that the opportunities provided by digital, to share photos amongst peers on the fly, would displace traditional photo printing, but was also wrong to assume that their competitive advantages with regards to celluloid film would prevent them from being disrupted.
WHAT's AT THE CORE?
Following the creation of the ROUNDMAP™, we wanted to describe how the body of knowledge relates to the business operation at large and to show that ROUNDMAP isn’t just an instrument to improve customer performance, rather an essential part of an integrative framework: from mission to strategy, to planning, to product design, to realization, and ultimately to sustaining growth.
If you look at the ROUNDMAP™ logo, you may have noticed a compass needle. This needle represents the purpose of the mission, i.e. the group of customers for which the business intends to create value. However, to reach this target audience, and to be able to respond effectively to changes in demand or adversarial forces, the business operation has to be able to ‘maneuver’.
This led to the idea to describe a business as a vessel, sent out on a mission to fulfill its purpose.
The Ark of Commerce™
So, we perceive the entire business operation as a boat sent out on a mission with the bow pointed towards the target customer while being propelled by profit, steered by the directives that are determined by the growth scenario, and geared by the operating line (midship).
We named it the Ark of Commerce™.
To explain what drives the ark forward and allows it to maneuver, we consider four key drivers:
- GROWTH – What creates the thrust behind the operation?
It is the value differential ─ through value capture ─ that will allow the ark to maneuver, i.e. given its capacity to generate profit. Without capital money or profit an operation will come to a halt
- MISSION – What problem do we solve, who’s to benefit, and what do we hope to get out of it?
While our mission may seem like a journey, it is in fact an expedition that needs to deliver value to a detectable and trackable group of customers, from which it can capture value to thrive.
- OPERATION – What’s at the core of the operation to drive the creation of value?
To execute on our mission and capture value in the process, we need to obtain, maintain, and align the aspects that are needed to create the added-value that we can trade for money.
- PURPOSE – Why are we on a mission?
To make a profit, we’ll need to target customers that are willing to trade their money for the added-value we create. Making profit allows the operation to grow.
Firstly, we distinguish between four stages of growth (click on the image above; from left to right):
- Growth Scenario ─ Determining the strategy, objectives, and tactics to reach a rallying goal, a goal we all commit to ─ aligned with the corporate mission, vision, and purpose.
- Growth Planning ─ The timely allocation of constrained resources (assets/people) and capabilities (technology/skills) needed to reach the aspired goal.
- Growth Activation ─ The way to effectively and efficiently put the allocated resources and developed capabilities to good use, i.e., to create the value we intend to deliver to our customers.
- Growth Realization ─ Deliver and capture value; measure actual growth against aspired growth.
Growth Planning and Growth Activation are separated by the Functions that need to perform the jobs ─ the primary and secondary activities, arranged in units (groups, departments, or divisions) ─ also referred to as the value chain. The Growth Scenario is part of the firm’s Directives while Planning and Activation are Operatives ─ Growth Realization is the Contributive aspect.
A regular operation may consist of one Ark of Commerce, however, a typical venture-design business may have several smaller arks ‘in the water’, side-by-side, each one competing for profit and growth.
Secondly, to plan, activate, and realize business growth we’ll need to consider five Operatives:
- Resources – What is needed to do the jobs?
- Capabilities – Which jobs need to be done?
- Functions – What unit(s) do the job? (= the value chain)
- Processes – How is the job done?
- Services – How is the job admitted?
Each of these Operatives is linked to sub-operatives. Processes are determined by Policies and performed through Roles while Services are determined by Products and performed through Channels (of communication and distribution). And so on.
How to use the ARK OF COMMERCE?
We believe the Ark of Commerce can be used as a playbook:
- By describing the resources, capabilities, functions, processes, and services currently in use while executing the ongoing growth scenario.
- To describe the resources, capabilities, functions, processes, and services needed for alternative growth scenarios.
- To uncover and (strategically) bridge the gaps beween current and alternative growth scenarios.
- Decide whether to launch a scenario transition.
- Decide to launch it in-house or as a spin-out.
The best way to perform this exercise is by using a spreadsheet. Please contact your ROUNDMAP™ Certified Professional for further details.
TESLA | GROWTH PAINS
Tesla’s mission is to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible. In 2013 Tesla stocks were believed to be overrated, implying Tesla would have to reach ‘321,000 vehicle sales a year by 2020, a 48% CAGR’ (growth rate). By introducing the Model 3, Musk was able to get the production numbers past the 321.000 vehicles mark, one year prior to what was perceived to be impossible in 2013. Allocating the required resources and acquiring the capabilties needed for large scale car production did prove to be a challenge while most of the processes and services today are still way below-market standards.
Ways to Achieve Grow
Growth can be achieved in many ways, often combining several methods. In the example of Tesla, growth was achieved through segmentation: by developing a more expensive car for more-exclusive customers (at scope) and a cheaper model for customers in a lower price range (at scale).
These are 10 ways to achieve growth (there are more):
Exploiting market potential by increasing the scale of the operation ─ based on Economies of Scale.
Exploring various product lines simultaneously; using the same operating line ─ based on Economies of Scope.
Focusing on a select group of customers while exploring the opportunities to fulfull more of their needs ─ based on Economies of Sale™.
Improving (or shaping) the current operation to expand and extend growth through innovation and change-initiatives.
Transforming the current business model towards the next elemental business model ─ referred to as business model shifting.
Exploring various product lines simultaneously; using one or more operating lines.
Be one of the few suppliers that are capable to perform the job with excellence.
If you have a converting offer, international expansion could be a quick way to grow.
Achieve market share fast by accepting operational losses to gain first mover advantages or to determine the overall playing field: the Amazon-way.
Acquire other businesses to grow your own business more quickly.
Always be aware of the interrelationships between resources, capabilities, functions, processes, and services, especially if you plan to share elements between multiple units or divisions. These interrelationships may provide economic benefits, however, they could also lead to higher cost of coordination, compromise, or inflexibility (Porter).
There are many causes for not achieving the aspired growth, some of which we’ve addressed here ─ research demonstrates that a mere 20% of firms succeed in achieving their growth projections.
Ark of Commerce and ROUNDMAP
Let’s see if we can bring the two, ROUNDMAP and the Ark, together.
Firstly, you now understand that the purpose of any business operation is to deliver specific value to a specific group of customers ─ the group of customers it sets out to target.
Secondly, we’ve described on many occasions that the ROUNDMAP represents the frontline operation, which is the part of the operation that actually targets the customer.
As such, the Ark of Commerce™ is perpendicular to the ROUNDMAP™:
COMPETITIVE VERSUS TRANSIENT ADVANTAGE
OK, now let’s go back to the graphs at the beginning of this post.
Experts noticed that when markets become more volatile and therefore unpredictable ─ due to fast emerging innovations ─ competitive advantages tend to flee faster. However, most incumbents tend to believe that any early-stage technology, process, or product won’t be as effective as something that’s been honed and polished for years. This proved to be a misconception ─ a superiority trap. If the upstart innovation matures, and in many cases it will, the incumbents are often too late to respond.
Instead of betting against the notion that sustainable competitive advantage is now the exception, not the rule, firms do wise to mitigate the risk of becoming disrupted by launching multiple ventures with speed and frugality. Until the new winners have emerged from the dust and the race for the best quality, with the best service, at the lowest price resumes.
This is how we would like to represent the two strategic advantage playbooks:
To the left is a single-core business operation, battling to defend its market position against new markets entrants, changing regulations, global competition, and technological disruption. To the right might be the best answer: starting a series of new ventures, each based on a vision of the future.
Is this response to market turmoil unique in history? Ofcourse not. According to the authors of the bestseller “In Search of Excellence” (1983), companies like Hewlett-Packard and Texas Instruments in the 80’s also formed small separate teams with a high level of autonomy, to launch new products with ‘speed and frugality’ ─ similar to venture design today.
This phenomenon of similar events and responses over a period of time, is known as business cycles. Renown economist Joseph Schumpeter was convinced that these cycles, first identified by Clément Juglar, happen because emerging technology will displace old technology, causing a temporary economic contraction, followed by a period of economic growth.
While a Juglar cycle covers 7-11 years, the Kondratiev wave (technological wave) covers 45-60 years. This is the cycle we need to look at. And since we’re 45 years past the era covered by “In Search of Excellence”, we should not be surprised that once again we’re in a situation in which our core business is under siege, forcing companies to launch multiple expeditions, each burdened with the task to explore new opportunities for growth to secure the future.