Tweaking a proven formula

Tweaking a proven formula

David G Thomson travels around the globe advising on how companies can be "recession proof", or thrive through the most challenging markets and economic cycles.

His formula for transforming a challenged company into a successful one is to master a set of essentials which he has explained in his two best selling books -- Blueprint to a Billion, and Mastering the 7 Essentials of High Growth Companies.

"It stood the test of time," he says of the list. The essentials (see below) include the imperative of an inside-outside leadership pair -- one focusing on the operations, the other on customers, alliances and the community -- driving the company.

The 7 + 1 essentials of high growth companies

1. Create and sustain a breakthrough value proposition

2. Exploit a high growth market segment

3. Utilise marquee (best) customers to fuel exponential revenue growth

4. Leverage big brother alliances for breaking into new markets

5. Become the masters of exponential returns

(cash flow positive with little long term debt)

6. The Management team: Inside-outside leadership

7. The board of directors: Comprised of essentials experts

8. Invest in IT and systems

But Thomson, the founder and chair of the Blueprint Growth Institute and a former McKinsey consultant, says his research points to the need to add an eighth essential -- investing in IT and systems.

The discussion of IT and systems did not come out at the time he was doing his research on the two books. "Now it has, and maybe I will do a book on the eight essentials," he says.

He explains the '7 essentials' scorecard in his website also measures this eighth essential. "It is typically one of the lowest performing essentials amongst growth companies," he says. "This implies growth management teams are chasing systems, not proactively investing in them. It also implies that it is adversely affecting employee productivity and decision-making."

The eighth essential also came from insights after interviewing CEOs of billion-dollar companies. "I found high-growth management teams were systems problem solvers as they viewed their business as a system," says Thomson. "When you do that, you can look at your system differently as a series of infrastructures and you view your management team as systems-based. They work cross-functionally well together. If your IT infrastructure is not aligned to your processes and systems and the latter is not aligned to your growth strategy, your company is going to stall."

The CEOs told him of the need to invest in systems in advance of growth in order to leverage talent and enhance the value proposition of the company.

The investment on systems, built on IT, were aligned to the strategy of the business and driven by essentials one (create and sustain a breakthrough value proposition) and two (target a high growth market segment wihtin a large market).

Companies optimising the market invest in supply chain systems, while those redefining the markets invest in CRM and business intelligence systems to improve customer experience. Companies creating markets tend to invest in systems to rapidly deploy new solutions. "Your infrastructure should be ready for the next growth cycle," he says. "You have to be leaner, meaner, more intelligent."

Growth companies should invest ahead of the growth curve by 12 to 18 months, according to Thomson. They should also upgrade their systems during recessionary periods when volume is lowest. This will lower risk and enable the company to be ready for the next growth cycle.

However, there is always a tradeoff between investing and cash flow, he says. There is a need to prioritise and focus investments. "As you grow how do you deploy precious resources and cash to build your infrastructure to fuel your growth?

"CEOs need to have a focus on increasing customer demand and sales in order to grow their business, to create jobs and market value in this economy."

He notes: "Sales is the most difficult part to achieve and by the way, you need IT and business systems to keep on doing that."

When the economy is down, the usual approach -- cutting taxes and payroll deduction -- give cash growth to companies, but it doesn't create sales, he says. "Yes, we need cash but cash is not enough. It is necessary but not sufficient."

The growth companies drive the economy, he explains. "The management team in growth companies knows how to get customers, they know how to spend money and reinvest in the company."

The leading growth companies, he says, are in health care, energy, materials, food sales, software and services, technology and hardware.

"The workers in these [high growth] industries will increase consumption.

"All of these industries inter-relate to one another. Energy relates to food, to technology. These groups of industries are really driving the next economic cycle," he says. People are going to have money to spend because they work in these companies.

So what are the management styles that worked for high growth companies?. Growth companies have a dynamic of what he calls "inside-outside leadership pair". The inside facing person is in charge of operations and the outside person is innovating in markets, in relationships with customers and alliances.

"It is like the left brain and the right brain. The left brain is very process oriented and the right brain is very creative, very extroverted. One side is more dominant than the other. Very few people use both sides of the brain.

"That is why there are leadership pairs -- they really are the secret to a great growth company," he says. This leadership concept can be applied throughout the organisation -- through co-CEO, CEO-CFO, or CEO-CIO pairing depending on the nature of the business.

It can also apply to leaders in business units and the board of directors.

One of Thomson's essentials for a high growth company is balancing the board with a range of experts like customers and a chief executive from a growth company. When CEOs of mid-sized companies tell him they do not know of any billion-dollar CEOs, he advises, "Just find a CEO who has grown a business larger than yours."

A great source for these are executives who have just retired. "They come with a lot of experience, they come with time, they come with a great Rolodex, and they want to help out," says Thomson. "They are retiring younger these days, and by the way, they may even be investors in your company."

He also cites the advantages of having a CIO or IT-literate member on the board. "When you have to take a major strategic investment decision, it is like getting arrows lined up on a magnet. The management team is on the same page."

He says the ideal CIO for this is one who has "taken the company from small to large so they know about the evolution of systems". He says not a lot of boards are doing this, but the boards of high growth companies are.

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