Dance your way to growth – one step at a time
The Tanzanian and Ugandan economies have been growing at a brisk pace for five years or more. Kenya, long in the economic doldrums, is showing signs of an ever-so-gentle upturn (shhhh…don’t frighten it). CEOs around the region are bracing themselves for a period of growth. It’s an exhilarating feeling – to be focusing on growing the top line rather than worrying incessantly about costs. Growth is an imperative – after all, how much cost slashing can you really do? But wait: the search for growth may throw up dragons. Proceed with care.
Companies enjoying consistent growth in revenues are rarer than you might think. Consider the growth records of leading East African firms, and you might be hard put to find more than a dozen or so that have enjoyed double-digit sales growth for a decade or more. Why so? Some estimates suggest that up to 75 per cent of growth initiatives go wrong. Growth involves moving into uncharted territory – new markets, new products, new distribution channels. There is an inherent uncertainty surrounding every growth initiative.
The old ways of growing have lost steam. Once upon a time, companies looking for growth had only to do one of three things: acquire other companies; move into new geographical territories; or simply raise prices. All three methods have lost their shine. Acquisitions often throw up more problems than meaningful growth – the pain involved in aligning workforces, matching cultures and value systems is very real. Managers of the acquiring company usually find that the first two or three years are spent in the messy job of rightsizing and in retraining staff used to doing things a different way.
International growth? Great idea, but you need access to untapped, low-risk markets to be sure of your growth numbers. Most untapped markets are that way for a very good reason – look at the Democratic Republic of Congo. Apart from unacceptable risk profiles, many of our neighbouring countries simply do not have the strength in purchasing power to make an incursion worthwhile.
And ramping up prices? East African companies have done that one to death. Indeed, many have raised prices to the point where the bottom has fallen out of their markets – a whole segment of low-income customers have migrated to cheaper and less desirable brands, simply out of economic necessity. Raising prices further can only accelerate this process – and cause your low-cost competitors to rub their hands with glee.
So, as you sit there mulling over your company’s growth plans: what is to be done? The first thing to remember is that you may be sitting on the answer. Adrian Slywotzky and Richard Wise, consultants with Mercer Management Consulting, suggest that before venturing out into any kind of growth initiative, you must take a hard look at your company’s hidden assets – the intangible, under-utilised capabilities that you may already possess.
Do you have an enviable reputation and position of authority with your key customers? If so, have you considered meeting their higher-order needs? If you sell them advertising, you could offer to undertake value-added marketing. If you sell them IT services, you could pitch to take over the entire IT function via a new outsourcing venture. If you sell lawnmowers, move up into landscape gardening. It all depends on the strength of your brand relationship. If it’s strong enough, you can take it into relatively low-risk related services. Your customer base is the first asset to consider.
For example, General Motors decided to take advantage of its installed base of 80 million vehicles in the US – by offering a suite of in-vehicle services. GM’s ‘Onstar’ service offers electronic route planning, emergency response and traffic information services to GM vehicle owners – and the new service already has 2 million subscribers.
There may also be a different class of assets to exploit: those based on information. If you are a pharmacy chain, for example, you have access to a rich seam of information about consumer buying patterns and trends. With the right IT data-mining tools, you could glean insights about customer segments and future buying patterns that would be of great interest to pharmaceutical producers. It would help these producers to reduce the risk of new product introductions and to focus their marketing budgets more effectively. The trick is to package the information and sell it to them.
So the answer to the growth question may well be under your nose. But having taken a hard look at these hidden assets, you may still decide to venture into new territory. If your company is making the leap into the unknown, remember to carry a parachute. Chris Zook, a consultant with Bain & Company, estimates that three-quarters of the top business disasters of recent years involved growth initiatives that went horribly wrong. Swissair, for example, was once an airline much loved by Kenyans and renowned for its efficiency and punctuality. However, in the mid-1990s it attempted a very ambitious growth strategy involving simultaneously buying into regional airlines and moving into services such as catering and aircraft maintenance. It soon found itself in enormous debt and ended up firing most of its management and board as it plummeted towards bankruptcy.
Mr. Zook recommends a systematic approach to growth: set a simple formula, and keep repeating it if it works. In particular, do nothing to harm your core business, and focus on only one major growth initiative at a time. If you are extending your product range, for example, do not attempt simultaneously to move into new country markets. Learn one lesson at a time, just like they taught you in school.
A foremost example of a company with a successful growth formula comes, perhaps surprisingly, from West Africa. Olam is a global agricultural raw materials supplier founded by Sunny Verhese in 1989. Today it enjoys annual revenues of US$ 1.3 billion – which makes it three to four times bigger than East Africa’s largest companies. It has managed to keep growing this revenue at nearly 30 per cent per annum, while achieving an annual return on capital of 35 per cent. All of this growth has been organic, and all of it has followed a specific formula. The Olam story is worth recounting.
Olam was founded as an agricultural intermediary – connecting cashew nut farmers in Nigeria to big international confectioners such as Nestle and Sara Lee. Its source of competitive advantage was to create unique financial hedging vehicles for these buyers, to reduce the risk inherent in the international commodity trade. This advantage saw it enjoy some early success, and soon Olam was poised for growth. But this growth followed a strict pattern.
First, Olam moved into new geographies, from Nigeria to other neighbouring West African countries – but stuck to just one product, cashew nuts. Having successfully established the cashew nut business across these countries, its next move was to expand into different commodities (coffee and cocoa) – but keeping to the countries it already had a presence in. Thirdly, it moved upstream along the value chain, to shelling and blanching of cashew nuts – but made sure that this experiment was confined to cashew nuts alone.
Olam has repeated this growth formula many, many times in its short history. This pattern of repeatability has seen it establish itself in several commodities in thirty-five countries – but always one step at a time. It sticks religiously to the formula of only playing with one growth variable at a time. It will never attempt to take on more than one category of risk at one time. The results speak for themselves.
Growth is inherently chaotic. As you steer your company into the turbulent skies of new products, new territories, new channels and new businesses, pay heed to the Olam story. Learn the dance of growth one step at a time.