Time and again, business executives, consultants, and academics have searched for drivers of sustainable success. Clearly, there are many contributory factors. But what are the core factors? On the basis of our work with many clients and our discussions with many business leaders, we think that three strategies rank among the most important: innovation, restructuring, and growth.
To any CEO, these are deeply familiar strategies. But they are hard to implement on a continuing basis. To be successful, you need to think about them jointly. They reinforce each other, creating a virtuous circle. In the beginning, there is innovation, a new idea of what to do and how to do it. The new idea requires you to restructure your portfolio, your organization, and your team. The process of restructuring creates an additional dynamic, leading to growth. Growth gives you more scope, scale, and attraction—and the opportunity to invest more, which in turn can lead to new ideas and innovation.
Let’s look more closely at each element of the virtuous circle, starting with innovation.
Innovation. What is innovation? The answer is obvious, isn’t it? Actually, no. Too often, innovation is translated as “breakthrough inventions.” But this kind of innovation is rare and, as often as not, the inventors are not the real winners. Think of Apple. It did not invent the MP3 player. What it did do, however, was to devise a whole new ecosystem with the iPod. Likewise, Apple did not invent the smartphone. Instead, it designed the iPhone, a smartphone of beautiful simplicity, and created a whole new business.
In other words, simply being first with new products does not guarantee success. You need to be innovative in the way you run your business. You need to be prepared to fundamentally change your mode of operation. In so doing, you can hope to create new competitive advantages. Ultimately, it’s about being better and different, not just first.
In the automotive industry, for example, the attention-grabbing innovations are usually product-related: sleek new designs, higher-performance engines, and better fuel efficiency. But the big, albeit less glamorous, innovations have occurred in the production process—starting with Henry Ford, who introduced mass production with the first assembly lines. Toyota later moved efficiency and quality to a new level with just-in-time production. More recently, Volkswagen has been producing a huge variety of seemingly different cars with a multipurpose manufacturing-platform strategy, which offers plug-and-play modularity and commonality of vehicle parts. As a result, engines and clutches are interchangeable across the company’s seven brands—from the entry-level Skoda to the Lamborghini sports car.
This culture of innovation is now leading automotive and technology companies toward very new concepts—such as driverless cars, which are currently being tested on the streets of San Francisco. The jury is still out on these cars, and profitable outcomes are uncertain. But innovation will go on. It has to. That’s one of the ways enduring companies manage to endure.
Restructuring. What is restructuring? Usually, the term is associated with struggling companies that have to cut costs. It often has a negative connotation—which is unfortunate, because restructuring is an essential weapon in the arsenal of enduring companies. You should focus on the positive aspects of restructuring: a restructuring of the business portfolio, the organizational setup, the processes, the leadership team, and ultimately the culture should be seen as normal and necessary for any company.
If you run a multibusiness enterprise, look at your portfolio of businesses. The lessons of Bruce Henderson, BCG’s founder, are no less relevant today than they were nearly 50 years ago: some of your businesses create significant value, others hold their own, and some destroy value. Be decisive. Hanging on to value-destroying business can ultimately threaten the whole company.
Similarly, look at all the parts of your business—every link in the chain, from suppliers to customers. And don’t forget your leadership team. It, too, will need to be restructured to deal with new challenges. You may find that some managers are better when the company is growing than when it is in trouble and needs reshaping, or vice versa. Again, be decisive. If you don’t make the necessary changes, you are risking the future of your business.
Ten years or so ago, low-cost carriers were rapidly eating into the market shares of the traditional airlines. Qantas Group responded by restructuring its services to offer two complementary airline brands: Qantas, a full-service carrier, and Jetstar Airways, a new, low-cost carrier. Jetstar has an entirely new cost structure and operating model, with predominantly a single type of plane in its domestic operation, as well as point-to-point flights, separate commercial systems, and a heavy reliance on online-generated sales. Jetstar has been a success, expanding to long-haul international business flights and establishing a number of franchise businesses in Asia (Singapore, Japan, and Vietnam), with higher margins than Qantas.
Among other companies that have restructured to stay in business are General Electric and Siemens. Both companies discarded key businesses—in white goods and telecom equipment, respectively—when they felt that they could no longer compete with focused companies in those sectors. Similarly, the chemical giants, such as BASF, Bayer, Dow, and DuPont, have continuously restructured their activities, shedding and adding businesses. Today, they look very different from the way they looked 30 years ago, but they continue to stand out in the chemical industry.
These companies demonstrate that what is sometimes regarded as a weakness—to restructure, to change direction—is actually a strength and an essential part of an ongoing effort to meet opportunities and challenges.
Growth. What is growth? Is it an outcome, a performance indicator, or a lever for change? Clearly, it is all three. But it is also something else: a vital energizer for individuals and institutions.
Long-term value creation depends largely on top-line growth. You can’t cut your way to growth. Over a five-to-ten-year horizon, and in essentially all industries, about 70 percent of value creation comes from growth, according to BCG’s analysis. But the emotional reasons for growth are arguably even more important than the economic reasons.
Only growing companies attract and retain top talent, because only these companies can create the positive, can-do environment that enables their people to achieve personal growth. If ambitious, talented people have to wait for many years to advance—if they have to wait for their superiors to be “hit by a bus”—stagnation and frustration will prevail and will drive away top talent.
We often say that nothing succeeds like success. And indeed, growth encourages and enables the innovation, experiments, and investments that can lead to business expansion, larger market shares, and higher margins. The confidence of the whole team grows—and so do the profits of the company. The absence of growth can act like a straitjacket that prevents innovation, experiments, and investments and can ultimately suffocate an organization.