How do you design new growth strategies?
Tuesday, April 26, 2016
All successful companies must eventually answer the same basic question: How do you create new growth strategies and business opportunities from within your organization?
The Art of Opportunity
When Thomas Ebeling became the new CEO of ProSiebenSat.1 Media AG (Pro7), he faced a familiar problem: how to grow the business. Pro7 was the leading media company in the German TV advertising market with a core business of free TV financed by advertising. Mr. Ebeling’s challenge was how to grow the business and achieve the target of plus €1 billion in revenues by 2018, going from €2.4 billion to €3.4 billion. Resorting to traditional strategic moves, expanding existing businesses and offerings would certainly not do the trick.
Pro7 crafted a unique strategy for a new business area making TV advertising available to start-ups and small- to medium-sized companies, two customer segments that traditionally couldn’t afford TV advertising and were seen as unprofitable by the industry. One year after the new business had been launched, it had already generated €20 million in profit. Five years later, Pro7 had achieved tremendous success with its new strategy. The strategy had in fact worked so well that Pro7 decided to increase the revenue target from plus €1 billion to plus €1.85 billion until 2018, almost doubling its total revenues.
As business professionals and scholars we admire achievements like these and wonder how Pro7 tapped into new markets and developed new business areas. Finding and seizing opportunities for new growth is, after all, the Holy Grail of business. And if Pro7 didn’t use traditional growth methods, exactly how did it arrive at new offerings, complete with innovative business models and revenue models to reach entirely new customer segments?
Intrigued by these questions, I devoted my Doctor of Business Administration studies at Alliance Manchester Business School to researching how new growth can successfully be created from within established companies. Here, in a (very tiny) nutshell, is what I discovered.
To create innovation, growth and new markets, companies reframe how they think about strategy and how they approach the task of developing and implementing new growth strategies.
A Different Strategy Framework: Strategy as discovering and seizing opportunities for growth.
As an alternative to seeing strategy as a way to position your organisation as a low-cost company or using it as a way to differentiate your company from competitors, growth companies focus on discovering opportunities. These opportunities arise from looking at customers and noncustomers, their needs and customer experiences, and the barriers to consumption and hurdles to satisfaction they encounter. By addressing the needs of noncustomers in particular, and removing what keeps them from buying and having a satisfying customer experience, new growth is actually pretty straightforward.
Once these opportunities have been discovered, companies design their strategy as the combination of the offering (the products, services and customer experiences they provide), their business model (the activities they perform and how they perform them), and their revenue model (the combination of revenue streams, pricing mechanisms and payment methods).
By doing so, companies make sure their new strategy creates value for their customers, as well as their company and the ecosystem of partners they are embedded in. Only if the strategy creates value for all parties will it be successful and sustainable.
A New Strategy Process: Constant iteration and a bias toward action.
Instead of following the traditional mantra of analysis — planning — implementation, growth strategies evolve constantly. Successful growth companies discover an opportunity, design a first — often very rudimentary — version of their strategy, and engage immediately in business activities on a small scale. They learn from these activities, and use what they learned to further design the next iteration of their strategy. As they go through several cycles of acting, learning, and further designing, the maturity and sophistication of the strategy increases up to a point where companies start rolling out the strategy on a larger scale. And this is how they achieve rapid and substantial growth.
These principles are not only valid for large established companies. They also work for small and medium enterprises. The American rock band Nine Inch Nails once achieved revenues of $1.6 million within a week, although the music was available as a free download! Want to know how they did this? Well, you’ll have to buy the book! 😉