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Company Growth
What is company growth?
The increasing of firm value
Top Line
Bottom Line
ROIC =
(Operational Excellent)
Cost Efficiency
Revenue Generation
Core business Grasp new opportunities
Current (core) business will be deteriorated overtime decreasing current revenue & margin
o Case: Apple in the beginning of 1990s o Case: Pfizer (Norvask) in the end of 2007 o Case: IBM in the 1980s
PROFIT
Horizon-3: Create viable options Horizon-2: Build Emerging Business Horizon-1: Extend and Defend Core Business
Now Now
TIME
Future
Sustained revenue growth occurs if there is the flow of portfolio across Horizon
Declining Market
I
Industry Sales
D C
Horizon-1
Time
Horizon-2
Circle size is proportionate to sales
Managing Horizon
H1
Firm
Established business, as cash generator
H2
Young business, high revenue growth
H3
Promising ideas for future business
Perspective Focus
Short-term (now)
Maximize profitability & sustainability Strengthen CA
Middle-term
Resourcing to support new business Build CA
Long-term
Explore options for future oppr. Insulate from existing business Screen the most viable options (set priorities)
Challenge
Exploit remaining Take advantage opportunities before rivals do through incremental Increase revenue innovation & market share Transform the business (if needed)
Unhealthy Condition
H1
V V V
H2
V V
H3
V V V -
Description
Company face serious growth problem Too focus on the future, neglect the current Loss of energy and growth direction Focus on the current, no growth engine Rich of creative ideas, but fail to commercialize Unclear future prospect
Value-Building Growth
Healthy companies have ability to balance their profit and revenue growth (value-building growth).
o H1 = securing current cash flow (profit) o H2 and H3 = prosperous future revenue growth o Flowing H3 H2 H1 = sustaining the business growth
1984-1994
High Unrewarded Grower
18%
McKinsey & Co
Average
3%
1994-2004
Growth Giants
Revenue Growth
9% 11
36%
18%
45% 29
GDP TRS Growth 6% Performers
Challenged
27 33%
26%
19%
33%
33 3%
36%
Low
TRS Performance
High
Conceptual Thinking
Edith Penrose (1959):
Firm as bundle of resources o Resource and capabilities o Differentiate among firms Firm growth is driven by excess resources o Entrepreneurial spirit o Zero marginal cost o Growth limit Firm growth relates to the environmental context o Productive opportunities o Environmental changes
Resource-Based View
Jay Barney (1986):
Firm Growth = Sustainable above average profit
Growth Giants
Strategic advantages of the firm that are superior among its rivals, and make firm gains long term superior profit Strategic resources (and capabilities) that significantly contribute to build firms SCA
Example
Company Toyota Walmart Apple Microsoft SCA Strategic Resources
Profit Implication
Below normal Normal Above and short run Above+ and short run Above and long run
Edith Penrose (1959) said that firm growth relates to the environmental context, i.e. excess resources must match with productive opportunities outside. Let us discuss source of growth more pragmatically.
Pragmatic Thinking
McKinsey & Co (2008):
Firm growth is contributed by three sources: o Market Share Gain organic growth o Merger & Acquisition (M&A) inorganic growth o Portfolio Momentum market growth Along 1999 2006, 416 observed companies enjoyed 10.1% of revenue growth.
Total Growth 10.1%
6.6%
3.1% 0.4%
Portfolio Momentum
M&A
Market Share
TOTAL GROWTH
6.6% +
M&A
3.1% +
0.4%
Total Growth
10.1%
11.9%
16.8%
20.6%
Increase wealth
Recruit and retain talents Attract capital Increase bargaining position with other parties
The Survivors
The survivors are not the biggest or the strongest, but the fittest to the environmental changes.
to the changes.
Kodak Walkman Firestone Apple Fuji Film Boeing ignore digital camera technology late to enter digital music player not enough respond to radial technology move from PC to digital music move from analog film to digital imaging move from jumbo jet to small-medium aircraft
Thank You