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To generate new organic growth for both the short and long term, businesses need to explore three horizons for action.
How do companies such as LEGO, Chobani, Beats, Diageo, and Dollar Shave Club significantly outgrow their competition, and what can consumer companies learn from them?
Today, consumer-facing companies find themselves in a challenging predicament. They are investing billions of dollars in marketing and innovation to win the favor of consumers—but to seemingly little effect on market share. In fact, according to McKinsey & Company research, only 7 percent of corporate growth is driven by market-share gains, with the rest being driven by “where to play” choices: M&A and portfolio momentum. In the race to shift their momentum, many companies never quite catch up with the market, which remains a step ahead, while headwinds in their core categories hold them back.
Nevertheless, there are clearly exceptions, organic “growth champions” that create their own momentum and win the race. High-growth companies have a clear growth agenda, and they follow through on it. These companies can unlock hundreds of millions of dollars in new growth.
Improving organic growth rates begins with a shift from focusing on costs to focusing on cost and growth. In our experience, organic growth leaders exhibit at least one (though often a combination) of three profiles:
- The Investor has a clear understanding of where growth is with existing products and services and doubles down on the winners. This is often the fastest, simplest, and most effective way to grow. In retail, for example, this could mean investing in offers that increase profitable foot traffic; in direct-to-consumer businesses, it could mean increasing advertising in a successful channel.
- The Creator builds value through new products or services. Creators work at the frontiers of change to identify the white spaces—in emerging customer needs, unserved segments, or adjacent markets. They harness advanced analytics and digital to disrupt markets, not just improve existing models.
- The Performer constantly optimizes core commercial capabilities in sales, marketing, pricing, and customer experience.
We have found that these archetypes provide a simple but effective model for business leaders to examine their commercial growth opportunities. They also provide a simple and useful way to structure business-unit growth programs.
In practice, changing a company’s commercial growth trajectory often requires some combination of the three, but successful companies master at least one. For this article, we will explore how Creator companies construct a winning portfolio of growth initiatives (Exhibit 1).
Three horizons of action for creating new growth
There are three horizons of action that the Creator archetype can take to capture growth. NOW initiatives find growth through new niches within categories, segments, and markets. NEW actions focus on developing new products and services. NEXT initiatives capture organic growth from new business models (Exhibit 2).
While the time it will take for these actions to bear fruit will vary, it’s important to emphasize that business leaders shouldn’t address these items sequentially. One of the biggest mistakes we see is companies postponing planning for NEXT as they continue thinking about NOW, or investing too little time thinking about NOW because they’re obsessing about the NEW.
In conducting research for this article, we analyzed hundreds of consumer companies and brands and interviewed dozens of current and former chief marketing officers (CMOs). The 40 or so “growth champions” we identified were, on the surface, very different. They ranged from LEGO (a company that has been making plastic toy bricks for nearly 70 years) to Chobani and Beats (relatively new entrants in the food and headphones spaces) to Diageo (which reshaped the whiskey category behind its Johnnie Walker brand) and Dollar Shave Club (a true “disruptor” in its category).
When you dig deeper, however, you notice a number of things that unify these companies. Above all, they are companies in which the marketing organization has stepped up and taken ownership for growth. “As a CMO, dedicate half of your time to growth. CMOs who are successful focus on growth ideas, not on marketing communication plans,”1 says Andy Fennell, former CMO of Diageo.
We also found that “growth champions” tend to exhibit the following characteristics:
- They take a structured approach to creating and managing their portfolio of growth initiatives. “You have to be systematic when going after revenue growth. The creation of a common framework is extremely useful,” says Alexis Nasard, former CMO and president for Western Europe of Heineken. Structured growth planning is also a great opportunity for CMOs to break out of the confines of marketing communication and bring consumer insights to bear on strategy.
- They use advanced analytics and agile insights techniques to spot opportunities. They don’t expect to come up with market-beating ideas by looking at the same data in the same way as their competitors do. They unleash the power of advanced analytics on highly granular consumer data to develop distinctive insights, and they mobilize their organizations to act on them quickly. As Unilever CMO Keith Weed, put it: “Sustainable growth is consumer-demand-led growth.”2
- They mobilize for quick results, beating competitors to the market. A common complaint is that many marketing organizations are too slow, taking up to two years to bring a simple consumer product to market or a year to launch a new campaign. In today’s marketplace, the emphasis is on speed-to-market and on rapid test, learn, and optimize. Many of our growth champions have adapted tech-company techniques, e.g., hackathons and rapid prototyping, to learn fast and drive results quickly.
The three horizons differ in the nature of their growth opportunities, the insights that underpin them, and the capabilities required to deliver. A balanced portfolio, however, will contain initiatives across each of the NOW-NEW-NEXT horizons, and all initiatives should be informed by strong insights and a bias for action.
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Here is a direct link to the complete article.
Jonathan Gordon is a partner in McKinsey’s New York office, Nils Liedtke is a consultant in McKinsey’s Brussels office, and Björn Timelin is a partner in McKinsey’s London office.
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