Despite an abundance of raw data, few organizations have figured out how to parse and analyze all that information to reveal the best opportunities for growth. Even fewer have attempted to structure and manage themselves to match the texture of the markets in which they play. But a fine-grained understanding of company performance and markets is critical, especially during an economic downturn, which calls for a nuanced approach to cutting costs and making long-term investments.

Baghai, Smit, and Viguerie urge firms to target narrower market slices and to measure sources of growth - market momentum, mergers and acquisitions, and market share gains - in a more detailed way. When they reviewed growth patterns of global firms from 1999 to 2006, they found that companies can get a much more accurate picture of growth prospects by digging deeply into micromarkets (typically ranging from $50 million to $200 million in value) than by looking at the division-level performance numbers commonly used for measuring, organizing, and managing.

The authors examine several companies - including Amazon and Ping An - that have benefitted from greater granularity. For instance, one large European manufacturer of personal-care products went beyond an aggregated view of performance and discovered that some of its higher-growth segments were lurking in the unit with the lowest overall growth rate. Another company, an integrated telecommunications service provider, retooled its marketing mix - making fewer roughly calculated media trade-offs (television versus direct mail versus radio) and instead selecting the right media within narrowly defined regions for specific lines of business. As a result, it boosted sales between 10% and 15% in several regions and increased average lifetime customer value by 15%.

Idea in BriefEdit

Your company’s best growth opportunities may get lost in the big picture. To find them, look at markets and performance under a microscope. For example, one construction equipment and services company suffered stagnant growth until a highly granular market analysis identified pockets with $10 billion in untapped revenue potential.

To Grow Your BusinessEdit

  • Identify microsegments of customers, geographic regions, and products with the strongest market momentum.
  • Invest resources (R&D, advertising, and so on) in those areas, and jettison low-growth areas.
  • Restructure your organization to focus on the expanded number of priorities. For instance, assign each microsegment its own accountable leader. Some companies will need a team of 200 or more executives to head up new product clusters or geographic slivers.

Idea in PracticeEdit

Many companies still steer divisional strategy based on aggregated data. This big-picture practice leaves deeper levels of detail unseen,
 often giving managers a misleading view of performance. A granular approach can produce more rational – and more-rewarding – investment decisions.

EXAMPLE One large European manufacturer of personal-care products languishes in a number of low-growth markets. Divisional growth forecasts range from 1.6% to 7.5%, but an aggregated view of performance obscures the fact that the division with the lowest overall projected growth actually houses some of the company’s most promising segments. Moreover, within each division there is dramatic variation in performance at the microsector level.

Companies can grow in three basic ways: by gaining market share, by participating in fast-growing markets, and by acquiring or merging with new businesses. The authors’ research shows that the strongest contribution to overall performance comes from the vitality of the markets in which the company plays. The weakest contributor is market share – ironically, the area that traditionally commands the most management attention.

EXAMPLE A construction equipment and services business facing flat growth discovered hitherto neglected market-growth pockets by dividing its world into geographic, customer, and product slices. The exercise showed extremely small revenues and market share in the fast-growing market spaces, revealing more than $10 billion in untapped potential.

The ability to capture the performance of all three kinds of growth at a high level of granularity is neither cheap nor easy. Doing it well requires a significant expansion of the leadership team – in a large enterprise, perhaps hundreds more managers. CEOs can themselves be reluctant to go spelunking into the depths of divisions for which they’ve made others accountable. But if their conversations with business unit leaders can penetrate beneath the surface view, better strategy decisions will emerge.

EXAMPLE When the CEO of one large semiconductor company structured discussions with division chiefs to focus on performance at a much higher resolution, the company reallocated 30% of its R&D resources to previously unexamined markets where it had the strongest winning play. Two years later, it is growing much faster than the broader market.

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