Getting the Growth Strategy Right
Skip to content
Strategy Sep 2, 2014

Getting the Growth Strategy Right

In industries ripe for supercompetitors, adopting the right growth strategy is key.

Play Pause
Listen to this article 0:00 Minutes
Using a capability-driven growth strategy can take your company to new levels of global success

Yevgenia Nayberg

Say you’re a company looking to grow. You do not just want to be big. You want to dominate your industry. You are not just looking to compete. You are looking to be a supercompetitor. What does it take to make that leap?

In a recent article on the evolution of supercompetitors across various industries, three Kellogg School professors—Thomas Hubbard, also Senior Associate Dean of Strategic Initiatives, Paul Leinwand, a senior partner with Strategy&, and Cesare Mainardi, CEO of Strategy&—argue that becoming (and competing with) a supercompetitor requires new ways of thinking about strategy. Firms must adopt a laser-like focus on their capabilities, or the specified outcomes relevant to their business that they can consistently deliver.

“One of the first lessons is orienting your business around the set of key capabilities that you have.”

“It’s a different internal and external analysis than people have done in the past,” says Hubbard. The new analysis requires forming a distinct identity, staying coherent, seeing industry-wide, and finding enduring advantages.

1. Know Thyself

“For too long, the strategy question has been, ‘where should we grow?’ as opposed to ‘who are we going to be?’” says Mainardi. Too many companies today simply try to “benchmark the broad market—they look at what others do and then they replicate or try to match those benchmarks,” he argues. This strategy tends to put too much emphasis on things that are important to other companies and not enough on a company’s own unique strengths. “But if you know what you do incredibly well, if you have a strong sense of identity as a company, then you can look at these different market opportunities and get it right in terms of where you will attack. Everything you do day in and day out will align with that strategic intent.”

Thus, any analysis should begin with capabilities blueprinting to provide a clear-eyed assessment of the company’s most vital systemic strengths. “We’re not talking about a list of fifty capabilities, but of three to six put together into a capabilities system” where they operate in a distinctive, powerful, and mutually reinforcing way, Mainardi says. The resulting self-knowledge comes in especially handy during periods of disruption—the regulatory shift, the new game-changing technology.

“Everybody’s talking about dynamic strategy, agility, and chasing opportunity,” Mainardi says. “That’s all well and good. But if you aren’t operating from a base of who you are, you will likely not realize what the real risks you’re facing are because you aren’t focused on your core strengths, and therefore you will be less clear-minded about how best to respond.”

2. Stay Coherent

The flip side of being clear about what you do well is recognizing what you do not do exceptionally well, cannot do well, or should not be doing at all.

Hubbard describes traditional growth strategies as akin to “letting a thousand flowers bloom” on the front end and then cultivating what succeeds while attempting to clean up what does not on the back end. With this mindset, it is no wonder companies become incoherent fast.

“Having well-honed, scalable capabilities provides for the growth potential of the business,” Hubbard says. “So one of the first lessons is orienting your business around the set of key capabilities that you have.” This means making some difficult decisions, even around profitable aspects of the business.

“You might have a profitable business that is not aligned with your capabilities,” Hubbard says. “You might look at selling it off to another firm whose capabilities are a better fit. You’re probably going to get more in that sales price from the business than the profit stream from that business looking forward.”

Consider supercompetitor General Electric. GE has had great success with businesses that fit most clearly into their capabilities systems. These include include businesses—such as engineered products—that are heavily reliant on management techniques including Six Sigma and Lean. “When GE started to be great was when they divested a whole bunch of businesses that didn’t fit with their mantra of being number one or number two in all these different markets,” Mainardi says. “That’s the magic of an internal view combined with a market view.”

3. Look Outward

Once an internal analysis gives a company a clearer look in the mirror, the firm should survey the industry to gain a better picture of its competitive makeup and opportunities. It is this analysis that determines to what extent the industry’s competitive logic encourages competition on highly scalable capabilities, making it ripe for supercompetitors.

So which companies—in which industries—will make the leap?

“If a firm has a set of key, well-developed capabilities that create value, it is beneficial for the firm to orient its strategy around those capabilities, focus on businesses where those capabilities create value, and essentially narrow its focus to that,” Hubbard says. “Its growth potential is limited by the extent to which the company develops those capabilities and the extent to which those capabilities are scalable.”

Some industries are going to have an inherently difficult time offering scalable capabilities or making scale relevant. Take the dry cleaning industry. Even if a dry cleaner knows what it does well, the industry’s technology is readily available and affordable to many small shops, so local businesses can effectively compete. “No amount of investment is going to allow you to be a global dry cleaner,” says Mainardi.

At least for now. “What’s interesting is when the situation in an industry changes,” Hubbard says. “This is a situation where circumstances present a growth imperative and the best companies are able to recognize it, react, develop, and compete.” This is often where supercompetitors arise.

In industries where capabilities are, or are on the verge of becoming, easily scalable, growth can be fostered internally—via investment that directly builds capabilities systems—and externally through investment in mergers and acquisitions that will thrive in those systems. Strategy& has found that acquisitions narrowly focused on capabilities outperform non-capabilities-related M&A in total shareholder returns by about 12 percentage points over two years. “That means that over time, companies that are coherent and consistent this way will have a leg up over everyone else just by acquiring what fits in their portfolio,” Mainardi says.

4. Find Enduring Advantages

Finally, firms need to stay focused. Once a company has identified and refined their critical scalable capabilities, it must build capacity by directing capital investment toward those capabilities.

In a Capabilities-Driven Strategy, a firm should first consider its own core. What would happen, companies should ask, if we doubled-down on what we do well? Walmart is an example of this “sharpening the pencil” strategy, having achieved significant growth by improving both in-store assortment and making a famously lean supply chain even leaner.

Next, companies should identify where the capabilities systems will reward them in their markets and dedicate resources there. Apple, for instance, gauges consumer need and brings easy-to-use products to consumers through its marketing prowess.

Third, companies can consider international expansion: How do a company’s capabilities play across geographic markets? Frito-Lay used its capability to operate highly responsive product-feedback systems to become essentially unbeatable in the salty-snack market in the United States; it then used that capability to foray into Mexico.

Building a capabilities-based strategy differs from executing a short-term growth strategy in that capabilities systems are slow moving, and they outlast the industries that they serve. They are also very complex. “It’s not an easy thing to do,” says Mainardi. “It’s this messy, complicated combination of people, processes, systems, know-how, and tools all coming together. You can’t just go buy that. You have to build it and that takes time. The good news is that once you’ve built it it’s a true advantage, because nobody else can go buy it. It’s at the heart of real differentiation.”

About the Writer
Fred Schmalz is a writer and editor for Kellogg Insight.
About the Research

Hubbard, Thomas, Paul Leinwand, and Cesare Mainardi, “The New Supercompetitors,” strategy+business, August 8, 2014, 76.

Read the original

Most Popular This Week
  1. One Key to a Happy Marriage? A Joint Bank Account.
    Merging finances helps newlyweds align their financial goals and avoid scorekeeping.
    married couple standing at bank teller's window
  2. Take 5: Yikes! When Unintended Consequences Strike
    Good intentions don’t always mean good results. Here’s why humility, and a lot of monitoring, are so important when making big changes.
    People pass an e-cigarette billboard
  3. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  4. Will AI Eventually Replace Doctors?
    Maybe not entirely. But the doctor–patient relationship is likely to change dramatically.
    doctors offices in small nodules
  5. Entrepreneurship Through Acquisition Is Still Entrepreneurship
    ETA is one of the fastest-growing paths to entrepreneurship. Here's how to think about it.
    An entrepreneur strides toward a business for sale.
  6. Take 5: Research-Backed Tips for Scheduling Your Day
    Kellogg faculty offer ideas for working smarter and not harder.
    A to-do list with easy and hard tasks
  7. How to Manage a Disengaged Employee—and Get Them Excited about Work Again
    Don’t give up on checked-out team members. Try these strategies instead.
    CEO cheering on team with pom-poms
  8. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  9. What Went Wrong at AIG?
    Unpacking the insurance giant's collapse during the 2008 financial crisis.
    What went wrong during the AIG financial crisis?
  10. The Appeal of Handmade in an Era of Automation
    This excerpt from the book “The Power of Human" explains why we continue to equate human effort with value.
    person, robot, and elephant make still life drawing.
  11. 2 Factors Will Determine How Much AI Transforms Our Economy
    They’ll also dictate how workers stand to fare.
    robot waiter serves couple in restaurant
  12. When Do Open Borders Make Economic Sense?
    A new study provides a window into the logic behind various immigration policies.
    How immigration affects the economy depends on taxation and worker skills.
  13. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
  14. Sitting Near a High-Performer Can Make You Better at Your Job
    “Spillover” from certain coworkers can boost our productivity—or jeopardize our employment.
    The spillover effect in offices impacts workers in close physical proximity.
  15. How the Wormhole Decade (2000–2010) Changed the World
    Five implications no one can afford to ignore.
    The rise of the internet resulted in a global culture shift that changed the world.
  16. What’s at Stake in the Debt-Ceiling Standoff?
    Defaulting would be an unmitigated disaster, quickly felt by ordinary Americans.
    two groups of politicians negotiate while dangling upside down from the ceiling of a room
  17. What Happens to Worker Productivity after a Minimum Wage Increase?
    A pay raise boosts productivity for some—but the impact on the bottom line is more complicated.
    employees unload pallets from a truck using hand carts
  18. Immigrants to the U.S. Create More Jobs than They Take
    A new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
    Immigrant CEO welcomes new hires
  19. How Has Marketing Changed over the Past Half-Century?
    Phil Kotler’s groundbreaking textbook came out 55 years ago. Sixteen editions later, he and coauthor Alexander Chernev discuss how big data, social media, and purpose-driven branding are moving the field forward.
    people in 1967 and 2022 react to advertising
  20. 3 Traits of Successful Market-Creating Entrepreneurs
    Creating a market isn’t for the faint of heart. But a dose of humility can go a long way.
    man standing on hilltop overlooking city
More in Strategy