A growing company is a healthy company. New products, new markets, new customers, new acquisitions: These are good things, right? In their new book, Fewer, Bigger, Bolder, Sanjay Khosla, a senior fellow with the Kellogg Markets and Customers Initiative, and Mohan Sawhney, a clinical professor of marketing at the Kellogg School, argue that it’s not just growth but quality growth that matters to a company’s health. Quality growth is sustainable and focused—and requires making painful cuts to some teams while handing blank checks to others.
How can your business achieve focused growth? Sanjay and Mohan sat down with Kellogg Insight to discuss the seven-part process “Focus Seven” that they develop in their book. (This interview has been edited for length and clarity. For a longer version of our conversation, check out the accompanying podcast.) Kellogg Insight: Sanjay, you spent years in charge of developing markets for Kraft Foods. Can you explain some of the difficulties Kraft was experiencing when you joined in 2007?
Sanjay Khosla: Kraft has always had some phenomenal brands built over generations and some phenomenal talent and people. One of the reasons it was underperforming at that stage was it was planting too many flags all over the world—probably doing too much and spreading itself too thin.
KI: Mohan, your experience as a consultant to both established firms and start-ups led you to a similar conclusion about the importance of focusing growth efforts.
Mohan Sawhney: I saw a very similar manifestation of that problem with technology companies, and that is what we call SKU proliferation, or product proliferation. A small company like Skullcandy that makes headphones has 1,100 models. A company like Microsoft creates literally tens of thousands of units of products and services. A company like Cisco goes into 40-plus adjacent markets all at once—and then they start to stumble.
So the problem is of complexity and lack of focus. I found that a start-up company can get unfocused before it has even a single product because there are so many opportunities before it.
KI: You advise companies: “Put your efforts where you have the best chance of winning big.” How does this work? Upper management is being asked to predict the future. That can’t be easy.
Khosla: The important part is to take a few bets. One example is Oreo, the number-one biscuit in the world. It’s 100 years old, but for 95 years, it was spectacularly unsuccessful outside the US. We decided to take a bet on it. We got a few people around the world working as a collaborative network and took a $200 million business and made it a billion dollar business in five years.
Sawhney: It isn’t just prediction that management needs to do. There are some scorecards. We point out in our book what we call the three M’s that can help to prioritize where you’re going to place your bets. Those three M’s are:
1) Momentum. That’s where you’re getting traction in the marketplace, where you’re getting market acceptance. You’re finding that customers are responding to your value proposition.
2) Margin. Can we make money? How profitable is this opportunity? Is it above margins?
3) Materiality. How big can this be for the company? If it’s a very interesting and highly profitable business, but it’s really small, it can only be two percent of your overall revenues—that’s not very material.
KI: Another phrase in your book involves tapping into a firm’s human resources. You write that the same ideas that apply to strategy, apply to people: “Bet on fewer people, bet bigger on them and be bold in letting them run with their dreams.” Whom do you bet on and how do you set these employees up for success?
Khosla: One of the phrases we use is “giving blank checks to people.” I’ll give you a story of a colleague of mine, George Zoghbi, who was running a global food service and dairy company called Fonterra. We gave him a blank check. We gave him complete freedom to do what he wanted.
The normal response to a blank check initially is skepticism. It then goes to fear and panic. You also realize, if you don’t focus on a few things and do them well, you’re not going to achieve anything in the timeframe.
George did a phenomenal job. He met some impossible numbers in a short period of time. He fell at times, learned from it, got up and moved on. He has recently been appointed vice chairman of Kraft.
Sawhney: One thing I would say is that these are not always the people who are in the obvious places in your organization. So this is actually a key task of leadership, to find the people who are emerging as stars. There is a fair bit of human judgment involved in sitting face to face with somebody and saying, that’s a person I’m going to take a bet on. Ever since I became familiar with Sanjay’s use of blank checks, I’ve been using that with the company that I’ve been advising.
KI: As companies focus on new markets, particularly international ones, you stress the need to “go glocal.” What do you mean by this?
Khosla: It’s very simple. It’s a question of, how do you get the balance right between hopelessly local and mindlessly global? Take the case of Kraft China. For years, Kraft invested a lot of money and got a lot of skills and people, but it was caught in a vicious cycle of low growth, low gross margins, declining market shares, and making no money. More importantly, there was no hope of making money.
So the approach that we took was, be very clear about what needed to be done locally in China—things like sales, market activation, local product development—while leveraging the tremendous expertise in terms of procurement, manufacturing, and R&D of a company like Kraft.
Sawhney: What Sanjay meant by “mindlessly local” is basically having a bunch of subsidiaries that are operating pretty much independently, where you lose the benefits of scale. But on the other hand, if you’re “hopelessly global” then what you have is one-size-fits-all. And that’s in fact the problem that Kraft had in China and the Oreo cookies that Sanjay was talking about. They were not right for the Chinese market. They were too sweet, they were too big, they were too expensive, but you wouldn’t know that. You had to go to the villages and the streets of Beijing and Shanghai to figure out what the Chinese consumer wanted. It had to be the local talents. So it’s really a combination.
Khosla: And then in terms of execution, you need enough nimbleness and agility and flexibility to keep learning as you’re doing. So in the case of Oreo, the team came up with things like green tea Oreo and wafer Oreo. Some of these new products failed, and that’s fine, so long as you quickly learn and move on. But at the same time there was some great technology in terms of R&D and processing cocoa that was then used in all these markets around the world to great advantage.
So the basic pieces of the Focus Seven model stand: get strategy clear, cocreate and align people around the world behind a simple idea, be very clear about what the priorities are, unleash the potential power of people to all the teams, and then measure progress.
Sawhney: Leadership just needs to do three things: find the right people, give them the right resources, and get the hell out of the way.