Double-Digit Growth in No-Growth Times

The chances are overwhelming that you own a number of valuable hidden assets. They may include unique customer access, technical know-how, an installed base of equipment, a window on the market, a network of relationships, by-product information, or a loyal user community.

Suppose you want to build a new information business, perhaps selling services to help companies manage their software applications. Your target buyer is the CIO of any large company. The question is, if you phone 100 CIOs, how many of them will return your call that same day? If you are IBM, the answer is 100. If you are a startup, the answer is zero. The difference translates into months of delay in the customer-acquisition process, lost or delayed revenue, and reduced profits. That difference is the value of the hidden asset called "customer access."

Or consider one of the demand-innovation examples cited earlier. Suppose you want to build a business managing important food-processing activities for customers such as those of Air Liquide, except that you'd be operating from a standing start. How much time and money will you have to invest in order to gain the required expertise? How much will it cost for you to maintain employees on-site at the food plant? How long will it take for you to build enough credibility so that a customer will allow you to run a critical section of its production line?

That's the beauty of hidden assets: They turn size and experience into an advantage over newcomers. This is a welcome turn of events for big companies, where size and tradition have felt more like a burden than a benefit. Hidden assets have a second virtue: When leveraged, they tend to multiply. The more you use them, the more you have. Relationships become stronger. Information becomes richer and deeper. Networks become more extended. Growth begets more growth.

Growth Is Everybody's Business

Putting a slow-growth company on the track to double-digit growth requires senior executives to reckon with new ideas about serving customers and deploying assets. It also requires them to set aside old ideas about growth that no longer apply. One such outmoded idea is the notion that new growth invariably comes at the expense of the core business. In fact, just the opposite is true: A company that wants to develop a new-growth strategy must start by reinforcing its core business. After all, it's your core business that creates access to higher-order needs. If you don't have a competitive product to sell, you have no related needs to serve.

Operational excellence also generates the funds that you need to support new-growth initiatives. Go back to Cardinal Health. Even as it developed expansive new enterprises, Cardinal was consolidating and improving the pharmaceutical distribution centers at the heart of its core business. Back in 1994, it maintained 40 distribution centers with average annual sales of $125 million each. Today, it operates only 24 centers with average annual sales of $1.4 billion each, or roughly triple the industry average. And Cardinal plans to drive average center throughput to $2 billion during the next few years. Every dollar saved on distribution costs is a dollar that is available for new-growth investment. This relentless focus on efficiency has allowed Cardinal to stay profitable and fund new growth even as overall industry margins have declined.

The point bears repeating: Pursuing new growth is no excuse for neglecting core-business excellence. But watch out for the trap at the other extreme: using the focus on core operations as an excuse to defer serious new-growth moves. This can easily become a permanent state of mind as management fixates on a stream of quality and productivity initiatives, squeezing out ever-smaller returns from the same core business and neglecting the foundation of the company's future. It's a delicate balancing act, and mastering it is a key to long-term growth.

Bob Romasco is a CEO who has thought a lot about that balancing act. Between 1998 and 2001, he led the growth-based turnaround at Direct Marketing Services (then a division of J.C. Penney Inc., now owned by Aegon USA). Romasco sees most organizations as consisting of two big chunks: unit A, which embodies the existing business model, and unit B, which is inventing the future. The CEO's central challenge is to help unit A find capital-creation activities that can throw off the income needed to support unit B. In human terms, that means making it clear to everyone in the organization where they fit into this model and letting them see their importance. "The guys in unit A," says Romasco, "must never be made to feel that they are the stodgy, old-model folks who are being milked to support the hip, wave-of-the-future guys in unit B." Everybody has a role, and everybody's role contributes to future growth.