Innovation is a creation. Innovation changes the world. As you can see in business world, especially nowadays with advanced technology. Business needs efficient innovation to grow, supposes to be a positive and successful way. “Financial markets relentlessly pressure executives to grow and keep growing faster and faster”. Only 1 in 10 companies stay in business over time attempting quick growth. Growth is important because companies creates shareholder value through profitable growth. The growth would satisfy the stockholders but it could just temporary. Sometimes the business would be hurt for growing too fast. Following the authors Christensen, Clayton and coauthor Michael Raynor of The Innovator’s Solution: Creating and Sustaining Successful Growth – “Roughly one company in ten is able to sustain the kind of growth that translates into an above-average increase in shareholder returns over more than a few years. Too often the very attempt to grow causes the entire corporation to crash.” Interesting and fascinating, isn’t it? Why is it so hard to sustain success? How could I do it? What are probably predictable reasons to avoid the cause of failure? How to become disruptors of the business instead of disruptees? How to create strategies and to make decision to the changing circumstances of a dynamic world? And questions keep go on.
Either you are in a product or service provider business, start-up company, established entrepreneur, or a venture capital investor. You need to grow new venues with predictable success. Running test, asking your clients, studying which directions, which products, which services they like best are a big help. Taking time to research what you are doing rather than just go in there “like a bull in the China shop”. If the management cannot think outside of the box, that maybe a problem and you may need to bring in some fresh thinkers to create the right road for company.
There were many real-life case studies of companies which were in the hope of creating shareholder value through growth. AT&T – a primarily long distance telecommunications services provider in the country in the 80s. It is amazing that they are still here and they are strong. They looked for avenues to grow by invested in new businesses. Their first attempt was tried to build its own computer division. Guess what? they have lost over $200 million annually. Rather than retreat from the failure investment, they decided in 1991, acquiring NCR, at the time it was the world’s fifth largest computer maker. They paid $7.4 billion and threw another $2 billion into the pile to make the acquisition work and when it did not work, they sold it for $3.4 billion in 1996. That was about a third of what they had invested in the opportunity. Doing the math, this was not good and did not make the stockholders happy.
In 1994, AT&T bought McCaw Cellular, at that time the largest national wireless carrier in the United States. They bought it for $11.6 billion, spent another $15 billion in total rebuilding and expanding wireless business. Wall Street at that time was unable to properly value the combined higher-growth wireless business within the lower-growth wireline company. AT&T decided to create a separated traded stock for the wireless in year 2000, valued the business at $10.6 billion, about two-third of the investment AT&T had made in the venture.
In 1998, AT&T acquired CTI and MediaOne for a combined price of $112 billion. This made AT&T Broadband the largest cable operator in the United States. In 2000, AT&T sold its cable assets to Comcast for $72 billion. Again, that was a loss. In about over ten years, AT&T wasted about $50 billion and destroyed even more in shareholders’ values.
Why is it so difficult to sustain market leadership and continued growth? “Pursuing grow the wrong way can be worse than no growth at all.” and “by placing too much focus on pleasing their most profitable customers, the firms paved the way to their own demise by ignoring the disruptive technologies that aggressively evolved to display them.”, said the authors.
It is hard to know how to grow. What are the most important decisions and strategies that all managers must make in creating growth?
See you in the next week blog!
The Innovator’s Solution: Creating and Sustaining Successful Growth – by Christensen, Clayton M. and Michael E. Raynor, 2003