ENT 601 Week 2 Blog: The Growth Imperative

 

 

Image result for the_innovation solution stick people

Book: The Innovator’s Solution: Creating and Sustaining Successful Growth – by Christensen, Clayton M. and Michael E. Raynor

 

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!

Resources:

The Innovator’s Solution: Creating and Sustaining Successful Growth – by Christensen, Clayton M. and Michael E. Raynor, 2003

https://www.youtube.com/watch?v=wf2fL0QRuoU

 

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20 thoughts on “ENT 601 Week 2 Blog: The Growth Imperative

  1. Excellent post. My favorite part was “Pursuing growth the wrong way can be worse than no growth at all.” This in my opinion is so true. Its best to have sustainable growth rather than inflated or growth that fizzes out. I look forward to next weeks post.

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  2. Mary,
    You raised some great questions that I find myself constantly asking about my business and it’s market potential.

    Business is essentially a calculated gamble. It can either go really well with tons of research, or it can have its pitfalls. Continuing with your example, AT&T, as someone who used to be employed by them I know they did extensive research before making any acquisitions. Yet they still fell short in making the desired return on investment. In actually they U-Verse (cable) portion of their business had growth potential, but they had already spent billions to obtain and did not want to spend billions to maintain. Anyone in the business industry would love to be General Electric a.k.a. GE which has been able to sustainably diversify its offerings and remain a top competitor by weathering through the ups and down. AT&T just did not want to further invest. Understandably so with their track history but sometimes nothing beats a failure but a try. Nevertheless, they did go an alternate route and purchased Direct TV which personally I thought they had a better chance with U-Verse but now we will never know.

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  3. All the questions that need to be answered with innovation and growth, is like a tornado waiting to drop. For companies like AT&T, there was never a true recovery. But one solid truth of consistent loss. With all the tornados in Illinois, which ranks #1 for the most tornados, people go through a constant cycle of rebound and recovery. But is it true recovery? And with the demise of anything, there is always focus on the wrong thing…
    thanks for sharing

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  4. I’m reading How hits Happen by Winslow Farrell and he has talked a lot about AT&T, but my book was published in 1998. I’ve been wondering how difficult of a process it was for AT&T to switch from being a long distance company to the company they are today. Your post definitely answered a lot of my questions. In a world that is changing so quickly how do you adapt that fast and predict correctly? I also really like your quote about growth and I think you probably do have to try to grow a few ways incorrectly first to figure out the right way to grow.

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    • Hi Erin,
      Thank you for visiting my blog.
      The business journey itself and the process of growth and maintain are difficult but also excited. Exactly as you said how to be adapt and predict and or figure out the right way…It is inevitably a crucial process.

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  5. “Only 1 in 10 companies stay in business over time attempting quick growth.” I am finding this statement to ring true more and more as I search the World Wide Web many business, websites, and companies that can no longer be found.
    On a positive note, I recently got to hear two women’s story about a business they started. These ladies became friends, they both lost their husbands, and one of the ladies decide to move to NC. She had a salon and then got into the restaurant business. The restaurant business started taking off, so she called her friend and asked her to come help her. The friend agreed and before she new she was moving to NC too. They proudly announced that in the past four years they have opened four new businesses. It was inspiring to learn what friendship and two determined ladies could accomplish. The manager also stated that she only finished 10th grade.

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  6. This was a great blog post! I think one of the integral elements to consider when starting a business or pursuing an innovation is flexibility and adaptability. I had a conversation yesterday with one of my mentors (he is an Executive Vice President of a university in the U.S.) and he was explaining to me that the projects that have been most successful have been a result of being adaptable to the unknown associated with new territory (presumably like how AT&T was in the 80’s and 90’s). Additionally he said – most people see some of the projects or partnerships I am establishing as being crazy – having no potential… lost causes… then we just keep at it and figure out things as we go and it results in a version of our vision that we had only imagined.

    Thank you for your post!

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  7. Mary,
    Great topic. I always wonder how decisions to grow are made within these large companies. We can pick up a few cues from reading in the news but I wonder what it is like as they sit and strategize growth. Being in the hospitality industry like you, I have seen food and beverage companies grow like wild and then come crashing down. Think Boston Market and even Starbucks has had trouble with growth. I agree with Afsheen on his favorite quote. It reminds me of my chef mentor that said “it is better to send the dessert out without one of the components than to send it out with a component that was less than perfect.”
    Cece

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    • Thanks Cece for the feedback. Innovation strategies in the mist are crucial and likely more risky than just luck. Quality is a big part of it which inquires large investment and you just never know, make it or break it.

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  8. Sustaining successful growth is almost a must for companies today. It is what they all want to do to continue to with their business plan for success of the company. Many companies have done a large amount of careful research for ways to expand their growth. The research entails information from demographics of customers, areas and also need for the product or service in those areas. Although, your AT&T information goes to show that it may not always help a company be successful even after all the research has been done. AT&T spent millions and billions on different ventures, but still had lost $2 million annually at one point in its life. This goes to show that business is definitely is a risky business. Great job Mary!

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    • Thank you Colleen for your comment.
      Failure and success are hand in hand in business world when investing in new ventures. As you said, even after all the research has been done, the risks are always there due to things happen unpredictably and unavoidably.

      Liked by 1 person

  9. Hi Mary!

    That was a great post. It still strikes me how many businesses don’t make it. The failure rate is amazingly high for startups, and it honestly makes me want to be more careful when I start my own business. After all, I don’t want to become part of that negative statistic! The odds are definitely stacked against success, but if we prepare like you mentioned in this article, we stand a much better chance of making it out alive. Testing is so key, and as you mentioned, we should be more careful than a bull in a china shop. Of course we tend to get excited over the start of a new business, but sometimes its best to take a deep breath, step back, and take a good long look at what exactly is happening.

    Nice article,
    Austin

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  10. Hi Mary,

    I agree that it is critical for management to “think outside the box” to grow. What is successful now is not necessarily a good indicator of what will be successful tomorrow. That’s why it is so important to keep an eye on the market and continually work on improvements for customers.

    When I worked in the software industry, my boss was fond of saying, “If it’s a good idea, it’s worth doing poorly.” What he meant was, if it is a good idea, put something out there. Then continually prove what you put out. We did this with software by introducing the first iteration of a project 90-days from the start, then released updates and revisions every 30-days. This allowed us to regularly tweak and refine things, even incorporate new technology and thinking, into each iteration.

    The software industry during the dot com boom/bust was not always the most fun place to be, but my greatest take away from my time there is the idea that continual improvements on a good idea allow the best chance at success.

    -David

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  11. Mary what a great post! It seems to be a practice that some new business owners would want to grow there business quickly without the balance of the required patience and market awareness. Creating and Sustaining Successful Growth for the long hall is very important and this I believe help make your business viable to investors. Your post was well thought out and I look forward to reading the book you have chosen.

    Eric

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  12. I’m reading another text by Christensen (and several others), titled “Seeing What’s Next.” He loves AT&T as an example, and for good reason! AT&T historically pursued innovations that would satisfy their undershot customers (those “profitable customers” you mention), while ignoring the overshot or untapped consumers that fuel disruptive innovations. This is an important concept to remember when designing a venture, especially in this age of technology, where there is boundless opportunity to reach consumers who don’t even know they need your product/service yet!

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