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Harnessing Skills for Growth Initiatives That Work : Internally based innovation supported by judicious acquisitions have helped creative companies achieve real growth.

Article Excerpt
Most senior managers know intuitively that relying on the inspired efforts of a few maverick managers to find and nurture new-growth opportunities is a recipe for stagnation. The odds of success are long, even for the best ideas, and in most companies the number of talented mavericks can be counted on one hand. Putting the whole burden of change on their shoulders will only produce frustration for the mavericks and stagnation for the company.

Success in creating new growth again and again lies in developing a systematic, organizational capability to identify, shape, and nurture new-growth initiatives. And that responsibility lies with the CEO and the entire senior management team.

Of course, achieving that goal isn't easy. Most senior managers who recognize the urgency of new growth get hung up on a series of thorny issues, such as:

* Creating innovative new-growth initiatives without losing discipline and focus on the core business;

* Reconciling the pressure for short-term earnings with multiplying requests for seed funding;

* Supporting innovative thinkers and risk-takers without signaling neglect of the core business;

* Sorting out the opportunities that could truly move the stock price from those that are likely to produce only marginal improvements; and

* Finding the time to guide and coach new-growth teams without neglecting the other burning issues on the agenda.

Managing these tensions is a long-term discipline rather than a problem to be solved once and for all. No single set of formulas will fit all companies. However, examining the practices of firms that have successfully fostered new-growth initiatives suggests a number of guidelines from which other companies can learn. Here are the principles we would urge senior executives to study and apply.

Make operational excellence in the core business your cornerstone. It may sound like a paradox, but having an efficient, profitable core business based on high-quality products and services gives you the license from customers to go further in solving their problems. It also gives you the funds to support new-growth initiatives. The core business helps open the door to other customer needs that involve using products more effectively: No product sale, no surrounding needs to serve.

Cardinal Health Inc. is an outstanding growth innovator that has never let up on operational excellence in its core business of distributing drugs to pharmacies, hospitals, and managed care providers. Even as it pursued new businesses such as pharmacy management, reimbursement services, and contract drug packaging over the past decade, Cardinal was steadily consolidating and improving its distribution centers.

In 1994, Cardinal had 40 distribution centers with average annual center sales of $125 million. Today, it operates only 24 centers with average annual sales of $900 million, well above the industry average of $450 million.

Every dollar saved on distribution costs becomes a dollar available for new-growth investment. This relentless focus on efficiency has allowed Cardinal to stay profitable and fund new growth (see Exhibit 1). Moreover, the value that Cardinal provides to customers in its core transaction helps grant access to many of its upstream and downstream businesses.

By making core business excellence a cornerstone of growth, senior managers can alleviate concerns about losing momentum and discipline as people get excited by the sexy new-growth concepts. Just watch out for the trap at the other extreme: using the focus on core operations as an excuse to defer any serious focus on new growth. This can easily become a permanent state of mind. While there is always some improvement or change to be managed in the core business, improvements must be managed simultaneously with efforts to pursue new growth, not at the expense of such efforts.

Treat growth as a discipline to be pursued at all levels throughout the company. Companies that treat growth as the purview solely of a corporate strategy...

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