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Title: Profit or Growth?: Why You Don't Have to Choose
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Manufacturer: Wharton School Publishing
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| Profit or Growth?: Why You Don't Have to Choose by Wharton School Publishing 1970-Style Look at Strategy and Implementation with a Few 21st Century Examples | Professors Chakravarthy and Lorange studied large, public companies and noticed that they neither grow revenues (sales) nor profits very rapidly. Even fewer are able to do both. That's the track record.
Now, if you aren't a leader of a very large, public company, you'll note that this book is already aimed away from you. Most smaller companies find that sales and profits expand together as demand for good offerings simply outrace fixed costs.
The authors also don't spend much time looking at why so many large companies deliver revenue or profit growth, but not both. I can add some explanation that's not in the book. One of the easiest ways to improve profit growth is to divest unprofitable operations and activities. Almost any large company is filled with such money losers. In addition, many organizations manage earnings growth by selling appreciated assets (reducing earnings) every quarter. GE is a perfect example of this approach. As a result, those focused on growing earnings will artificially reduce revenues.
In addition, much revenue growth comes from either launching new products (or services) or by making acquisitions. Very few new offerings and acquisitions are not dilutive to earnings in the first year or years. So if your objective is to grow revenues, your earnings will grow more slowly at first. If you keep this focus, the reduction will continue.
From there, the authors take a scenic tour from around 50,000 feet into the conceptual directions that can stimulate sales and profit growth on a sustained basis and add simple labels (protect and extend, build, leverage, and transform). To continue the simple focus, they point out that these four strategies can be implemented by developing new offerings, adding competencies, acquiring new businesses, and opening new markets. Got that?
The second part of the book talks about how a senior-level manager might go about organizing efforts to work on such strategies, from picking people to supporting those people.
If I'm making this all sound awfully simple, it's because the book is. In fact, the authors have a summary on pages 188-195 that captures all of the book's points. This book is really an extended magazine article with extensive examples of how Medtronic moved into new lines of health care products, Nokia refocused into telecommunications products, Best Buy improved its store and service model, Nestle developed a new product line of espresso drinks, Dow started selling over the Internet, 3M fosters new product development, and a few other stories.
If you don't know those stories, you can read this book to learn a bit more. I found that the Medtronic and Best Buy descriptions were interesting and brought details and I didn't know before. I didn't feel helped that much by the other stories.
I thought it was rather charming that people would write such a basic book about growing sales and earnings in the twenty-first century. Those aren't subjects of much interest to most corporate leaders compared to business model innovation and stock-price growth. I felt like I was back just graduating from my first business studies all over again. Unfortunately, what was described didn't add any key lessons I hadn't learned from other books since the 1970s. | | Profit or Growth?: Why You Don't Have to Choose by Wharton School Publishing Good book, but I could not get over the thought that the authors were refuting a straw man | When I first encountered this book, the title puzzled me. In the first segment, the usage of the word "or" clearly was meant to be in the exclusive sense, which is something that is simply not true. Properly done, doing something other than selling more goods by dropping the prices below the level of profit, growth leads to additional profits. That is the sensible way business is done. The second segment then appeared to be a reinforcement of the premise of the first segment. From my perspective, it seemed to say that it was no longer necessary to do business the "old way" by having to exclusively choose between growth and profits. This was further reinforced by the first sentence on the dust jacket, "'Sustained growth or strong profitability: pick one. You can't have both.' That is the conventional wisdom." This is a statement that I fundamentally disagree with. Therefore, my perspective on the book was skewed before I read the first page.
That biased attitude was changed somewhat but not totally as I read the book. The authors cite case studies of companies that embarked on dramatic new business lines and made them work. The companies profiled in depth are Best Buy Company Inc., Nestle, Nokia Corporation, Royal Dutch Shell, Ericsson Telephone AB, Dow Chemicals Company, Medtronic Inc., Canon Inc. and Sharp Corp. In each of these companies, you find segments possessing a great entrepreneurial spirit. There were groups of people willing to take risks and accept the consequences, even at the risk of damage to their careers. Sometimes that even meant that they had to break company rules, which created a problem for their supervisors. How do you punish someone for breaking the company rules when the consequences for your company were very positive? In other words, the rules were probably wrong.
As I read through the case studies, while I was impressed by the actions of the executives of the profiled companies as they moved into new lines of business and made them work, I kept going back to the major premise of the book. The successes that are cited contradict that premise and I still question whether the exclusive nature of the choice between growth and profits is in fact a conventional wisdom. It is a good book, but not quite good enough to give it five stars.
| | Profit or Growth?: Why You Don't Have to Choose by Wharton School Publishing Good reading | | Good reading for everyone balancing between growth and profitability priorities. A lot of good real life examples. | | Profit or Growth?: Why You Don't Have to Choose by Wharton School Publishing A brilliant analysis of organizational dilemmas |
Obviously, profit and growth are not mutually exclusive, as Bala Chakravarthy and Peter Lorange fully understand. They wrote this book in order to share their suggestions as to how to achieve and then sustain profitable growth. They offer a number of practical strategies and tactics within seven chapters, followed by an Epilogue and then five appendices. Here are some of the issues they address:
1. What are the various performance dilemmas that organizations must resolve?
2. Which renewal strategies can help to achieve sustainable profitability?
3. Which skills, personal traits, and professional experience must the entrepreneur-manager possess?
4. How to achieve and then sustain sponsorship renewal?
5. What are the key components of a multifactor process to sustain continuous renewal?
Chakravarthy and Lorange's response to the second question was of special interest to me because most change initiatives have an especially difficult time coordinating effective execution of two traditional strategies: protecting and extending the present core (i.e. its current markets and distinctive competencies), and, transforming the core (i.e. proactively migrating to new markets and acquiring new competencies). Chakravarthy and Lorange acknowledge that formidable challenge and propose two other renewal strategies, leverage and build.
As they explain, "Leverage is a strategy that takes the firm to new markets by leveraging the competencies that it already has. Build is a strategy that brings new distinctive competencies to the firm to protect its existing market franchise. Both leverage and build should logically lead to the other. If the two are linked systematically, they can help the firm migrate to new markets and new competence platforms progressively over time."
It remains for each reader to determine which of Chakravarthy and Lorange's recommendations are relevant to her or his own organization. One key consideration, of course, is best expressed by these two questions: "Which of our current markets and core competencies are absolutely essential to our profitability?" and "How can we most effectively leverage what we have now when extending our organization into new markets and when adding new competencies?"
As Hamlet once observed, "aye, there's the rub." | | Profit or Growth?: Why You Don't Have to Choose by Wharton School Publishing Product Description | “The simultaneous pursuit of growth and profitability is one of the most exquisite–and difficult–leadership dilemmas. Bala Chakravarthy and Peter Lorange provide penetrating insights and persuasive real-life examples on how a company can address this dilemma through continuous renewal and internal entrepreneurship. Unusual for books on leadership, their discussion spans from theory through practical implementation.” –Nick Shreiber, Former President & CEO, Tetra Pak Group “A continuous renewal of the firm’s businesses is essential for driving its profitable growth. This book gives credible insights and rich examples on how these renewal strategies can be shaped and executed successfully. I am recommending it to my key managers and business friends–essential reading!” –Peter Brabeck-Letmathe, Chairman & CEO, Nestlé Drawing on extensive research with world-class companies, this book introduces four proven strategies for continuous renewal. You’ll discover powerful ways to protect and extend your core businesses; capture new opportunities distant from them; and “bridge” these two strategies with two others to evolve towards profitable diversification. Then, through real-world case studies from great companies around the world, you’ll learn how to execute on these strategies–achieving superior growth and profitability in any business environment. •Craft a “shared strategic architecture” for growth and profitability Protect, extend, transform, build, and leverage •Execute on your renewal strategies successfully Integrate your efforts, encourage entrepreneurship, and manage risks •Wield the tools of implementation Utilize organic growth, acquisitions, and alliances more effectively •Share one stage and one script Find the right roles for leaders, managers, and internal entrepreneurs •Promote continuous renewal from the top Set vision, values, and culture...and manage the dilemmas of continuous renewal Sustaining Growth and Profitability: World-Class Strategies, Proven Execution Techniques! •Mastering the secret of growth and profitability: continuous renewal •Emerging best practices from today’s most successful companies, worldwide •Protecting, extending, leveraging, building, and transforming your core •Deploying organic growth, acquisitions, and alliances intelligently Growth and profitability. You need both. This book shows how to get both. It combines a complete strategic framework with start-to-finish execution techniques–all based on advanced research reflecting the best practices of today’s most successful companies. Through detailed case studies, the authors show how to sustain growth and profitability by protecting and extending your current market position, evolving to adjacent areas, and entering entirely new markets. You’ll discover better ways to integrate organic growth, acquisitions and alliances; task managers at all levels in the organization appropriately; and manage the non-stop dilemmas and tradeoffs you’ll face along the way. |
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