Three components of growth

For organisations it is difficult to sustain performance without growth. There are 3 components to growth:

i) portfolio momentum (growth achieved through the underlying growth rates of the market your organisation participates in)

ii) merger and acquisition (net revenue growth from your organisation acquiring or divesting activities)

iii) market share (revenue growth achieved through gaining or losing market share)

Generally portfolio momentum accounts for around 66% of growth; M & A account for around 30%; market share around 4%. Furthermore,

"...a company's choice of where to compete is almost 4 times more important than out-executing its competitors within its market. Superior execution to drive market share gains explains on average only 21 percent of the differential gross performance. It's hard to escape the conclusion that the effort companies put into hard work and smart execution doesn't get them very far......That doesn't mean execution is no longer important but it does mean that it has become a ticket to the game - not a differentiator..."

Mehrdad Baghai et al, 2008

"...in terms such as growth industry and mature industry.....are loaded, imprecise and often downright wrong......the real definition of a growth market exists at a level much steeper than industry. Most so-called growth industries have sub-industries or segments that aren't growing, and most mature industries and geographies have a few sub industries or segments that are growing rapidly..."

Mehrdad Baghai et al, 2008

For example, in the telecommunications industry, the wireless and mobile areas are growing more quickly than the fixed line segment, and within each there are significant variations, eg fixed line broadband Internet is experiencing rapid growth, while voice is declining.

Thus need to have a good knowledge of market segments within an industry in order to understand customers' needs and the capabilities required to meet their needs effectively.

"...to uncover pockets of opportunities, executives need to dig down to the deeper levels of a business and organisation..."

Mehrdad Baghai et al, 2008

This is called granularity and refers to the

"...size of the components within a larger system..... Involves a large number of components. Insights into sub industries, segments, categories and micro markets systems..."

Mehrdad Baghai et al, 2008

For example, in the food industry there is frozen food, and this can be further divided into the weight conscious segments, etc.

In summary, an organisation which is

"...formulating its growth strategy needs to develop insights into trends, future growth rates and market structures at a much greater depth than the aggregate industry level..."

Mehrdad Baghai et al, 2008

 

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