Growth and Innovation

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Growth and Innovation

Weekend 1

Growth Imperative
Gross Sales - $100 Desk
John gets commission - $20
Net Sales - $80
All anyone cares about in growth is NET – Don’t site gross sales (shark tank! Hates this ) * Evidence that once a company’s core business has matured, new platforms are hard to come by * Roughly 1-in-10 companies are able to sustain growth for shareholder value * Attempt to Growth causes corporation to crash

* Equity markets demand that companies grow but it’s hard to know how to grow. * Corporations are under hug pressure to grow
* Corporations that used to use monthly financial reports, use quarterly now to spread out issues and have less pressure monthly. CASE – AT&T
* Government controlled telephone system
* Once divested they could find ways to grow
* Bought NCR for $7.4 billion
* Lost $2 billion on aquistion
* Sold NCR for $3.4 billion
* Enormous pressure to grow
* Bought McCaw Cellular for $11.6 billion and spent another $15 billion * Spun off wireless and it was valued at $10.6 billion * Wall street devalued them because they couldn’t figure out which was wireless, which wasn’t * The bought TCI and MediaOne for $112 billion

* Integration difficulties were insurmountable
* Sold to Comcast for 72 billion
* In a little over 10 years, AT&T had wasted $50 billion and destroyed even more in shareholder value * ** no idea how to merge and transition companies after acquisition

CASE: CABOT CORP
* Gives tires its black color through carbon
* Core market hadn’t grown rapidly
* Launches several aggressive growth initiatives in advanced materials by acquiring specialty metals and high-tech businesses * Share price tripled
* However, they quickly went from one item to things they didn’t know about * Losses from these businesses had drag on earnings and stock * Board brought in new managers to refocus core
* New management team no better - desperately seeking growth opps for mature businesss with limited prospects.

When core businesses reach maturity and investors demand new growth, seemingly sensible strategies are prepared * But plans fail.
Why is it so hard? LOTS of MYTHS
* Solve the problem by finding a better manager approach
* 90% of publicly traded companies unable to sustain above average shareholder returns * Because managers are risk averse
* Not true- IBM bet farm on System 360 mainframe and won * Not true = corning but billions in to optical fiber business

Creating new growth businesses is simply unpredictable…

How great firms fail
* Being “too close” to your customer
* Firms seem able to find new apps and new products upon entry and then no longer thereafter * Bureaucracy, complacency and risk-averse culture
* Orgs structures facilitate component-level innovations (silos) * Structured functionally
* People need to work as teams but often don’t
* Established firms are good at improving what they have always done * New entrant firms are better at exploring new opportunities

Sustaining Innovation
* Targets demanding, high end customers with better performance than what was previously available * Some are incremental year by year improvements that all good companies grind out * Others are breakthrough, leapfrog-beyond-the-competition products * An established company almost always wins the battles of sustaining technology * Motivated because the strategy is to make a better product that they can seel for higher profit margins to their best customers * Have the resources to win

* EXAMPLE: Reynolds wrap – slotted piece of foil for BBQ grill – give them reasons to use or a new product they “need”.

Disruptive Innovation
* Do not attempt to bring a better product to established customers in existing markets * Introduce products and services that are not as...
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