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The Physics of Business Growth

Stanford University Press

Contents

Preface............................................................ix1. Fighting the Physics of Growth..................................12. Creating Prepared Minds.........................................193. Building a Growth System........................................384. Identifying New Ideas...........................................625. Learning Launches: Doing Growth Experiments.....................806. Creating and Managing a Growth Portfolio........................101Appendix: Tools and Templates, by Chapter..........................123Notes..............................................................125The Authors........................................................129

Chapter One

Ask managers at any level, in almost any organization, and they'll tell you that they struggle to produce the kind of profitable organic growth that investors demand. Consistently, organic growth is at the top of the list of challenges for business leaders—and at the top of their list of essential capabilities for ensuring success. And yet, there has been a surprising lack of attention to helping managers develop this ability. In fact, it is not even clear what the behaviors associated with successful growth leadership even look like—or what the organizational enablers of such behavior might be. That is why we have written this book.

For more than 15 years, we have been exploring—at first independently and recently together—how successful organic growth actually happens in organizations (see The Authors in back of book). Through our research and work with businesspeople, from frontline managers to CEOs, we've concluded that organizations are often their own worst enemy. They don't give managers and employees the tools to find growth; their business mindset and processes don't support people who do somehow stumble upon growth opportunities; and their corporate cultures, measurements, and rewards seal the deal by turning growth into an unnatural act.

People, process, culture, measurements, and rewards—all of these, as they exist in most organizations today, are at odds with what we think of as the "physics of growth." It is a physics that is radically different from the one we prepare managers to succeed in. Our aim here is to help you understand the difference between the physics of stability and the physics of growth, and to provide you with a map and a set of practical tools to navigate this brave new world.

What Do We Mean by the "Physics of Growth"?

After years of studying growth and working with managers at all levels trying to achieve it, we have come to believe that organic growth is, in fact, governed by its own natural laws, an underlying reality that sets the context for growth and innovation in much the same way that Einstein's law of relativity accounts for the movement of objects in the space-time continuum—or the way the underlying economics of an industry drives the success of business models. The most fundamental natural law of organic growth is that the only certainty is uncertainty. The dominating forces are ambiguity and change; the processes at work involve exploration, invention, and experimentation. These elements, taken together, capture the distinct physics of organic growth.

Unfortunately, this physics is very different from the one that has long informed the design of business organizations; that physics is characterized by stability, predictability, and linearity. In both environments, people seek control over outcomes, but how they go about achieving that differs radically. Analysis, prediction, and rules usually work to achieve control in a stable, predictable environment where the process is geared for execution. But those approaches often backfire badly in the face of growth's uncertainty. Ignoring the physics of growth is like ignoring gravity: through sheer courage and herculean effort, managers can make things happen, but in doing so they continuously fight relentless forces that slow them down and sap their energy. Courageous and naturally growth-oriented leaders may still find a way to produce the growth they are asked to deliver (we've studied them and how they accomplish this)—but these managers tend to be few and do not a strategic capability make.

Many of the cultural values, systems, and processes in large organizations fight the physics of growth and its emphasis on exploration and invention rather than execution. The result is that growth leaders feel as if they are "swimming in molasses," as one manager described it. That is because even the best managed (perhaps especially the best managed) large organizations are beautifully designed to produce standardized, low-variance results through careful execution in an environment of predictability. They employ talented leaders at all levels who have learned (and may well be predisposed) to focus on efficiency and control. Because of this, they excel at execution—and at driving waste and variation out of the system—and they have a state-of-the-art tool kit for accomplishing this. Unfortunately, the pursuit of growth and innovation is inherently messy and inefficient. Unlike execution, exploration is a high-variance activity, and if, as work in the area of total quality management (TQM) would suggest, "variation is the mother of waste," it is also often the mother of invention.

The mindset, culture, and processes that drive successful execution in an existing business can, if unexamined, drive innovation into the ground, exhausting and discouraging the very people who are trying hardest to accomplish it, and killing inventive ideas before they see the light of day. Sporadic interventions and innovation consultants can help, as can people who courageously press on with innovation despite the odds. But these strategies work in spite of organizational forces, not because of them. Building a strategic capability for growth requires engaging the hearts and minds of employees at every level and giving them new tools to achieve a better balance between invention and execution. That's what this book is all about.

Learning from Las Vegas and Silicon Valley

You can learn a lot about the physics of growth by comparing who wins and loses in a Las Vegas casino. When it comes to growth, most managers, sadly, are like the little old lady with a cup of quarters playing the slots, just pulling the handle and hoping for the best. Sophisticated growth leaders—those who understand and leverage the physics of growth—are probably at the craps table. Craps is the preferred game of most professional gamblers (we are told) because it offers the most potential for making serious money—if you know how to play. It may look like the professional craps player is throwing the dice and hoping, just like the old lady at the slots, but there is a lot more going on. Discipline and focus, not luck, are the hallmarks of great craps players: they know how to manage the game in real time, assessing and sticking to what they can afford to lose, placing many bets, figuring out when to double down and when to get out, and staying alert to emerging opportunities and new developments. Sure, the odds are still in favor of the house; that is the...