The Board of directors always seeks the big picture—something CEOs are continually told it’s their job to provide. Yet for that big picture to be meaningful, CEOs needed “granularity”—which few CEOs have the time to pursue. Sizing up revenues by division or region can be downright misleading. Only a fine-grained view of performance will reveal the most and least—promising pockets of opportunities. Your company’s best growth opportunities may be hidden by the big picture.

Before selecting a particular growth strategy whether organic or inorganic, it is always better to work on and raise questions such as:

  • How is each growth driver changing?
  • How likely is each component business to win in its market?
  • Do resources need to be reallocated?
  • Whether scale up should happen organic or inorganic way?
  • Is it time to exit a market/ product/division/business

Over the past two decades, however, advances in information technology have made it feasible both to target ever-finer-grained market segments and to measure the sources of growth—market momentum, mergers and acquisitions, and market share gains—in an increasingly detailed way. So far, few organizations have figured out how to turn the oceans of data available to them into islands of insight about their best opportunities for growth. Even fewer have attempted to structure and manage themselves with sufficient granularity to match the texture of the markets in which they play.

Therein lies largely untapped potential for companies to accelerate their growth and separate from the competition. By looking microscopically at their markets and their current performance relative to rivals’, companies can develop far better growth strategies. In most cases, the new strategic direction will highlight a need for significant changes in how the company allocates resources, deploys people, and reviews results. This additional granularity becomes especially important during economic downturns because it enables much more nuanced strategies, both in terms of cutting costs and of going on the offensive.

One can visualize three distinct categories of growth mergers and acquisitions, plus two types of organic growth— market share gains and portfolio momentum (that is, the growth of the markets in which the company plays). We used multivariate regression analysis to calculate the relative importance of these three elements. All are meaningful contributors to growth, but the most important at the more than 400 companies we surveyed was portfolio momentum, which accounted for nearly half the total uptick. M&A performance came in second, at roughly one-third. Market share gains, a primary focus of many management teams, accounted for about one-fifth. Companies trying to understand market potential may look at their overall growth rates in specific customer segments. In our experience,

The simplest way of scrutinizing the underlying market momentum of the different parts of a company’s business is to create a heat map that shows the momentum and market share levels for the firm in extremely fine detail. To understand what this looks like in practice, let’s return to the construction equipment and Services Company that faced a flat growth outlook as its core markets matured. The conceptual underpinning of this approach is the relationship between shareholder value creation and the three growth components (market momentum, market share gains, and M&A).

Fighting Gravity in a Downturn

Corporate leaders have only two choices as they work their way through a global downturn:

  • Pull in their horns , conserve cash by reducing cost and capital expenditure leading to the deferral of growth and low-priority investments, the shelving of large acquisitions, and the sale of assets and Ride out the storm,

Or

  • Look for opportunities to go on the offensive and get ahead of their competition by selecting more defined path treating a recession as a time to increase their lead.

If the past is prologue, most will follow the first course—and that will be a mistake. Companies can leverage the advantage created by their more granular management approaches in at least three important ways:

  1. Cut discriminately
  2. Acquisition opportunities
  3. To take advantage of the competition’s weaknesses

Cut discriminately

They rationally categories various divisions, functions and activities based on granular approach. As against ,normal approach of cutting costs say 10% across all business units, the company will ask some “cells” within the organization to cut more than that so other especially high-performing pockets could be spared altogether. This will lead to same savings in terms of cost but with higher operating profitability (either due to protecting sales with higher margins or increased top line)

If there is a need to reduce capital employed and free up capital, granular analysis can identify key assets to retain. This will lead to higher ROC by retaining assets with higher profitability.

Done thoughtfully, cost cutting can actually improve the company’s portfolio momentum and enhance the likelihood of outperforming peers in the future.

Acquisition opportunities

Such companies act swiftly to pounce on acquisition opportunities the downturn creates. Potential deals that may have been off the table might suddenly be viable again as asset prices fall. This is especially true for small- and mid-cap targets where drops in market capitalization threaten not just their growth strategies but their very survival. This can help the company to expand its product portfolio and capture market share at a fraction of the cost for Greenfield project. It is easy to identify and list a number of attractive targets and select best possible target considering long-term growth potential.

Acquisitions and divestments will be an important part of resource reallocation at most companies. M&A is not only a critical source of growth for large organizations but also that taking a granular view will help them spot more situations where the only way to move quickly into a high-growth market space is through a targeted acquisition. Businesses revealed as poorly performing, in unattractive market spaces, should be hive –off at earliest possible opportunity.

As firms begin to manage in this way, they will need to scale up their M&A capabilities. This means building the capacity to screen more deals, getting better at looking beyond purely financial criteria to growth potential and strategic fit, knowing when to integrate and when to leave an acquisition alone, and enhancing coordination between corporate M&A teams and business unit leaders who understand the nature of the growth opportunity. Companies that build their muscle in these areas raise their odds of quickly and effectively reallocating resources to their best possibilities for growth.

To take advantage of the competition’s weaknesses

The best growth companies view a downturn as an occasion to take advantage of the competition’s weaknesses. As rivals cut costs and staff, they expose themselves to attack. It is easy to identify and list a number of attractive products, markets, brands, employees to acquire where competitors became vulnerable through broad cost-reduction initiatives. The company may form special teams to pursue aggressive market share gains in exactly those places.

This does not mean that companies should go on a spending spree in a downturn and tighten their belts in an upturn. Nor are we naïve to the fact that some firms simply aren’t in a financial position to exploit the opportunities presented by downturns. But for large numbers of healthy, resilient companies and their CEOs, granular approach is useful counterweight to their natural tendencies, which can lead to missed opportunities.

Becoming more granular isn’t necessarily about dividing the organization into more business units (though it could be). Nor is it about collecting more data (many companies have all they need) or requiring more meetings (busy executives don’t have the time). Rather, greater granularity is about infusing existing structures and processes with better information and then refining them on the basis of that information. The IT and connectivity revolutions of the past 20 years have made it possible for companies to extract and act on meaningful insights at a more detailed level than ever before without massive investments or ongoing expenses. The growth leaders of the future will embrace the power of that possibility.

This can be an uncomfortable experience for senior executives, as it often has profound implications for the organization’s structure, people, and processes. More-granular management can lead to changes in how business units are grouped and the lenses used to view their growth potential. It is observed that the people and process issues are more important than structural challenges—and frequently take more time to get right because they are the guts of how most companies run.

CEOs need to evolve how they lead and manage the increasingly granular organization. This means developing the ability to quickly reallocate resources as needed.

A more precise understanding of company performance and market potential will lead to resource reallocation, both within and across businesses. The goal, of course, is to target pockets of higher market momentum, thus increasing the growth rate for the company as a whole. Resource reallocation must be derived from insights about where growth pockets will be, not where they are now

Conclusion

Growth Is Granular, but Most Companies Aren’t.
When companies take a more granular approach, they position themselves for growth by making smarter decisions regarding everything from their R&D investments to their target markets to their advertising mix. Companies must examine both market potential and company performance in greater detail. It must be noted that building a granular understanding isn’t simply about assessing segments and markets at lower levels of aggregation, though this is important. It is also about sizing up the sources of growth in a more precise manner. This basic exercise of mapping growth opportunity on the dimensions of market momentum and current market share is enormously powerful. No doubt Corporate Restructuring decisions based on granular approach are likely to more successful and also will generate higher returns on capital.

Our Service Offerings

Mergers and AcquisitionsDivestment Advisory ServicesJoint VenturesFinancial Re-engineering

Mergers and acquisitions have become an essential and integral part of corporate strategy and will gain more significance as competition intensifies and companies move up the growth curve. In fact, M&A should grow in magnitude across the scale regardless of type and size of corporate from the blue chips to S&M companies…… Know More.

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Family-owned companies often divest for various reasons including next generation not interested in carrying on the said business or to fund retirement etc. Carving out a business is often more complex than acquiring one and selling a carve-out business requires a greater level of planning, effort, and resources. HU Consultancy has extensive experience…… Know More.

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Joint Venture is a right option for inorganic growth when both the parties to the transaction have unique strength and want to come together to leverage the strength of each other without affecting their present structure or ownership. With the advent of globalization and increasing business opportunities,…… Know More.

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Financial re-engineering involves the radical redesign of core business processes to achieve dramatic improvements in return on investments. The company, may, in the long run, have some assets which are surplus or not being utilised by the core business. The effective utilisation of those assets / funds can increase value for stakeholders substantially. HU Consultancy offers financial re-engineering and debt restructuring …… Know More.

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