Growth through a capabilities lens
Published: January 10, 2011 with Cesare Mainardi, Ken Favaro, and Tom Stewart

What role do capabilities play in successful growth strategies? In the relentless quest for growth, some companies stretch their organizations too thin by operating in many disparate markets.

Cesare Mainardi, coauthor of The Essential Advantage, and Senior Partner Ken Favaro, coauthor of The Three Tensions, in conversation with Tom Stewart, former CMKO at Strategy&, discuss the four growth avenues that companies can pursue and explain why a capabilities-driven growth strategy leads to sustainable competitive advantage.

Capabilities-driven growth
Growth is the single most important challenge that companies face today. Many growth strategies look the same from company to company. But real sustained growth comes from a distinctive way to play and excellence in the few capabilities that enable that value proposition. The firms that are best at driving growth have identified the three to six capabilities that really make a difference in meeting market expectations, and they have woven these specialties together into a self-reinforcing system. The result is superior performance.

Growing the core
The first thing that companies seeking to grow should ask themselves is how much headroom for growth is in their core business. We have found that, more often than not, companies have plenty of space to further leverage their proven capabilities system. Management teams need to resist the temptation to chase seemingly hot markets. Instead, they should bet on a particular way to play and invest in the few capabilities that will help them capture the share they do not yet have.

Extending into capability adjacencies
Many companies have fallen into the “adjacency trap” by pursuing related businesses where they lack a right to win. The key to avoiding this mistake is to identify the few things your company does better than the competition and to recognize opportunities in which those capabilities can really make a difference. Extending into such capabilities-based adjacencies allows a company to grow in a sustained way.

Expanding geographically
Geographical expansion is part of most companies’ strategy. However, we have seen that this growth avenue often turns out to be more difficult than management teams had anticipated. Although markets are becoming global, they are still quite different from one another in terms of regulatory requirements, affordability levels, demographic growth, and so on. In order to prepare for internationalization, companies need to carefully evaluate which markets are the best fit for their existing capabilities system and whether additional capabilities will be needed.

Building a new capabilities system
There are times when changes in the world make a company’s capabilities system obsolete. In these exceptional cases, firms need to build a new capabilities system from scratch to replace their existing way to play. This is by far the riskiest approach to growth, but if it’s done well it can provide companies with a completely new platform for growth.

Conclusion
Looking at growth through a capabilities lens seems like the obvious thing to do, but in many boardrooms discussions are focused on other topics. Why is it so hard to plot growth this way?

learn more about Capabilities-Driven Strategy >

 

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