Unlearning Untruths: Finding New Ways to Drive Profitable Growth
The concept of unlearning bad habits came up at a recent conference. Speakers and participants alike noted the pressures that were now in place for their firms to deliver growth, but at the same time lamented their inability to dislodge the investment funding needed to make that happen. Many of the executives in attendance observed that the mindset within their individual organization seemed to focus primarily on cash accumulation than on investment.
In order to balance the management of cash and investment funding, the concept of unlearning untruths is pivotal. During a recent client engagement, our discussion of growth strategies derailed several times because of “truths” that had been burned into this firm’s DNA. Time after time, those “truths” got in the way of productive discussions about growth opportunities. As such, there were three untruths that surfaced that must be unlearned for firms to shift focus toward growth.
Untruth #1: Growth Opportunities Only Result in Unfamiliar Environments
The first untruth is that the only growth opportunities involve far-away lands, unfamiliar customers, and competitors that offer products at ridiculously low price points. Our client, a supplier to a variety of industrial firms, recently reported on a visit to one of his firm’s strategic accounts, a North American manufacturer with which this supplier had worked for decades. He experienced the frequency of interactions declining, a function of cost controls, lower volumes of business, turnover among the people involved in the relationship, and other factors. The intent of his visit was to move the relationship back onto a more positive track. What he learned, however, was a surprise to him and others within his firm: “You would have thought I visited the wrong company. I couldn’t believe how much had changed. The first three initiatives I heard about during the meetings were brand new, out of the blue, nothing I’d ever heard a peep about earlier. And when I revisited an idea that had been on the table for some time, they looked at me like I had stepped out of a time machine from the past. They were long beyond that.”
What this supplier had missed was the shift in focus on the part of this manufacturer to growth and innovation. Most likely without fanfare, the manufacturer’s leadership team had shifted focus to look at how they could reach new heights. As a result, this supplier noticed there were numerous opportunities through which he could contribute to and participate in his customer’s new initiatives. And many of the new opportunities that surfaced were ones that challenged the supplier to innovate and bring new capabilities to his customer. One of the engineers in this firm commented, “This was the first time in quite a while that a customer challenge looked fun, as all we’ve been doing lately is figuring out how to take costs out.” Growth opportunities don’t always involve unfamiliar environments, and innovation that creates value for customers will be rewarded.
Untruth #2: All Price Pressures Are Real
The need to accept and respond to all price pressures reflects the second untruth. When market conditions are good, it’s often the case that customers are looking for ways in which to differentiate their own offerings to gain a share or price premium. If a supplier can help them to do so, that contribution becomes the focus, rather than price. That doesn’t mean that there aren’t some markets in which price is the primary purchase decision driver, just that there are some markets in which price isn’t the primary purchase decision driver. Rejecting the untruth that all price pressures are real and doing a systematic assessment of what matters to each market segment is an important starting point for discussions focused on value rather than price.
Shifting a discussion from price to value creation opens the door to innovation, especially innovations that create value by profitably transforming the economics between the supplier and their direct customers. Blue Canyon recently worked with a manufacturing firm that supplied an important component to its business customers. As part of this effort, we went through a systematic process to identify and quantify all the “ecosystem” costs and their related elements that were linked to the use of this firm’s component. The results were dramatic, as it turned out that the “value pools” that emerged from this work were many multiples of the cost of the supplier’s component. Value pools—opportunities to “take costs out” through engineering and design advances that allow participants along the customer chain to avoid costs they are presently incurring—can present an exciting opportunity for suppliers and their customers alike.
Untruth #3: Investments in Innovation Rarely Produce Success
The third untruth centers around investments in innovation and differentiation only rarely being able to produce success. Over time, differentiated product offerings become commoditized. Low-cost competitors enter the market and match features, benefits, and value, seeking to capture market share. As a result, firms learn to become sensitive about making investments in product development.
However, customers are always willing to reward those suppliers that deliver value to them. For example, several firms Blue Canyon has worked with over the past few years have achieved differentiation, accompanied by share and price premiums, through Internet of Things (IoT) strategies. The question is whether an investment will create value for customers. If an investment in IoT or innovation creates value for customers, it has the promise of yielding rewards for the firm that supplies it. If it does not and the investment merely yields new features that were added just because it was possible, disappointment is likely.
Remembering these three enduring lessons can provide a basis for responding to the mandate for growth that exists today. Growth opportunities can result from familiar customers and markets, especially those focused on growth and innovation. Not all price pressures are real, although suppliers that fail to focus on the ways in which they deliver value create a vacuum that will be filled by discussions about price. And investments in innovation will be rewarded if it creates value, either by helping customers reach new markets, higher price points, or to take costs out. Unlearning untruths will allow your company to find new ways to drive profitable growth.