A business is sustainable if it continues to grow. However, it is hard for any business owner to estimate the firm's growth in a year or during a certain time period. Likewise, it is challenging for leaders to imagine the following scenarios:
- How much growth does their company require?
- Should sales growth or margin expansion take precedence? How can the two be reconciled?
- How can true growth be achieved?
Sustainable growth necessitates a Capabilities-driven Strategy (CDS) as opposed to conventional market-driven strategies, which are centered on what customers want.
The Capabilities-driven Growth Strategy involves capitalizing on the company's current strengths via all viable channels, including existing or adjacent markets, organic channels (Marketing or Innovation), and inorganic methods (Mergers & Acquisitions).
The Capabilities-driven Strategy facilitates development by integrating all approaches in an agile way, as long as they align with the organization's present competences and Competitive Advantages. Prior to execution, a coherent Capabilities-driven Growth Strategy requires the formulation of three major criteria:
- The product or service offerings of the business
- A set of skills that competitors cannot replicate
- A value proposition that aligns with what customers want
Organizations must be able to put their ideas into a strong position and have a Business Model that can provide long-term revenue and profitability.
To compete in new business categories, organizations must have a distinct value-generation strategy and the requisite resources. Once a firm has established a position of competitive strength, i.e., a Capabilities-driven Strategy and the means to exploit it, senior management should develop a path to achieve profitable long-term development by integrating the following four Growth Strategy approaches:
- In-market Opportunities
- Near-market Opportunities
- Disruptive Opportunities
- Capability Development
The relationship between these four techniques is crucial to success, while being often disregarded. It contributes to the formation of a continuous improvement cycle.
Let's go further into the first two of these Capabilities-driven Growth Strategy techniques.
The first strategy to Growth Strategy entails maximizing the current market's potential. Sometimes, leaders ignore potential prospects for growth in established markets. Opportunities in other industry and worldwide markets entice them. Before contemplating other businesses and expanding into new areas, it is advisable to analyze present markets with a fresh perspective and uncover new sources of revenue. Identifying the magnitude of these hidden opportunities in existing markets needs three crucial steps:
- Identify gaps between customer wants and current products/services on the market, and then fill those gaps with new or upgraded solutions.
- Identify the features, benefits, and channels of communication that will convince customers to switch to the new offerings.
- Construct, improve, reorganize, or refocus your organization's specific skills in order to bridge the gap and encourage customers to move.
For example, fast-food restaurants may improve their market's growth potential by selling quality coffee, desserts, and drinks in addition to their normal breakfast and lunch fare. This is additional revenue that coffee shops, juice bars, and other similar businesses would ordinarily earn by expanding their menus, offering meals, and enticing customers to shift to them.
When contemplating expansion, firms often investigate local markets first. Although these surrounding markets are enticing, they are constructed by other companies using procedures that are tough to imitate. Therefore, extending your expertise into other fields should be undertaken with utmost care.
Before expanding into adjacent markets or other sectors, businesses must do a full analysis of their competencies and suitability in these areas, including cost reduction, operational strengths, IT infrastructure and systems, supply chain, and consumer data. They should evaluate which markets they can serve with their unique skills, discover new customers for their existing goods, or develop new offerings based on their capabilities.
Interested in learning more about the other approaches to Growth Strategy? You can download an editable PowerPoint presentation on Capabilities-driven Growth Strategy here on the Flevy documents marketplace.
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