Performance Management and Growth Metrics

Amy Wong

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Planting the Seeds for Growth

To prepare for sustainable growth,  organizations must first develop the foundation.  Inefficient internal processes, inaccurate understanding of their customers, and lack of resources creates an organization that has difficulty meeting current market demands, let alone able to grow and leverage areas of opportunity.  At this stage the organization needs to focus on the fundamentals of their current business in order to understand their current environment, and consequently build the resources that will fund future growth.  This exercise can be made more effective by the use of the traditional Balanced Scorecard, Performance Excellence Management or other operational improvement plans. 

The Two Dimensions of Growth

There are two dimensions to growth.  The first dimension, Exploit, is to increase business based on the existing parameters.  That could be either from increasing your customers for current products, or increasing the products purchased (whether by unit quantity or frequency) by each customer.  Business process re-engineering and customer relationship management are some of the techniques that have been leveraged to maximize gains on the first dimension.  But advancements in technology, changes in consumer interests, and other factors,  have shortened product lifecycles from years down to months.  Consequently, growth along this dimension can becomes a series of sprints, particularly in industries like fashion or high tech consumer products, where the two market forces combine to dizzying effect. 

The second dimension, Explore, is to add or develop new bases, whether at the product/service level on up to complete businesses, upon which increases in customers and/or product purchase frequency and quantity can then be built.  Explore opportunities come from two sources: internally and externally.  Internal opportunities arise from innovation, whereas external opportunities also arise from innovation or mergers and acquisitions.  3M built their whole business, literally and figuratively, around developing and leveraging product and process innovations internally.  On the other hand, Wal-Mart has leveraged external technology innovations in customer database mining capabilities and supply chain information to drive business growth through stocking the right products and ensuring availability.  On the mergers and acquisition front, automotive companies have been jockeying for position in various countries through the purchases of car brands (Ford with Volvo and Jaguar, Nissan with Fiat) to gain access to new bases of customers.

The performance metrics on the Exploit dimension tend to be fairly standard measurements, familiar to executives and managers.  They measure results, and are lagging indicators.  The performance metrics on the Explore dimension are leading indicators.  They track the process of growth initiatives, how much action is being taken on the opportunities and changes identified, rather than waiting to see if those actions were successful. 

For example, Cisco has experienced tremendous growth for several years by working both dimensions.  On the Exploit side, they sold network routers to everyone and everywhere.  But on the Explore side, they were constantly evaluating and then acquiring new technology.  So some of the Explore metrics might have been: How many different technologies are we looking at?  How many analysts (technical and business) are assessing those potentials?  What percentage of our resources (man-hours and funding) are we devoting to the effort? How long would it take before we start seeing returns if we select these initiatives for acquisition or implementation?  Once an initiative is approved for implementation, then the Exploit dimension metrics start to apply.  Care must be taken that the targets for those metrics are not at the same level as for an established product or business.

Growth and Innovation 

The dimensions of Exploit and Explore in developing growth metrics are very similar to the dimensions of innovation metrics; in fact they can be regarded as the same, just at different levels of granularity.   (See The Metrics of Innovation, Virtual Strategist, Issue 1/Fall 2001).  Innovation is a source of growth because it changes or creates new value for the customer.  While innovation initiatives focus on identifying change and opportunity to leverage, growth initiatives focus on selecting which change/opportunity aligns with the current business or aligns new businesses with the organization. 

Summary

The metrics of growth strategies measure the effectiveness of ongoing growth initiatives, not merely whether growth has occurred.  When designing growth metrics, the organization needs to take into account that these metrics are separate and different from those metrics used to evaluate the current business performance.  And as growth initiatives become established products and businesses, their metrics will evolve.  Aligning and coordinating the Exploit and Explore metrics insures that organizations have a cohesive approach to growth.

Bibliography

Baghai, Mehrdad; Coley, Stephen; White, David; The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise. Perseus Books.  New York. 1999.

Drucker, Peter F.; Innovation and Entrepreneurship: Practice and Principles.  HarperCollins.  New York.  1985.  

Gyr, Herman; Friedman, Lisa; The Dynamic Enterprise: Tools for Turning Chaos into Strategy and Strategy into Action.  Jossey-Bass Publishers.  San Francisco.  1998.

Kaplan, Robert; Norton, David; The Balanced Scorecard.  Harvard Business School Press.  Boston.  1996

Wong, Amy; The Metrics of Innovation.  Virtual Strategist, Fall 2001.