A Growth Mindset in Times of Turbulence
In economic uncertainty, finding the balance between operational improvements and growth-oriented investments is key.
When I last wrote about thriving in turbulence, the optimist in me anticipated at least some clarity on the macroeconomic environment by the end of 2022. But I was wrong — as we sail these turbulent seas, we’re doing it in a thick fog.
As business leaders, what are we to do when the wind isn’t favorable? We grab our compass and our charts and tack against prevailing winds. We determine our destination and the waypoints in between, and we make sure the ship is fit for the journey.
In turbulent times, finding the right combination of operational improvements and growth-minded strategic investments is more important than ever to prepare for a post-whatever-this-is economic situation and thrive in the long run.
I know what you’re thinking: “You’re talking about growth while I’m worried about staying afloat.” Yes. That’s the point.
Certain things hold true regardless of the state of the wider economy:
- All companies go through cycles of growth, plateaus, and shrinkage.
- Eager competitors are always ready to pounce.
- We must plan for the now, the next, and the later (considering points one and two).
The companies that will win the economic recovery are planning for growth now. So must you. Without that long-term view, you run the risk of cutting things now that will help you to win the recovery. But how can you tell what to cut? What to keep? What to lean out? What to invest in?
To plan for eventual growth in light of where you stand in a competitive market, let’s first calibrate our thinking by connecting concepts across a few proven frameworks to see how they might inform actions despite the uncertainty. Before thinking about the future, evaluate how you show up to customers and competitors.
Looking to prepare for growth in turbulent times? Learn how to lean into your data, deeply understand your customers, and have the courage to embrace what’s next. Get the guide.
Value discipline
The concept of value discipline is powerful as the most successful companies are disciplined in how they create value for their customers. Despite this concept being first published nearly 30 years ago, its core tenets persist.
Companies exhibit attributes aligned to three ways value can be created.
1. Operational excellence
- Systematic approach to efficiently deliver products and services to customers
- Intense focus on continuous improvement and reduction of waste, often characterized by standardized solutions
2. Customer intimacy
- Personalized services to help customers solve problems and satisfy their needs, both known and unknown needs.
- Requires deep engagement and understanding of the customers’ goals, business, operations, etc
3. Product leadership
- Development and delivery of cutting-edge products and services
- Often characterized by a high capacity for innovation, quality, and design
Wildly successful companies are not operationally excellent and customer intimate and product leaders. They segment their markets and differentiate within those segments. When competing for finite resources (e.g., headcount, time, and budgets), the best companies are disciplined in how they primarily create differentiated value within a segment.
That doesn’t mean that the other ways of value creation are ignored, but they are deprioritized. For example, a customer intimate company would deprioritize regular innovation and deep cost optimization. However, they wouldn’t shelve the idea of creating new products or services, and they would still strive to run an efficient company.
Takeaway: Be really good at something that differentiates you in a competitive market and be good enough at everything else. In a time of scarcity of resources and turbulence, the allocation of finite resources is more important now than ever. Think of the colored triangles below as to how you allocate those finite resources — the area of the triangle (your resources) doesn’t change, but the shape does. Investment toward one value inevitably pulls from another.
To assess your value discipline, ask yourself: Are you adhering to one of the aforementioned means of value creation? Are you differentiated in the market in a way that aligns with your value? Are you holding the other values at arm’s length, using your primary to inform your allocation of finite resources?
If the answer to any of these is “no,” it’s past time to revisit the existential decision about how you make what customers value and how you will win by creating and sustaining a competitive advantage. Remember, value discipline is about the long term–not shifting priorities over the short term.
Being disciplined in how you create value will help your company grow the right way and make future decisions when allocating your finite resources and deciding where and when to play. It’s a lens through which all decisions must be made, including near-term efforts to weather the current economic environment. Any effort that doesn’t align with your value discipline deserves scrutiny and may be a candidate for cost-saving efforts or even elimination. The opposite is true of efforts that make you better at how you create and deliver value — they make you more competitive at a time when customers may be more inclined to spend less.
Playing to win
Playing to Win by A.G. Lafley and Roger L. Martin conveys simple but powerful concepts. It helps decompose strategic questions into interconnected, constituent sub-decisions. While this is sometimes called a “strategy cascade,” it’s critical to realize that downstream answers have upstream implications — strategy isn’t a waterfall; it’s a river that flows both ways.
My winning aspiration may be to lead the Kansas City Chiefs to a Superbowl win, but I don’t have the capabilities, a sustainable competitive advantage against Patrick Mahomes, nor (and this may surprise you) play in the NFL. I may need to change that aspiration because it isn’t a winning one.
The questions posited in Playing to Win inform and are informed by decisions to other questions. They must reconcile across and be thought of holistically. Playing to win is a great way to think big, ground in reality, and consider what must change to achieve our winning aspirations.
How will you win, and where will you play?
Think of “how will you win?” as the value creation you’re disciplined in adhering to — your value discipline. This is the sustainable competitive advantage you must create or sustain aligned to either customer intimacy, operational excellence, or product leadership. While it sits in the middle of the questions posited by Playing to Win, remember, “how will you win?” informs “where will you play?”
To determine where to play, think about internal and external growth opportunities:
Internal growth opportunities are things that can be controlled within the business that you have today.
Though we call them internal, companies must consider changes to internal growth options in the context of how they may be met by current and potential customers and competitors. For example, you should only invest in sales and marketing efforts if you have a reasonable expectation it will increase revenue by reaching more potential customers. Likewise, you may choose to revise your segmentation and pricing strategies and increase prices for certain market segments, but only if you believe that the market will bear the price increase relative to your value and the value of your competitors.
External growth opportunities are new to your business.
You may choose to create new products, penetrate new markets and geographies with your existing products, etc. Like internal opportunities, external opportunities also require due diligence; you should have evidence that investments in new growth areas will increase sales.
You have many ways to grow; each category in the graphic above should spawn dozens of ideas. Selecting the right combination of internal and external growth opportunities — where you will play — is the challenge.
Pare down your many growth ideas into actionable ones that ultimately get you to your goals using a process of elimination. With your finite resources of time, talent, and budget, you need to pick the right ideas. This is where the hard work comes in; aggregate a multitude of growth ideas, develop a rubric through which you’ll measure those ideas against each other, and eliminate options based on objective analysis and evaluation of quantitative and qualitative data in light of a completive marketplace and customer segments. This is where many companies seek third-party support.
As you think through a multitude of growth options, map them across the Three Horizons Framework.
Your growth ideas will fall within one of the three horizons. To make the right trade-offs and deprioritize certain things so that other things can succeed, you need to find a balance across these horizons. Most companies tend to run a 90 — 7 — 3% mix across horizons one, two, and three, respectively, while other companies like Amazon find success with a 50 — 30 — 20% mix. Your value discipline can inform where your balance should be; an operationally excellent company may spend more resources towards horizon one, reducing their operating costs and passing those savings on to the customer, while a product leader may bias toward horizons two and three, investing effort in new products that customers will pay a premium for. The right balance for your company depends on many things, like market position, shareholder expectations, available capital, and competitive threats.
The Three Horizons Framework can also help us think through where we make near-term cuts to weather the present. If you’re a company in an industry that doesn’t require rapid innovation to be competitive (be honest with yourself!), scaling back Horizon two and three investments may be prudent in light of the economy. If you succeed through being first to market, maybe if your value discipline is product leadership, perhaps now is the time to invest in horizons two and three. Recent workforce reductions by major tech companies have flooded the labor market with exceptional talent. Are they your ticket to winning the recovery?
You may make all the right decisions in “where you will play” and “how you will win,” but if you can’t execute, it’s all moot. Slalom’s CEO, Brad Jackson, developed the Growth Formula by assessing the common attributes that growth leaders exhibit. The attributes he identified as critical to realizing growth potential are customer obsession, relentless focus on team, insurgent mindset, highly-aligned leadership, and operating foundation as a strategic advantage. You may have picked the right places to play, a sustainable competitive advantage, the capabilities to execute, and with the attributes identified to build the Growth Formula, success is far more likely.
Note: Don’t confuse customer intimacy with customer obsession. Walmart is obsessed with what their customers value (low price), but they achieve that value by being operationally excellent.
The spectrum of where you spend your resources may change in turbulent times. The right course of action is highly specific to your company, but through objective analysis and evaluation, it’s possible to determine what the optimal portfolio of growth options is for you now and how that may need to change over time.
Slalom is a global consulting firm that helps people and organizations dream bigger, move faster, and build better tomorrows for all. Learn more and reach out today.
