Why you should focus on enterprise-wide, capability-driven growth in an era of acquisitions

With big acquisitions dominating the news, don’t overlook capability improvement as a sustainable growth strategy.

Acquisitions are at or near record highs. Organizations with deep pockets and access to capital are paying high multiples to increase market share and valuation overnight. Given the attractiveness of acquisitions, it’s easy to overlook complementary organic growth strategies such as business capability improvement driven by strategic, operational, technical, and organizational enhancements.

Today, let’s focus on how to build a capability improvement discipline into your company’s DNA and operating model so that you can unlock sustainable growth and compliment your corporate mergers and acquisitions (M&A) strategy.

Why focus on capability-driven growth?

Many companies are challenged to find acquisition targets to achieve their growth goals without taking on significant risk. Warren Buffett and Berkshire Hathaway, for example, are often challenged to find companies available at a reasonable valuation that fit their investment criteria. On the other hand, many smaller organizations do not have enough capital to execute an acquisitive growth strategy. For these and other reasons, capability-driven growth is critical. It is about getting more out what you already have, using your existing capabilities as a growth engine.

Think about the best golfers, baseball players, marathoners, or even investors: they focus on constant improvement and consistency over a long period of time. Their biggest asset is their discipline and tireless focus on improving their performance. Similarly, an ongoing commitment to capability improvement requires focus, discipline, execution, and adjustments based on what you are learning and predicting about your customers and competitors.

Relative to an acquisition, capability improvement typically requires less investment, less risk, and can drive consistent and sustainable customer growth and retention.

Making growth a habit: Customer-facing capabilities and enablers

A customer-facing capability is what a business can do for its customers, and enablers are how they get done. Customer-facing capabilities exist to acquire, retain, and grow customer relationships.

Which capabilities your organization prioritizes will depend on your competitive strategy and business model. If you operate in the Business-to-Business (B2B) space, you likely put a high value on account management as a capability. The acquisition, growth, and retention of large accounts is the lifeblood of B2B companies, and many are getting progressively smarter about tracking and managing the health of those relationships.

For example, if you lead a software-as-a-service (SaaS) organization, you may be dependent upon ongoing subscription revenues — as accounts can cancel during or at the end of their terms. As a result, it’s critical to ensure that accounts are well-managed and getting the highest return from your services.

Business-to-Consumer (B2C) companies, on the other hand, likely have more customers making lower-cost purchases. For them, direct-to-consumer marketing may be a higher priority while account management is not a factor.

Which capabilities are critical for your organization to compete? Which ones make your organization unique in the eyes of customers? If you continue to invest in those capabilities, will you be successful in the future?

Enablers determine how well these capabilities are executed, including the strategic, operational, technical, and organizational components of the work. This is where you need your customer-facing (Marketing, Sales, and Customer Support) and cross-functional teams (like Strategy, Finance, Technology, Organizational Change, and Program Management) to work together to take capability performance to the next level through process enhancements, new technologies, data science, cultural transformations, and others.

Can you use data to measure account health, attrition risks, and growth opportunities? Can you use Artificial Intelligence (AI) to determine characteristics that make customer service representatives effective? How might a more inclusive, energetic culture strengthen your customer interactions? Which enabling investments are best aligned with your focus capabilities?

Unifying the customer value proposition

You need to understand how these customer acquisition, retention, and growth capabilities come together to deliver a single, unified value proposition. Organizations often think of customer growth and retention as separate activities — one more akin to sales or share of wallet, and the other more akin to customer service. However, customer retention activities can be the biggest organic growth engine for your company because of their impact on share of wallet and brand equity. It is 6–7 times more expensive to acquire a new customer than to retain an existing customer and the probability of selling to existing customers is 60–70% versus 5–20% for a new prospect.

Not only do happy customers buy more, they evangelize and build a company’s brand. That said, communicating and delivering a unified customer value proposition that includes both product sales and post-sale customer service offerings is critical to reaching acquisition, retention, and growth goals.

Luxury car dealerships, like Lexus, exemplify the powerful connection between sales and service capabilities and the ongoing loyalty that it engenders. Companies with SaaS models, like Salesforce and LinkedIn, make tremendous investments in helping customers realize the value of their services by educating them on functionality and making connections based on data and usage patterns.

What is your organization’s unified customer value proposition? Are your product and post-sale service capabilities being communicated and delivered to your customers in a clear, consistent, and unified manner? Does the service help sell the product and does the product help sell the service?

Customer strategy to drive investment decisions

To make strong investment decisions about which capabilities to enhance and how to enable those capabilities to deliver on a unified value proposition, you need a clear customer strategy. Unfortunately, many organizations don’t have a defined customer strategy, or it may get lost between market and operational strategy. In other words, companies may know what businesses they want to run, what markets they compete in, and how they want to operate on a daily basis. However, they often do not have a customer strategy to inform those operational decisions.

How do you decide to invest in a new pricing tool, for instance, instead of customer analytics software? Will your chosen investments strengthen relationships with the right customers and create more value?

A customer strategy ensures that you understand your customers, their relative value to your organization, and how to maximize those relationships for both your customers and your company. With that knowledge, you can answer questions like, “Which capabilities will bring the most value to my customers and my business?” and “Where should I invest to successfully enable these capabilities?” A strong customer strategy fills this chasm between corporate growth and operational decisions to drive smarter investments in capabilities and enablers.

In my next article, I will share ways to ways to build this focus on capability improvement into your organization’s DNA.

Jeremy Dulle, a Client Partner at Slalom, is a business strategy and management consultant who helps clients achieve growth and efficiencies through global commercial excellence programs. With over 20 years of experience as both a strategy consultant and an executive, he has worked extensively with organizations across industries, from the Fortune 500 to startups, to acquire, grow, and retain profitable customers.