High-growth firms are masters of execution

PBN Staff

04/14/2007

Recent corporate financial scandals have called into question the quality of corporate earnings. Indeed, in three separate studies of more than 800 value-creating public companies, only 22 of them consistently created substantial economic value and out-competed their sectors primarily by growing internally or organically.
How did they do it? Here are six areas in which many of these 22 companies excel.
Live by an elevator-pitch business model. Companies that grow organically have a simple, easy-to-understand strategy and business model. For example, Best Buy Co. Inc. sells and services branded consumer electronics, appliances, home office equipment and entertainment products; Harley-Davidson Inc. manufactures and sells motorcycles, motorcycle parts and related apparel and accessories; Sysco Corp. sells food and restaurant-related products and services to food-service establishments.
With simplicity comes employee understanding and engagement, because employees know where the company is headed, how it will get there, and what their role is in that growth.
Instill a “small-company soul.” A small-company soul is entrepreneurial. Employees have a sense of ownership of the customer, are held accountable for results and share in the rewards of those results.
Sysco has infused its employees – from truck drivers to salespeople – with a sense of ownership. They take pride in the role they play in the company’s success. They develop friendships with their customers, who are usually chefs or food establishment owners, and they feel a sense of responsibility to help them succeed. That leads to high customer satisfaction, which leads to profits.
Measure everything. Without measurements, companies have no way to gauge performance. That’s why organic growth companies measure everything, not just financial results. Operational and behavioral metrics make accountability more transparent, fair and objective. They are mission-critical to long-term organic growth.
Best Buy provides its retail store managers with in-depth financial training so they understand store return on investment and can recognize which customer segment produces the most profit – not sales, profit.
If there is a task that you want your employees to focus on, all you have to do is measure and reward it.
Build a people pipeline. Organic growth companies have a deep bench of engaged employees who have generally bought into the system in a committed way. In business, there is no greater advantage.
You lose time and effectiveness when you have to continuously train new employees. One example of a well-built people pipeline is Tiffany & Co. Employee retention is greater than 90 percent. We found the company rarely hires a vice president-level candidate from the outside, and at least 50 percent of managers and 65 percent of store directors were promoted from within.
With high-performance organic growth companies, there is an implied social contract with employees that the rules of the game will not change midstream.
Make sure leaders are humble, passionate, focused operators. CEOs at high-performance organic growth companies don’t fit the stereotype of the high-flying, bigger-than-life, charismatic, all-knowing corporate leader. Like the leaders of any major company, they face intense challenges, manage thousands and tens of thousands, and struggle to maintain their competitive edge. Yet there is something special about organic growth CEOs.
These leaders value their employees. There is a sincere respect for line workers, and no wonder: Many such leaders began their careers on the factory floor. In fact, of the 22 corporations profiled in the study, 15’s CEOs spent 20 years or more climbing the ladder to the top of their company.
At Best Buy, all executive offices are modest and windowless. The company reserves windows for team spaces – showing that teams are a higher priority than management. The president and CEO of Tiffany & Co. pride themselves on being humble representatives of the company. When asked to describe the Tiffany culture in one word, President Jim Quinn replied, “Humility. There is only one star here, and it is Tiffany.”
Be an execution and technology champion. Interestingly, high organic growth companies don’t tend to have unique strategies, products or services, nor are they market-leading innovators. Instead, they are execution champions – day after day after day. They have figured out how to get consistent, high-quality performance from their people. A critical design in each system is the utilization of measurements, real-time information, and the technology enablement of the entire value chain. These companies use technology to enhance their productivity and efficiency, which allows them to produce outstanding results, which in turn are shared with employees.
Harley-Davidson is a prime example. The company has three simple rules: Know the customer. Take nothing for granted. Never stop learning.
The company’s technology helps drive productivity. After investing heavily in building technology systems, it turned to its supply chains to efficiently integrate its more than 600 suppliers into the manufacturing process.
High organic growth companies don’t generally engage in big changes, big deals or big innovations. They are into the “blocking and tackling” of business. They are into details, and they execute on those details very, very well on a daily basis.

Edward D. Hess is an adjunct professor of organization and management at The Goizueta Business School at Emory University and the founder and executive director of The Center for Entrepreneurship & Corporate Growth and The Values-Based Leadership Institute.

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