Why Are New Growth Platforms So Important?
Growing your organization’s core businesses can be effective in the short-term. But meeting medium and long-term performance objectives requires developing and building major New Growth Platforms. NextVista can show you how.
How Growth Works—Or Doesn’t
Significant, sustainable and profitable growth is the key to corporate health and shareholder value creation. It not only drives the ultimate, long term Total Return to Shareholders, but also provides a clear indicator of the company’s ability to compete effectively and prosper going forward.
Shareholders and Wall Street analysts are keenly interested in a company’s growth prospects, of course, but so are current team members, potential employees, current and potential business partners and the community at large—all of whose support is critical.
Profitable growth tends to be self-reinforcing. A growing company has the resources to experiment with potentially significant business opportunities and a culture that encourages innovation and prudent risk-taking. A few of its many initiatives eventually pay off in a big way, providing additional resources and self-confidence. This, in turn, encourages further innovation, which drives additional growth, and so on.
A company that is not growing, however, places greater emphasis on quarterly financial performance and short term cost reduction. As a result, a mature, stagnant company tends to constrain longer-term initiatives that are perceived as risky and irrelevant to this year’s business objectives. Top management demands that growth ventures become big and profitable very quickly, and they cut back investments in initiatives that aren’t becoming the next Google overnight. Without the necessary resources and patience, though, these ventures fall short, investment is curtailed, growth fails to materialize and the cycle repeats itself.
While a current core business can be a source of profitable growth, large and mature core businesses have a tendency to decay over time as customer needs evolve, new technologies emerge, and competition intensifies. Of course the company’s core business is the major revenue and cash flow generator for the company, and will likely continue to be for the next several years so must be maintained and defended.
Investing to build the core can be appropriate if there is still huge untapped market potential because the market is still growing rapidly. It may also make sense in more mature markets if the company’s current market share is low and the company has significant, sustainable competitive advantages it can exploit. In such cases, the core can drive significant growth.
Typically, though, developing and building major New Growth Platforms is required to meet medium and longer-term performance objectives. And major New Growth Platforms are usually critical to success in any case because they drive business performance beyond current market expectations—and therefore drive share price appreciation—by providing upside opportunity, organizational vibrancy and a hedge against future core business declines.