“Growth in Middle-Market Companies.”

http://www.kellogg.northwestern.edu/news_articles/2013/09102013-lessons-from-the-road.aspx

All small and middle-market businesses strive to identify avenues for growth, but the best path is often far from clear. Here are four guidelines:

1. Find opportunities to increase quantity without incurring additional fixed costs. 
Large investments—for instance, in enhanced production capacity or cutting-edge technology—can hold significant risk for middle-market companies.

2. Verify that sufficient demand exists before investing in fixed costs. 
Before making strategic decisions about products or services, executives must first confirm that a customer base exists.

3. Ensure that growth is built on superior resources and capabilities.
Many companies approach growth with an attitude of, “How could we sell the same product we’re selling to more people?” or “What’s the next adjacent product to our flagship offerings?” These strategies can deliver value but may be somewhat limiting. Middle-market companies should also think hard about opportunities to identify new applications for their core knowledge, skills, or processes

4. Recognize the areas of the business that are not scalable.
Sometimes when companies grow, they lose the distinctive characteristics―such as efficiency or a unified vision―that made them successful in the first place. If a business’s success is based on its deep knowledge of local markets, for example, expansion into new geographies would effectively put it on even footing with the competition. Similarly, growth can often create additional layers within an organization—rigid infrastructure or an authority hierarchy—that effectively impede innovation and responsiveness to changing market conditions.

Microsoft's Immediate Solution

What is the immediate short-term effort: they are buying Nokia’s phone business.

 Microsoft Corp. struck a $7 billion bargain with Nokia Corp. to bolster a mobile future for the software giant. But the odds are long that a deal can reverse the fortunes of two laggards in a cutthroat market.

Barrier: Fear of Failure

One of the most profound barriers to organic growth is the fear of failure in the culture of a company that more often than not stems from a lack of understanding how to manage uncertainty. Microsoft unfortunately has suffered from this:

Barrier: Organizational Silos

The company’s Pipeline driven by siloed organizations, often with the current, dominant business winning all the resource debates.
Symptoms are:

• Market needs do not align with organization resulting in missing the next wave of change in the market(s). Each silo is looking out for itself.
• Incremental opportunities are usually the result since the full power of the company is never optimized for any given initiative. 

In Ballmer’s 2005 reorganization, his thought
he was simplifying the organization to aid decision making which may have happened within the silos but did not optimize the performance of the company:

However, attacking this problem is not as easy as it sounds. There is a critical balance –as in almost everything  leaders faces – between coordinating efforts as a one company against accountability for the parts:

Barrier: Congealed leadership Mindset

Congealed leadership mindset symptoms are:

• Success breeds inertia—locked into existing business models and businesses. Over protecting the current businesses at the expense of investing in new ones.
• Short vs. long term – the critical struggle of meeting today’s requirements and meeting future goals. It is not one or the other, it is the “proper” balance
• Manage everything the same – expecting a new business or venture to perform the same (profits) as a well-established enterprise.

What happened at Microsoft:

The Result

I wanted to start with a simple summary of the impact on Microsoft of not dealing with their barriers to growth which, by the way, are almost all internal under the full influence of leadership. This is why all the postings will be characterized as Leadership.

The impact is profound:

Driving Organic Growth Through Innovation

I think the digital marketplace is an excellent test bed for understanding the challenges facing all companies with respect to growth. The “great” thing about this marketplace is that breakthrough technologies create such rapid, dramatic changes that you don’t have to wait long to see the impact on companies who are not paying attention. HOWEVER, it is a HUGE mistake for companies not in this position to think they are immune to the same underlying forces that albeit may not be a dramatic or as fast but do equal damage.

In our Kellogg classes on Driving Organic Growth through Innovation we initially discuss the critical barriers to growth:

Over the next postings, I will demonstrate the impact of these barriers using the recent press on Microsoft. I will pace the postings a few days apart vs. once a week to maintain continuity.