When the average person thinks "big corporation," the images that spring to mind are primarily negative: CEOs who jet around in luxury while workers barely scrape by, backdated stock options, huge mergers that spawn big bonuses for executives but layoffs for lower-level workers, and so on. But Professor Edward D. Hess prefers to dwell on the positive: he studies companies that thrive via positive, healthy, organic growth—by growing their customer base, creating new products, and mastering operational efficiency—without resorting to accounting manipulations or devaluing their employees.
"Intrigued by the financial scandals of recent history, I researched how many companies succeed by generating earnings primarily through organic growth," says Hess, author of the new book The Road to Organic Growth: How Great Companies Consistently Grow Marketshare from Within (McGraw-Hill, 2007). "I found that in three separate studies of over 800 value-creating public companies, only 22 of them—less than 4 percent—consistently created substantial economic value and out-competed their industry competition primarily by growing internally or organically."
Surprised at the staggeringly low number of companies growing organically, Hess was motivated to find out exactly how the 22 high-performance organic growth companies could do it so well. That research resulted in his new book.
"What I found surprising about the results was what isn't required to grow a business organically," says Hess. "Common management theories and fads about strategy, superior talent, superior leadership, strong vision, innovation, globalization, outsourcing, offshoring, and unique products or services are not necessary if you want to grow an organization organically."
So how do you grow a successful big business organically? Hess outlines six areas in which many of the 22 companies he profiled excel. He calls them the “Six Keys to Organic Growth,” and he supports his findings with detailed case studies of seven of the 22 high-performance organic growth companies from his study—SYSCO, Stryker, Outback Steakhouse, Best Buy, TSYS, Tiffany & Co., and American Eagle.
Six Keys to Organic Growth
1. Have an “elevator-pitch” business model. Companies that grow organically have a simple, easy-to-understand strategy and business model that can be easily explained to and understood by employees at any level. These companies are disciplined and focused. Big innovations and new business models are not prevalent. Examples of these elevator pitches are:
Best Buy: Best Buy sells and services branded customer electronics, appliances, home office equipment, and entertainment products.
Harley-Davidson: Harley-Davidson manufactures and sells motorcycles, motorcycle parts, and related apparel and accessories.
SYSCO: SYSCO sells food and restaurant-related products and services to food service establishments.
Tiffany & Company: Tiffany designs, manufactures, and sells fine jewelry and luxury goods.
"With simplicity comes employee understanding and engagement, because employees know where the company is headed, how it will get there, and what their individual roles are in that growth," says Hess. "Each person understands why his job is important and how it fits into the big picture. Simplicity is the key."
2. Instill a "small company soul" into a "big company body." 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. Entrepreneurial employees are energized and engaged in the day-to-day business because they feel they have some control over their destiny. They enjoy autonomy and respect and they feel rewarded for their efforts.
"SYSCO, the largest wholesale food distribution business in the United States, SYSCO has infused its employees—from truck drivers to salespeople—with a sense of ownership,” says Hess. "Its salespeople take pride in the role they play in the company's success. Each salesperson visits his or her customer an average of three times a week. 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, going so far as to bus tables or wait on customers if the need arises. What SYSCO and other high-performing organic growth companies have learned to do is to create a positive entrepreneurial environment that meets employees' basic needs. As a result, they have high employee engagement and consistent high performance. High employee satisfaction leads to high customer satisfaction, which leads to profits."
3. 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.
These companies are measurement maniacs. What do they track? Metrics include people behaviors, detailed customer metrics, logistic/distribution chain metrics, supply chain metrics, customer satisfaction metrics, quality metrics, and basic financial metrics, to name just a few.
Best Buy started relying on measurements as a key to growth more than 10 years ago. The company provides its retail store managers with in-depth financial training so they understand store return on investment (ROI) and can recognize which customer segment produces the most profit: not sales—profit. Each store manager receives 30 operational metrics daily. They are coded green (good), yellow (caution), or red (problem). Managers are coached on how to eliminate red problems and mitigate yellows. The company has five key customer segments—named Jane, Buzz, Barry, Ray, and Jill—that are profiled in great detail, and store salespeople are trained to identify, qualify, and meet those individual customer needs.
"If there is a task that you want your employees to focus on,” says Hess, “all you have to do is measure and reward it. We've all heard that line from Field of Dreams, 'If you build it, they will come.' Well, in business, if you measure and reward it, it will get done."
4. Build a people pipeline. Organic growth companies are made up of engaged employees. Their employees are committed to the system. And in business there is no greater advantage than committed, loyal employees. You lose time and effectiveness when you have to continuously train new employees. If you have high turnover, it is hard to build a "be-better" entrepreneurial culture. The opposite of employee turnover is an engaged workforce, one that is focused, committed, and continuously trying to be better, with a financial and emotional stake in the outcome.
"One example of a well-built people pipeline is Tiffany & Company," says Hess. "Tiffany's employee satisfaction surveys are outstanding, employee retention is over 90 percent, and the company generally promotes from within. In our study we found that the company rarely hires a vice president–level candidate from the outside and at least 50 percent of its managers and 65 percent of its store directors are promotions from within.
With high-performance organic growth companies, there is an implied social contract between the corporation and its employees that the rules of the game will not change mid-stream. Employees will work hard for companies where they believe they have a future, and where they know they have an impact."
5. 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, omniscient corporate leader. Like the leaders of any major company, they face intense challenges, manage thousands or tens of thousands—or, in one case, millions—of employees, 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, fifteen of their CEOs have each spent 20 years or more climbing the ladder to the top of their company.
Organic growth leaders want their companies to operate as teams. At Best Buy, all executive offices (except the founder’s) are modest in size (barely big enough for a desk and two chairs) and windowless. The company reserves windows for team spaces—showing that teams are a higher priority than management. Wal-Mart has an “Open Door” program that allows employees to directly contact the CEO about a problem. The president and CEO of Tiffany's 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."
"The study makes it clear that organic growth leaders believe the essence of business is the ability to relate to, communicate with, and engage on a deep cognitive and emotional level with employees and customers," says Hess. "These companies constantly fight the deadly killers of corporate cultures: elitism, hubris, arrogance, and complacency."
6. 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. What they are is 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 capabilities 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 of an execution and technology champion. Although the company has a respected brand and product and loyal customers, its operational excellence is what makes it viable, stable, and resilient. It has survived the ups and downs of being sold to American Machinery and Foundry (AMF), then being repurchased by management, and ultimately going public—and it continues to grow organically.
Harley-Davidson has three simple rules: (1) Know the customer; (2) Take nothing for granted; and (3) Never stop learning. But its technology is what helps drive productivity and metric-tracking. 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. Technology and execution excellence have allowed Harley-Davidson to keep all of its manufacturing operations in the U.S.
It’s All about Execution
“Great organic growth companies are great execution companies,” concludes Hess. “To be a great execution company, you have to be entrepreneurial, a great people company, and a great technology company. All of which result in highly engaged and loyal employees who day-in and day-out perform consistently at high levels of excellence. There is generally an absence of the big ‘wow’ factors in these 22 high organic growth companies. They don't generally engage in big changes, big deals, or big innovations; they concentrate on the 'blocking and tackling' of business. They are into details and they execute on those details very, very well on a daily basis.”
"You can build a sustainable and successful big business without playing accounting games or engaging in financial manipulations," he adds. "And you can do it without commoditizing and devaluing your employees. The 22 companies studied and outlined in The Road to Organic Growth, each in its own individual way, reaffirm the American entrepreneurial spirit. They show us that if properly engaged, U.S. employees can out-perform any and all competition."
The Top 22 High-Performance Organic Growth Companies
(Excerpted from The Road to Organic Growth: How Great Companies Consistently Grow Marketshare from Within [McGraw-Hill, 2007], by Edward Hess)
American Eagle Outfitters, Inc.
Automatic Data Processing, Inc.
Bed Bath & Beyond, Inc.
Best Buy Co., Inc.
Brinker International, Inc.
EOG Resources, Inc.
Family Dollar Stores, Inc.
Gentex Corporation
Harley-Davidson, Inc.
Mylan Laboratories, Inc.
NVR, Inc.
Omnicom Group, Inc.
Outback Steakhouse, Inc.
PACCAR, Inc.
Ross Stores, Inc.
Stryker Corporation
SYSCO Corporation
Tiffany & Company
Total Systems Services, Inc. (TSYS)
Walgreen Co.
Wal-Mart Stores, Inc.
Waters Corporation
The Road to Organic Growth: How Great Companies Consistently Grow Marketshare from Within (McGraw-Hill, 2007) is available at bookstores nationwide and all major online booksellers.