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The Value Growth Agenda

The Value Growth Agenda

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Published by: adillawa on Jul 25, 2010
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10/25/2012

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Number 13
The Value Growth Agenda
Setting the agenda
Finding the right drivers of value growth
With so many options,which initiatives really matter?
By Ted Moser and Hanna Moukanas
As growth opportunities have become more dynamic and transitory,the traditional pillars of strategy have been rendered obsolete.Senior managers need a short,coherent list of initiatives to mobilizethe organization,tell outside stakeholders where the companyis headed,and reach the next profit zone before it shifts again.
5
Assembling the components of business design
11
Thought questions
Mercer Management Journal
 
Mercer Management JournalSetting the agenda
1
Compaq
- 63%
0102030405060708090199719992001
Xerox
- 85%
051015202530354045199719992001
British Telecom
- 66%
020406080100120140160180199719992001MV declinefrom peakMV declinefrom peak
Procter & Gamble
- 46%
020406080100120140160199719992001MV declinefrom peakMV declinefrom peak
   $   b   i   l   l   i  o  n  s
Note: Data is for April 1997 through April 2001. Source: Mercer Value Growth Database
By Ted Moser and Hanna Moukanas
Exhibit 1
Market value collapse
Finding the right drivers of value growth
With so many options,which initiatives really matter?
E
very firm needs an effective value growth agenda,but not all firms have one.How else toexplain the extraordinary number of great firms with strong brands,fine products,and greatpeople that have struggled in recent years: Compaq,British Telecom,Procter & Gamble,andXerox,to name just a few (Exhibit 1)?A high-impact value growth agenda is more than the “initiative
du jour
.It’s a prioritized shortlist of actions designed to enable a firm to meet or exceed its own value growth targets andthe expectations of investors.It separates the essential “must dos”from the longer list of “should dos.The agenda often combines a mix of significant operational improvements withfocused fundamental change.It should be tirelessly communicated to all members of a com-pany’s value growth coalition: customers,employees,suppliers,and investors.And since thecompany’s chosen profit zone is a moving target,the agenda needs to evolve over time.But a value growth agenda only succeeds when it focuses on the right growth levers,at theright time,and in the right sequence.And the company must execute it effectively.TakeCompaq,for example.At its inception in 1982,Compaqs “IBM killer”value growth agenda wasperfect in focus,in sequence,on time,and flawlessly implemented.Compaq determined itcould produce the highest performing PCs with surprisingly low prices,thanks to strong engi-
Ted Moser and Hanna Moukanas are vice presidents of Mercer Management Consulting.Moser is based in San Francisco and Moukanas is based in Paris.
 
2
Setting the agendaMercer Management Journal
neering competence,a low-cost manufacturing culture,a dedicated PC focus,and (ultimately)market share leadership.Compaq became an entrepreneurial star,breaking the businessworld’s record for the fastest “zero to $1 billion”annual sales ramp-up in just five years.Yet Compaq’s value growth agenda didn’t anticipate and evolve fast enough to capture the nextseveral profit shifts in the PC market.Value was migrating to made-to-order PCs (Dell),to serv-ices-led computing solutions (IBM Global Services),and to enterprise computing (Sun,IBM).Only after allowing competitors to gain value at its expense did Compaq’s agenda change—andthen in all three directions at once.In 1998,within the space of ten months,Compaq rolled outa variant of Dell’s distribution system,created a solutions sales force via the acquisition of DEC,and started an enterprise server product line using DEC’s Alpha chip design.So much agendachange in so little time starting so late created huge implementation challenges and failed todrive a turnaround in value growth.Today’s most successful companies use a high-impact value growth agenda to keep pace withor to stay one step ahead of Value Migration
®1
,the process by which value growth opportunitiesshift within and across sectors.Today,General Electric’s agenda is defined as “Globalization,Services,Six-Sigma Quality,and e-Business.And its agenda has evolved over time.From thefamous “Be #1 or #2 or get out”market leader initiative in the early 1980s,through the “Work-Out”program to enhance efficiency in the late 1980s,through the solutions and services efforts of the1990s,GE’s internal rate of change has kept pace with the market.Every GE manager and supplypartner knows these priorities and follows them.Investors,knowing and believing too,haverewarded the company with exceptional value growth.
Value Migration changes the rules of the game
 Just twenty years ago,most companies had less need for such a dynamic agenda.A companywas defined by what it produced,and everyone knew what it did.Nippon Steel,U.S.Steel,andUsinor made steel.General Motors,Volkswagen,and Toyota made cars.BT,NTT,and AT&Tran national telephone services.Companies also competed in similar ways,typical-ly relying on the same few levers to increase thevalue of the firm.Winning strategies started witha twin focus on product innovation to achieve dif-ferentiation and cost reduction to maximize mar-gins.Market share was the strongest underlyingvalue driver,as it led to scale economies in areassuch as R&D and branding and a low-cost positionthat preserved profit margins as an industrymatured and prices declined.Managing the product portfolio for market shareand choosing new markets in line with internalcore competencies ensured sustained valuegrowth.A mostly silent partner in this approachwas the customer (Exhibit 2).
MarketsharestrategyProductportfoliomanagmentProductinnovationCostreduction
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Corecompetence
Exhibit 2
Traditional valuegrowth management

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