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Enabling Growth for Midsize Companies: Three Strategies for Growing Your Business
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Summary of Growing Your Business.
Growth is back on the executive’s agenda. Enterprises are
seeking growth in new markets, in new products and services,
and even in new business models. Continuous
organic growth requires operational excellence and a longterm
orientation. Companies looking for more rapid
expansion leverage mergers and acquisitions or rearrange
their core processes entirely.
Growth is challenging executives today from a strategic as
well as an operational perspective. Academic research and
a variety of other studies have estimated that 50%–80%
of deals fail to reach their projected results. Many companies
that experience rapid organic growth become overwhelmed
and fail to remain profitable as their infrastructure
needs expand disproportionately. Few companies are agile
enough to adjust their business models as fast as necessary
or desirable.
This SAP Executive Insight explains the challenges inherent
in three common growth models and describes how to
implement a solid, flexible, and adaptive foundation that
supports corporate growth objectives.
- Which growth strategy best fits my business
objectives?
- How do I ensure that my business grows successfully?
- What role does IT play in enabling growth?
EXECUTIVE AGENDA At a Glance
Growth Strategies
Companies pursue three fundamental
strategies to achieve their aspirations
for growth:
- Organic growth. Companies enter
new geographic markets, sell new
products into an existing customer
base, or pursue new customers by
employing new channels.
- Acquisitive growth. Companies
acquire new markets, reduce cost
with synergies and vertical integration,
or obtain new products and
technologies through a merger and
acquisition (M&A) strategy.
- Business model innovation. Changing
the core of the business model
can bring rewards and unleash phenomenal
growth. No longer restricted
to high-tech companies, growth
through new business models is now
explored by enterprises in nearly all
industries.
The Importance of IT
No matter which approach to growth
your enterprise follows, the right IT
strategy is a critical success factor.
Without it, the rapid scaling of the business
that accompanies successful
growth might put projected benefits of
the acquisition at risk.
- Enable profitable growth. The
increase in business complexity in
fast-growth environments often creates
more overhead structure, potentially
reducing profitability. A
state-of-the-art IT infrastructure
allows management to remain in control
and realize economies of scale
through shared services and selfservice
provisioning.
- Limit risk exposure. An integrated
enterprise platform overcomes the
risk associated with systemscalability
limits as well as regulatory
risks typically associated with fastgrowing
organizations.
- Accelerate value creation. Growth
doesn’t wait for your business. The
ability to integrate systems faster and
to adapt processes to changes
quickly is critical in staying ahead of
the competition and finding new avenues
for growth.
Blueprint for Success
Growth is, by nature, a change to the
existing business structure. Embracing
and dealing with this type of change
requires people, processes, and systems
to support the overall strategy.
- Drive operational excellence. Mastering
and standardizing core organizational
processes are essential for
freeing up resources to focus on
growth and reaping the associated
benefits. Without control over operations,
hypergrowth can be overwhelming
and put your company at
risk.
- Focus on organizational capabilities.
Growth depends largely on your
organization’s ability to adapt to
change. Creating a change-ready
organization and managing talent
effectively are crucial.
- Incorporate flexibility into your business
architecture. Growth requires
process flexibility and change readiness.
Implementing an enterprise
business process platform allows for
changing processes at the speed of
business. Moreover, an open technology
platform provides better connectivity
to customers, suppliers, and
employees.
ORGANIC GROWTH
Growing from the core
With the tightening of the credit market
and unfavorable valuations in the capital
markets, CEO s are looking internally
for growth opportunities. Yet often, few
obvious candidates emerge. Some
executives think a big breakthrough will
transform the industry and drive
double-digit revenue gains, but many
CEO s realize that the battle for organic
growth will be fought in the trenches
through flawless execution of incremental,
familiar objectives.
Challenges
Delivering consistent, long-term
organic growth is no easy task. Studies
have shown that fewer than 20% of
companies are able to grow from within
over a long period. Besides external
events, such as a slowdown in the
economy or disruptive competition, the
core challenge for organic growth is
freeing up internal resources and making
funds available for investment.
Without being able to refocus
resources and funds on innovation,
growth aspirations can fall short due to:
- Slow velocity of new-product introductions
and substandard quality
- Inability to establish operations and
profitability quickly in new markets
and countries
- Difficulty in reacting to external
events quickly because the business
isn’t nimble enough
Addressing the Challenges
The key to freeing up resources to
focus on innovation and driving growth
internally is operational excellence.
With that in mind, growth-minded companies
should consider these recommendations
to ensure long-lasting,
consistent growth:
- Standardize core processes to boost
productivity and speed time to
market.
- Implement best practices to ensure
that resources are optimized.
- Leverage shared services where
appropriate to focus on higher-value
activities. Traditional back-office functions,
such as HR or finance, play an
increasingly important role in funding
growth. By implementing shared services,
critical HR resources can be
freed up to focus on talent management
and innovation.
- Consolidate your application portfolio
to establish standardized processes
and to aggregate disparate information
sources to allow for speedy analysis
and reporting.
Powell Electronics
Industry: Wholesale Distribution
Summary
A privately owned distributor of electronics
components and value-added services,
Powell Electronics Inc. operates 10
locations in North America and has key
partnerships in Europe, the Middle East,
South America, and China. Faced with
rapid growth, the company implemented
SAP® software and recently underwent
an upgrade to the SAP ERP application
to help it more effectively manage its
inventory. Since then, the company has
expanded its use of the software to support
an array of processes as it continues
to grow.
Results with SAP® Software
- E lectronic invoicing (used by more than
90% of vendors)
- 35% increase in sales revenues, with
no increase in IT support staff
- Smoother sales processes, internally
and externally
Conectiv Energy
Industry: Utilities
Summary
Conectiv Energy, a competitive subsidiary
of Pepco Holdings Inc., is a merchantgeneration
business that uses regional
expertise and intellectual capital to
optimize the value of its plants in the
wholesale energy marketplace. To optimize
operations at existing plants and
accelerate operational readiness at a
new, state-of-the-art plant in Bethlehem,
Pennsylvania, the firm deployed the SAP®
Visual Information for Plants application
by NRX, the SAP NetWeaver® technology
platform, and NRX Asset Center.
Results with SAP® Software
- 10% to 20% reduction in emergency
and urgent work orders
- 90% reduction in time to gather information
during work processes
- 20% reduction of storeroom inventory
- A cceleration of operational readiness
for new plants and assets
ACQUISITIVE GROWTH
Accelerating your business
In today’s market, many companies
prefer to take shortcuts to organic
growth and opt to acquire or merge
with another business. M&A is often
considered the fastest way to reach
new markets, use scale to reduce cost
structures, and obtain new products
and technologies quickly. Around the
globe, M&A activity continues to
increase significantly each year.
Challenges
Despite the promise of a fast path to
scale, an M&A strategy is highly risky.
Academic research puts the failure rate
at reaching M&A objectives at 50%–
80%. Each main objective for an acquisition
carries significant execution
risks, such as:
- Acquiring new markets. Inability to
cross- or up-sell due to ineffective
consolidation and integration of internal
sales and marketing functions and
sales channels
- Reducing cost through synergies.
Inability to identify potential areas of
savings due to decentralized and
duplicate information
- Obtaining new technologies. Inadequate
product-integration process to
reduce the potential benefits of offering
acquired technologies in one
package with existing solutions
Addressing the Challenges
There is no sure-fire way to ensure that
an acquisition pays off. Too many cultural
and market issues can prevent
successful execution. Nevertheless,
leading companies that routinely
acquire other businesses undertake
some common actions:
- Focus on process standardization to
catalyze postmerger integration and
value realization.
- Implement an enterprise process
platform to replace outdated IT systems
and disparate landscapes that
make it difficult to leverage fully the
extensive resources brought together
in the M&A transaction.
- Focus on information harmonization
to ensure visibility into product, customer,
supplier, resource, and
employee information.
- Leverage HR capabilities and reduce
risk through HR systems capable of
capturing a company’s hidden knowledge
and skills.
- Develop an M&A skill set by implementing
a cross-functional team (IT
and business) that develops and
deploys a standardized approach for
integrating acquired businesses.
Tessenderlo Kerley Inc. (TKI)
Industry: Chemicals
Summary
Tessenderlo Kerley Inc. (TKI) – a division
of Belgian-based Tessenderlo Chemie –
is a worldwide leader in the production
and marketing of specialty chemical products.
These products are used in the general
and specialty agriculture and process
industries. TKI also provides services to
refining, gas processing, and petrochemical
organizations. It has 15 production
sites located in North America and maintains
more than 100 storage facilities in
strategic locations.
Results with SAP® Software
- Number of business models supported
+25%
- Improved ability to react to changes
in demand and throughout the supply
chain
- Time to implement configuration
changes up to +80% faster
Electro Scientific Industries (ESI)
Industry: Discrete Manufacturing
Summary
Electro Scientific Industries Inc. (ESI)
designs, manufactures, and sells sophisticated
capital equipment and OEM vision
products to companies around the world
in the semiconductor and capacitor industries.
Established in 1944, Oregon-based
ESI is the second oldest high-tech firm in
Portland’s Silicon Forest. Though a midsize
business, with 600 employees and
revenue of US$207 million, ESI’s reach
is global, with offices located throughout
the world, including Japan, China, Korea,
and the United Kingdom. ESI has grown
through a series of acquisitions. Such
growth can result in a hodgepodge of
disparate third-party and homegrown systems
and solutions that make business
operations difficult, and this was the case
with ESI.
Results with SAP® Software
- I ncreased productivity with two direct
procurement buyers reallocated to
other activities
- Saved US$190,000 in annual support
and maintenance costs from systems
consolidation
- I mproved profitability of service contracts
and proactive maintenance
agreements due to enhanced data
accuracy
BUSINESS MODEL INNOVATION
Reinventing an industry
Under Armour
Industry: Consumer Products
Summary
With more than 1,000 team members
around the globe, 100% bottom-line
growth year over year, and nearly US$0.5
billion in revenues, Under Armour Inc.
was one of the best-performing and
fastest-growing public companies in 2006
and is promising to give other athletic
companies a run for their money.
Results with SAP® Software
- Support for product innovation, growth
strategy, and flexibility with improved
scalability of applications
- A bility to quickly onboard new operations
and countries to SAP® software
- 83% reduction in reporting query
times, with more than double the volume
growth in number of queries
Today, hundreds of companies are rearranging
their core processes by implementing
shared services, offshoring
transactional process, and leveraging
direct channels. It comes as no surprise
that more executives believe that
future competitive advantage will be
based on business model innovation
than on products or services (see
SAP/Economist Intelligence Unit study
in Figure 1).
Challenges
Flexibility is at the core of being able to
adapt and innovate a company’s business
model quickly. A lack of flexibility
is easily recognized. A company fails to
introduce new services, offshore, or
outsource parts of a process or to
change the pricing on existing products
in time to take advantage of new market
demands, thus missing growth targets.
Companies struggle with
business model innovation for many
reasons:
- Difficulty in embracing change while
the existing business model is still
successful
- Inability to collaborate openly with
employees, or with customers and
suppliers, to increase everyone’s
responsiveness to change and
ensure broad-based involvement that
sustains later success
- Lack of cross-functional thinking that
keeps companies working in silos
instead of pursuing a common goal
Addressing the Challenges
More than four-fifths of executives in
the SAP/Economist Intelligence Unit
study agreed that technology will be
critical in enabling their companies to
adopt new business models. These
companies typically establish a common
enterprise process platform and
focus on getting the basics in place
first by doing the following:
- Consolidating applications and gain
flexibility so that IT issues won’t slow
down business innovation
- Leveraging advanced technologies,
such as a service-oriented IT architecture,
that allow for adding, changing,
and repurposing processes with
increased flexibility
- Focusing on governance processes
early so risk becomes less of a factor
later
With a common enterprise platform in
place, these companies can then leverage
it to boost innovation by:
- Removing silos in IT and business by
implementing cross-application business
processes that prevent agile
collaboration
- Empowering internal and external collaboration
to incorporate external
innovation in their business systems
- Allowing rapid addition of new processes,
channels, and assignments
for employees and thus define new
business models on the fly
BEST-RUN GROWTH COMPANIES
THE ROAD AHEAD
Growing a business is an exciting proposition.
Regardless of how a company
chooses to grow – be it organic,
acquisitive, or innovative – success
requires a number of critical decisions.
Only time will tell if today’s growth aspirations
can be sustained into the future.
As businesses set out to grow, they
must develop both a solid strategy and
an even better plan for execution:
- Pursue a growth strategy that fits
the company’s capabilities and
objectives. Not every type of growth
model fits every company. Businesses
with strong corporate cultures
might hesitate to grow by
acquisition; companies that excel in
their operations might not want to
experiment with radical business
model innovation. Only the right combination
of growth initiatives that fit
the business will bring the promised
results.
- Focus on execution. Caught up in
the excitement of pursuing the next
growth initiative, it is easy to forget
the importance of executing on current
plans. Leading growth companies
set themselves apart by
approaching execution holistically and
considering people, processes, and
systems.
- Align IT and strategy. Growth needs
a platform on which to build and innovate.
If the platform becomes a constraint,
growth, as well as the entire
business, can be put at risk. Ensuring
that IT and business are following the
same objectives is essential to execution
and delivering the promises of
growth.
Enabling Growth with SAP
To understand how IT can support the success of your growth objectives,
the value engineering (VE) team at SAP supports customers throughout the
value life cycle, from developing the business case to realizing and maximizing
the value of your investment in SAP® software. Each year, VE completes
more than 1,500 business cases to ensure that IT projects are not simply on
time and on budget, but are on value. Under the leadership of Chakib Bouhdary,
the VE team consists of more than 175 professionals providing indepth
industry and business process expertise in strategy, IT planning,
global deployments, and benchmarking. For more information, contact
value.engineering@sap.com.
Further Reading
To learn more, please visit
www.sap.com/usa or contact your
SAP representative about the
following:
- Alpine Electronics Business
Transformation Study – High tech
- Arla Foods Customer Success
Story – Food and beverage
- Carolina Turkey Customer
Success Story – Food and
beverage
- Degussa Customer Success
Story – Chemicals
- Driving Operational Excellence
and Profitability – Wholesale
distribution white paper
- Strategies for Profitable Growth in
the Utilities Industry – Utilities
white paper