Unformatted text preview: Creating New Growth Creating New Growth Platforms
by Donald L. Laurie, Yves L. Doz, and Claude P. Scheer Dr. Daniel Cohen Spring 2009 Growth is Hard to Sustain Growth is Hard to Sustain Firms entering Fortune 50: 93% of these companies never achieved revenue growth levels above 2% again! Financial result: the companies’ share prices fell by an average of 61% following these performances (From Laurie, Doz, and Scheer) Averaged between 920% growth in the 5 yrs preceding entry 29% in year of entry—often via large acquisition Reasons for Acquisitions Reasons for Acquisitions Reduce costs Gain market power Increase growth Learn to build capabilities Manage risk Acquisitions Acquisitions Very pervasive approach with a disappointing track record 65% of acquisitions have destroyed more value than they create Why does this occur? While acquisitions can play an important role in an effective growth strategy—they should not substitute for growth entirely Reasons for Acquisition Failure Reasons for Acquisition Failure Inadequate evaluation and paying too much Excessive debt Overdiversification Managers overly focused on making acquisitions Poor convergence of cultures A Healthier Way… A Healthier Way… Study examined 24 companies/CEO’s who had achieved material growth over time All of the companies grew by utilizing NGP’s What is an NGP and how does it differ from other attempts at growth? How do acquisitions targeted by NGP’s differ? Intrapreneurship Intrapreneurship In short, NGP’s are firms acting in an entrepreneurial fashion First, they start with what trends would enable markets to grow Second, how do these changes/opportunities translate into unmet customer problems or needs? Finally, how can the company make a difference by addressing these needs? Examples: UPS with nonpackage services and Apple with Ipod and IPhone. Other examples? New technologies, regulatory changes, and social changes are all examples Keys to Success Keys to Success Top leadership heavily involved in NGP NGP team should consist of 3 to 4 senior execs who thoroughly understand company’s markets and/or who have been successful entrepreneurs They need the ability and authority to make big decisions Systematize the approach: successful applications of NGP’s developed a systematic approach to innovation Willingness to make an investment When and Why Some NGP’s Fail When and Why Some NGP’s Fail Business unit success Opposition from key execs Delegation of work Failure to sustain commitment Unwitting overconfidence Difference between managing “big” VS “small” Questions Questions ? ...
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- Spring '09
- Entrepreneurship, NGP, NGP team, acquisitions Poor convergence