Amid the COVID-19 crisis, many businesses have transformed their organizations for survival. However, survival alone is not enough. Business organizations also need growth and must figure out what they can do to ensure their real and long-term growth.
As uncertainties continue on global economic recession and the rapidly changing world of business, normal growth may not suffice for businesses but the greater growth called “Disruptive Growth” can do.
Wise investment is a shortcut to unlock growth potential
Investment is vital to disruptive growth. Organizations must properly invest in their business to maintain its value-creating capabilities. When business organizations manage their business portfolios, they must know what is their core business and why it is so. Business organizations must also be aware of the business that is not their core one and be able to foresee their growth in the next 3 or 5 years.
For the management of business portfolios, there are 2 main factors:
- financial performance including financial returns from business, its income-generating capabilities, the projection of business value and strategic evaluation, and
- market attractiveness or market growth rate which shows the growth rate of the whole market of a product or service, not of the market of a single company, and can be used to predict the future growth of business, market shares and competitiveness.
When both factors are combined, business can be divided into the four following groups.
- Harvest Business
It refers to moneymakers.
The business of this kind is moneymaking but has low market attractiveness. It offers short-term income and investment return but faces the long-term decline in competitiveness which risks the loss of business value. To maintain the value, it may have to merge with other kinds of business and maximize its free cash flow so that cash can be invested for higher returns. Finally, business in this group may have to be sold if its remaining value still makes money.
- Growth Engine
The business of the first priority which justifies maximal investment.
The business in this group has strong financial performance and striking market attractiveness and will result in the long-term growth of business portfolios. Therefore, investment should mainly target this group of business. Normally the business of this category has fast organic growth and is an important factor to make a company a leader in its market.
- Divest Business
The business that must be abandoned by investors or the value of which must be returned to core business.
The business in this group is the complete opposite of the “growth engine” because it has weak financial performance and low market attractiveness. Eventually it may ruin the value of an existing business portfolio. It must be restructured or sold to retrieve value. It can adopt a new business model to make profit and be subject to strict financial management to increase its free cash flow.
- Growth Funder
The business that must be nurtured and needs investment for future returns.
The last group concerns the business that has not produced an outstanding financial performance yet but shows extreme market attractiveness. Although its organic growth rate is not so high as that of “growth engine”, it has potential to generate sustainable income. Therefore, it needs investment to guarantee its growth and investment return.
Of course, transformation toward disruptive growth is not easy. Business organizations should have growth strategies which start with strong foundations for growth and gradual growth. This includes the creation of a business model that will continuously generate income and profit, the reduction of unnecessary costs and investment in what can increase long-term competitiveness. After strong foundations are laid, business organizations will look for methods to increase value and invest in innovation and technology to expand to new kinds of business.
The Road to Disruptive Growth
Disruptive growth can happen after business organizations are disrupted. Therefore, businesses need transformation and must look for new directions. What businesses can do to ensure success in their new directions? Basically they should increase their potential in four areas as follows.
- Ecosystem Collaboration
The ecosystem collaboration of organizations can comprehensively cover operations – where teams of organizations improve coordination with suppliers or business partners are invited to support the sales and facilitation of products and services – and customer cocreation – where customers have their say on what products they want or not in the manner that customers assist in the design of their preferred products and services.
- Lock-in and Scalability
The expansion of marketing channels alone does not suffice anymore. Businesses also need to maximize customer lifetime value to keep customers as long as possible, have them buy products and services consistently to generate recurring revenue (recurring business) and convince customers to recommend products and services widely to other people in the way that businesses can expand to new services or enter new arenas.
- As a service
In the era of “Anything as a service” businesses can change the systems and infrastructures in which they have invested into services. An example is “Insurance as a service” which sees insurance being changed from products into services and policy holders are allowed to pay premiums monthly to buy different coverages. Another example is the logistic business that welcomes other parties to use premises or transportation systems and charge them for the use.
Investment in business is a shortcut to disruptive growth and becomes increasingly common. Large-scale companies invest in startups with high growth potential or companies with expertise to support the growth of their core business.
It can be said that there are many factors in successful growth in the new era of business. They include a good strategy which encompasses foundations for growth, the new business models that suit the digital era and the wise management of each business investment. These are the key for business crisis survivors to successfully become long-standing winners.