MyTechnologyCompany.com

At the strategic perspective, growth breaks down to revenue and profits. Certainly, it is risky to overemphasize revenue and profit when pursuing brand new opportunities, but at the end of the day you evaluate the success or failure of a growth program by revenue and EBIT growth.

Every business is different, but they all can be examined under two dimensions. First, their natural planning cycle length. Most businesses have a natural time frame for planning that is dictated by the rate of change in their industry. Common time frames are 3 or 5 years, but they could be shorter or longer. The second dimension is levers of potential growth. These are potential growth strategies like core product growth, new products, acquisitions, and expansion of core products into new verticals. There can be others as dictated by the business's industry, but those are the most common.

How can we use these dimensions to look at growth? Looking at our fictional company, Global Co., the graph below looks at how it has grown over its past planning cycle of 3 years. The ends of the graph shows Global's revenue in 2007 and 2010. The columns in between are the various levers of growth and show us how much each contributed to the revenue growth over that three year period. From the graph we can see that Global's 2010 revenue is $250 million greater than 2007's for a compound annual revenue growth rate (CAGR) of 10.1%. Of that $250 million increase, the majority of the increase came from core product growth ($135 million). $100 million came from new products launched in 2008, 2009 or 2010. Acquisitions and Vertical Expansions made minor contributions of $10 million and $5 million respectively. The percentages above the columns indicates the driver's CAGR since 2007 (due to how it is calculated the sum of the dimensions' CAGR will not equal the CAGR for 2010). 

Now a 10% CAGR over the past three years doesn't sound too bad, but we know better when we looked at their revenue trend graph. Drilling into the dimensions of growth we see that the majority of the growth comes from core products and new products. Global Co. should be concerned that Core product growth is only 5.3%. This tells us that the core is slowing to steady state; Global Co. will need to find growth in its new products, acquisitions or vertical expansion if it wants to maintain its strong growth. That $100 million from new products is a good start. Digging into the new product growth, we see from the graph below that the bulk of that revenue comes from 2008 launches. 2010 new product launches have also had a very successful year. The 2009 vintage appears to slightly under perform. 

Using this format, we can look forward at the type of growth Global Co. needs to meet their growth goals. Global Co.'s growth goals is to maintain a double digit growth rate. Setting the CAGR to 10% we can calculate how much revenue that would be in 2013, $1.331 billion. In other words to maintain that 10% growth rate, Global Co. will need to find $331 million in new revenue over 2010. Under the dimensions, most companies should be able to forecast what the core group of products in existence as of 2010 will grow over the next 3 years. For the rest of the dimensions, the strategic planning process should identify the planned initiatives and the revenue they are expected to generate by 2013. Add up the dimensions of growth to the 2010 revenues and compare to the 2013 target - that is your growth gap.

I expect most companies will be shocked to see a gap between their plans and their needs. This is natural because as companies get bigger, the revenue required for 10% revenue growth gets continually bigger. To grow 10% from 2010 to 2011, Global Co. needs $100 million new revenue. It only grew $50 million in 2009! The great thing about this analysis is that it is a reality check for companies. Once the growth aspirations and expectation assumptions are defined, real discussion can occur on how to achieve those goals. Without clear definition, growth is simply an abstract concept. At some point, companies that live in the abstract will begin to consistently miss their growth targets.

How's does your company look at their growth aspirations.