The worst may still come. Or conversely, the UK could turn into a “Singapore across the channel” and develop an entirely new, business-friendly model that keeps its economy churning. The point is that the scenarios that will play out over the next two years are unknown and unknowable. But there are many known factors to focus on in the meantime.
Research from CEB, now part of Gartner, showed companies that achieve consistent long-term growth make bold bets constantly and don’t pause strategic initiatives because of uncertainty surrounding events like Brexit.
Our in-depth analysis of 1,350 public companies, including the S&P Euro 350, highlighted the fraction of firms that have managed to grow consistently over the last 20 years make bigger, riskier growth bets than competitors. Those in charge don’t ignore macro events like Brexit, drastic changes in energy prices or geopolitical risks in key markets, but they also don’t let these events paralyse them.
They assess the likely impact to their specific strategies and markets and then act based on the best information available. Our analysis shows that it is better to adjust along the way than to “wait and see”. In fact, the best performing companies change strategy more often than peers and are not shy in communicating those changes to investors.
However, before firms can be confident making these bets – whether acquiring a large competitor, competing in a new market or launching a new product – an understanding of the known factors impacting growth is needed. Surprisingly, the biggest obstacles to a company’s growth have little to do with GDP or government actions but rather are the company’s own risk-averse processes.
We identified a series of known factors that act as a brake on growth and present strategies to combat them.
1) Bureaucracy anchors
Before making growth decisions, finance teams and their colleagues elsewhere in the firm rely on a host of complex financial models to make decisions – things like detailed financial models for business cases or lengthy debates about appropriate hurdle rates on investment rates. Rather than debate whether the project meets specific criteria, companies should build a simplified tool for managers to calculate ROI for a greater overall risk profile as well as eliminate hurdle rates altogether. This will encourage managers to generate bigger, bolder ideas for higher-growth projects.
2) Short-termism anchors
Companies need to remove incentives that inevitably cause business managers to focus on short-term metrics rather than long-term goals. By introducing broad-based equity compensation, business managers are more likely to propose large, multi-year growth initiatives as opposed to only focusing on incremental ideas and operational excellence.
3) Dangerous-to-fail anchors
The wrong environment can make employees too afraid to go after growth projects or abandon them at the first sign of failure. But companies that penalise growth projects at the first signs of strain or because of uncontrollable factors will ultimately limit overall growth potential. By establishing predefined “exit triggers” for higher-risk growth projects, business managers will feel more comfortable initiating them.
4) Capacity anchors
As a result of trying to manage overhead costs effectively, teams often run as lean as possible with tight cost controls. This reduces capacity to run higher-risk growth projects. However, if senior leadership allocates budget to teams based on their growth targets and the strategic importance of their growth, teams will have adequate support to drive positive business outcomes.
It’s easy to get caught up in worrying about the unknown. But regardless of what the future holds, it’s clear that without knowing and removing what stands in the way of growth, companies will struggle to achieve it.