The Ten Tools of Profitable Revenue Growth

Make revenue growth everyone’s business! Lead your company to profitable revenue growth with these tools, reprinted from Profitable Growth Is Everyone’s Business by Ram Charan.

book excerpt from
Profitable Growth Is Everyone’s Business

Published by Crown Business; January 2006;$22.00US/$33.00CAN; 1-4000-5152-5
Copyright © 2006 Ram Charan
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1. Revenue growth is everyone’s business, so make it part of everyone’s daily work routine. Every employee wants to be part of a company’s growth agenda, but most don’t know how. Managers need to provide them with both information and tools, starting with making revenue growth an inherent part of daily conversations, meetings, and presentations.

Just as everyone participates in cost reduction, so must everyone be engaged in the growth agenda of the business. Every contact of every employee with a customer is an opportunity for revenue growth: The people answering the phones in the call center can provide valuable information on unmet customer needs. The appliance repair person can discover patterns and timing of demand for replacement of appliances. Salespeople can extract market intelligence and ensure that it is communicated to the product development, operations, and service departments. Logistics people, through on-time deliveries, can help stores avoid stock-outs, thus enhancing customer satisfaction, an important foundation of future revenue growth.

The fruits of these efforts for revenue growth energize people and enhance their self-confidence. Growth taps into all their latent energy to generate ideas that can carry the organization to higher levels of growth. Growth truly is everyone’s business, not something that is solely the concern of management. Every employee at every level can be doing something for a customer.

2. Hit many singles and doubles, not just home runs. While home runs provide the opportunity for a quantum increase in the growth trajectory, they are unpredictable and don’t happen all the time. Singles and doubles, however, can happen every day of the year. They result from a determined, day-in and day-out improvement in the activities and social processes of a company; they form the drivers of profitable revenue growth.

Increasing revenues through singles and doubles build a growth mind-set throughout the business, so that when the opportunity for a home run does come along, you’ll be better prepared to take advantage of it.

For example, Dell’s efforts, beginning in 1993, to improve inventory turns to use less cash and reduce price and product obsolescence began as a single. The company’s initial goal was to increase inventory turns, which were averaging six a year, to ten. Over the last ten years, Dell has continuously improved the totality of its supply chain so that its inventory turns over one hundred times a year, or once less than every four days. The result is higher revenue growth and what has become a lethal competitive weapon against all PC manufacturers. In addition, this supply chain enables Dell to accelerate revenue growth by entering into new market opportunities like printers, servers, and storage.

3. Seek good growth and avoid bad growth. A framework for distinguishing good from bad growth is a crucial element in generating revenue growth. Good growth not only increases revenues but improves profits, is sustainable over time, and does not use unacceptable levels of capital. It is also primarily organic (internally generated) and based on differentiated products and services that fill new or unmet needs, creating value for customers.

The ability to generate internal growth separates leaders who build their businesses on a solid foundation of long-term profitable growth from those who, through acquisitions and financial engineering, increase revenues like crazy but who create that growth on shaky footings that ultimately crumble. Many acquisitions provide a one-shot improvement, as duplicative costs are removed from the combined companies. But few, if any, demonstrate any significant improvement in the rate of growth of revenues.

4. Dispel the myths that inhibit both people and organizations from growing. An important part of any leader’s role is to realistically confront excuses such as: “We are in a no-growth industry, and no one is growing”; “Customers are buying only on price”; or “The distributors are the ones in direct contact with retailers, and there’s not much I can do.” Every leader needs a growth agenda and the ability to communicate an urgency about the need to increase revenues and build the business so that action-oriented people within the organization find out what needs to be done today.

5. Turn the idea of productivity on its head by increasing revenue productivity. The old saw says “we have to do more with less.” The problem, though, is that the focus is usually on the “less” and the “more” rarely happens. Revenue productivity is a tool for getting that elusive “more” by actively and creatively searching for ideas for revenue growth without using a disproportionate amount of resources. It shows how to invest your current level of resources in a way that leads to increased sales by analyzing everything a business does, from the seemingly mundane to the vitally important.

6. Develop and implement a growth budget. All companies have a budget. It is, however, astonishing how little detail about revenue and sources of revenue growth you can find there. Almost all of the lines in the budget are cost-related. Few, if any, identify resources explicitly earmarked for growth. The growth budget provides a foundation that will allow a company to increase revenues instead of just talking about it. It includes all critical actions over the short, medium, and long terms that require resources to achieve revenue growth goals. And there is follow-through that includes rewards for success and penalties for poor performance.

7. Beef up upstream marketing. One of the key missing links for generating revenue growth at most companies is upstream marketing. What most people visualize as marketing involves advertising, promotion, brand-building, and communicating with customers through public relations, trade shows, and in store displays. Those activities are obviously of great importance but primarily “downstream” in nature — that is, they enhance the acceptance of a product or service that already exists. Upstream marketing, on the other hand, takes place at a much earlier stage by developing a clear market segmentation map and then identifying and precisely defining which customer segments to focus on. It analyzes how the end-user uses the product or service and what competitive advantage will be required to win the customer and at what price points.

8. Understand how to do effective cross-selling (or value/solutions selling). Cross-selling can be a significant source of revenue growth, but most companies approach it from exactly the wrong perspective. They start by saying, “What else can we sell to our existing customer base?” However, instead of looking inside-out your organization, you need to look outside-in. Successful cross-selling starts by selecting a segment of customers and then working backward to define precisely the mix of products and services they need and creatively shaping a value proposition unique to them. Effective cross-selling ensures the proposition is presented to the right decision makers in the language of the customer and spells out the financial, physical, and post-purchase benefits of the offering.

9. Create a social engine to accelerate revenue growth. Every organization is a social system, the center of which is a way of thinking and acting that sets both day-to-day actions and the long-term agenda. When an organization has an explicit growth agenda understood by everyone, growth becomes a central focus — a social engine — during formal meetings as well as informal discussions. The social engine is then fueled by growth ideas as one growth initiative builds on another. People at all levels then see growth as everyone’s job. The social engine and its associated tools provide the mechanism for making revenue growth a reality by developing a laser-sharp focus, aligning individual silo priorities and making the right tradeoffs.

10. Operationalize innovation by converting ideas into revenue growth. Innovation is not the private property of lone geniuses working apart from the mainstream of the business. In any company of reasonable size, innovation is a social process that requires collaboration and communication for idea generation, selecting those ideas for revenue growth that are to be funded, and shaping those ideas into product prototypes and launching them into the marketplace.

The tools that have been outlined are the foundation of your program for future revenue growth. But remember what we said earlier Revenue growth and productivity improvement are not conflicting goals. To keep the revenue growth engine running, you must have a disciplined day-in and day-out program of cost productivity improvement. Not only is it imperative for competitive advantage, it provides the findings for future growth.

Copyright © 2004 by Ram Charan. Published by Crown Business a division of Random House, Inc.

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Ram Charan is the author or coauthor of many bestselling business books, including What the CEO Wants You to Know and Execution. For more than forty years, he has worked behind the scenes at Fortune 100 companies like GE, Bank of America, DuPont, Thomson Financial, Honeywell and The Home Depot to help senior executives develop and implement strategic plans and practice their business acumen. His articles have been published in Fortune magazine and Harvard Business Review, and his other books include What the Customer Wants You to Know, Boards At Work, and The Leadership Pipeline.

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