Introduction: New sources of growth
Growth and development are an overarching focus of business. This is true even for businesses that are not looking to expand; products and services that have prospered in the past will always start to decline, and business divisions which once seemed perfectly attuned to their markets find that their markets have changed. Inevitably, then, it is a tougher proposition in businesses with ambitious growth targets, where the size of the new opportunities needs to outstrip the losses from the fading markets, and in larger businesses, where opportunities must have some scale to have an impact on the business. The climate for growth in the 21st century is also changing, as resource pressures push up costs, and businesses are more closely scrutinized amid changing expectations about their public and social responsibilities.
And, of course, growth is harder to find in difficult economic conditions, which in turn create difficult market conditions. The result is often a vicious circle: sales fall, and as a result, margins fall. To restore margins, the company cuts its cost base, through closures and redundancies. But the intended effects of these actions take time to work through, and there are often unintended effects as well, such as the loss of corporate knowledge, which reduces the resilience of the business. In the meantime, of course, the share price is likely to be under pressure and investors nervous, or hawkish. The management’s freedom to operate becomes increasingly constrained, and its choices narrow.
Although such responses seem rational, history tells us that it is better in hard times to actively seek out opportunities for growth. Recession is never uniform, and it always creates the potential for disruptive shifts in the structure of markets and the relative income of different groups of consumers. It often accelerates existing shifts in values. It encourages technological innovation. Recession is also a coiled spring, because recovery does come, sometimes helped by public investment or public intervention. Businesses can help by how they choose to innovate. One of the things we learn from the 1930s is that business has the power to create new dynamics of economic, social and technological change, to reshape people’s views of the present and of the future.
A prolonged period of economic stagnation, the kind currently experienced by the United States and much of Europe, is also a sign that the prevailing business and economic models (and sometimes social models) are broken, and that new models will have to be built. New models often run hand in hand with changes in values.
The purpose of this Future Perspective, Unlocking new sources of growth, is to focus on where such sources of growth are likely to be found, and how businesses can identify them in a structured and methodical manner. Unlocking new sources of growth, therefore, explores the following sources of growth:
- New markets: people—mostly in emerging markets—who have reasonable amounts of disposable income for the first time. This group includes the “emerging middle classes” in these markets. Here, we go beyond the conventional wisdom; the opportunities in these markets are more complex—and perhaps less immediate—than is generally believed.
- Changing values: shifting social values and behaviors create new market spaces. Changes in the way we work have, for example, led to a boom in the high street (or main street) café and, combined with health concerns, created a multi- billion-dollar market in pre-packaged salad.
- Shifting money: within richer markets, money moves between different consumers, sometimes quite quickly. In the United States, for example, the financial crisis has created a new group of the “working old,” who are still earning and spending.
- Emerging technologies: new technologies have long been identified as a source of new growth. Some foresee a boom in technology-based opportunities in the coming years. But the trick is always in the timing, for technology-led innovation can take decades to reach the market. There are techniques to help to get the timing right.
- New business models: the combination of changing values and changing technology platforms can create opportunities for new business models, which take value from existing players. Famously, iTunes has captured value that used to belong to high street/main street music retailers. Mobile and cell technology makes possible the pay-per-use car market.
Here we will explore each of these in turn, together with some of the tools needed to identify them. If there is one message here, it is that focusing on a single area (betting, say, on technology or emerging markets) is not often a successful strategy. Instead, the new sources of growth that are likely to prove most durable are those where multiple trends combine. A change in values, for example, aligns with a change in economic structure, perhaps, while a technology platform has matured to create a new distribution platform or a different way of servicing the market. Taken together, they create new synergies on which the alert business can build.
This is to be welcomed, since such opportunities are more likely to be both substantial and sustained. But it also means that it is valuable, in doing such work, to take a broader, more holistic view of your operating environment and to look deliberately for growth platforms that are supported by multiple dimensions of change.