5 steps to create a path toward profitable growth

 

Bridge the gap between current state and your ultimate goal

 

Achieving profitable growth at your company is an easy goal to talk about, but it can be much more difficult to plan for.

 

It’s easy for operational department leaders and even executives to get so wrapped up in driving key performance indicators (KPIs) in individual business units that they can’t see how those KPIs interact with one another across the organization. Many early- to mid-stage companies quickly figure out how to increase revenue, sales and deliveries but can’t sustain their momentum because they haven’t set measurable goals or established a clear path toward their goals. Without a vision or a plan, these companies fall far short of their potential.

 

In an article published earlier this year, we explored how an optimized operating model can provide the necessary infrastructure to support an enterprise’s growth strategy. Here we take a step back and explore how to develop the strategy needed for long-term, profitable growth.

David Koppy

“You need consensus on where you are and the outcomes you’re building toward to develop a path toward profitable growth.”

David Koppy

Principal, Growth Advisory Services
Grant Thornton Advisors LLC

 

In simplest terms, forward-thinking organizational leaders pursue growth by comparing their goal state with their current situation and developing a detailed strategy for the journey toward their objectives. By following five easy planning steps, companies can create an effective road map toward profitable growth. Those steps are:

  • Understand today
  • Align on the future environment
  • Define your future
  • Walk the future back
  • Define the path forward

“There has to be lockstep clarity and leadership alignment on what you’re trying to accomplish and solve for,” said Grant Thornton Growth Advisory Principal David Koppy. “You need consensus on where you are and the outcomes you’re building toward to develop a path toward profitable growth.”

 

 

 

Understand today

 

In theory, this should be the easiest step in the growth process. Financial statements would seem to provide plenty of detail on the status of a company, and risk management functions under the Three Lines Model should have a strong handle on an organization’s risks and opportunities. Internal audit should be identifying potential areas of concern, and human resources should have a strong understanding of the skills of a company’s people as well as their engagement levels.

 

Understanding today requires an objective look at:

  • Business results and financial performance.
  • Feedback from customers.
  • Feedback from internal stakeholders, including employees.
  • Gaps or shortcomings in people, processes or technology that need to be addressed regardless of the growth strategy that is created.
  • Comparison of performance against competitors and market trends.

“It’s a combination of internal and external information that you gather and try to triangulate around,” said Grant Thornton Growth Advisory Principal Jonathan Eaton. “This tells you whether your operating model is adequately supporting your current operations.”

 

It’s critical, though, that this assessment be objective and not viewed through rose-colored glasses. Analysts of executive leadership surveys routinely observe that respondents rate their own business prospects more optimistically than they view the overall economy.

 

This tendency to be overconfident in an organization’s current state is one reason that companies seek help from third parties in building their growth strategy. An outsourced provider can provide a more objective perspective for analyzing where a company stands today.

 

 

 

Align on the future environment

 

The history of the Dow Jones Industrial Average shows the difficulty that successful companies have in perpetuating long-term growth. None of the original 12 companies in the Dow in 1896 remains in the iconic stock index. General Electric, the last of the Dow originals, was removed from the index in 2018.

 

A continually refreshed focus on the future is the best path to sustaining growth, and it often requires market research and high-quality forecasting.

 

“Aligning on the future environment requires an understanding of industry trends and also a company’s own strengths and weaknesses,” Eaton said. “You also need to understand the opportunities and threats that exist.”

 

Gaining insight into the future is a challenge, but it requires considering:

  • A company’s differentiation plays and how leadership can lean into them and invest in them.
  • How the strengths and differentiators will align with customer needs within the markets in which a company competes.
  • Potential regulatory impacts and other threats.

“If you don’t understand where markets are moving, what’s trending and what regulators may do that could affect your business, then you’re falling behind,” Eaton said.

 

 

 

Define your future

 

This is the phase where company leaders begin really leaning into the strategy. This is where they consider how they can execute on their strategy relative to the competitive landscape.

 

“If we think about defining the future, where might we make investments?” Eaton said. “What are the things we need to recalibrate from a strategy perspective in terms of how we intend to grow and how we’re going to differentiate? How are we going to protect the core and at the same time expand and hit the compound annual growth rate that investors or shareholders are expecting?”

 

When organizations define the future, they begin to think about the impact of the strategy on the operating model. What will the strategy mean for people, processes, technologies, data and governance? Leaders should assess:

  • What needs to be changed to accommodate the strategy?
  • What does the company need to build that doesn’t already exist?
  • Is the organization aligned properly with the appropriate priorities knowing the budgets will be limited?

“For example, if you need to onboard new customers, you might need a number of different capabilities in the organization to make that real,” Koppy said. “To close the gap with where you’re trying to go, you need to strengthen some of these capabilities, which you can do in a number of different ways including investing in people or technology, and establishing new processes.”

 

Leadership should take inventory of the people, processes and technology it possesses and compare it to what it will need to operate in its aspirational future state under the operating model it plans to build.

 

“Ideally your organizational design is not specifically built upon the talent you have, but on where you want to go,” Koppy said. “And from there you can start to make decisions. If these are the people you have, is the talent suitable to flow within the organizational design to make the future state operating model real?”

 

 

 

Walk the future back

 

Once the future is defined, the organization can work to establish the timelines and milestones needed to deliver on the growth goals by the target date.

 

“When you walk the future back, you establish the different milestones and thresholds you must achieve along the way,” Eaton said.

 

This process often results in a multiyear road map with business cases and for each initiative in the growth strategy. The road map creates milestones at different altitudes, and accomplishing one goal along the way unlocks the next set of work.

 

Responsibilities and traceability are established based on the strategic intent, and flexibility is built in to accommodate changes that weren’t envisioned when the strategy was conceived.

 

“The methodology informs the larger direction, but it’s not the same as a recipe,” Koppy said. “It doesn’t necessarily need to be followed exactly. Some organizations may dig in hard to enforce the planned maturity of capabilities, but others are more comfortable with a broad brush that’s used as a general marker to inform the maturity of the capabilities.”

 

 

 

Define the path forward

 

The final step of the growth strategy construction consists of mobilizing teams and resources to follow through on the strategy.

 

Leaders need to decide how to allocate resources to enable the pursuit of the future state and deploy the people, processes and technology needed to achieve the final objective.

Lawrence Watkins

“The growth strategy will only be successful if the resources are prioritized and distributed properly to support it.”

Jonathan Eaton

Principal, Growth Advisory Services
Grant Thornton Advisors LLC

 

“There are limited capital expenditure dollars that any company can invest, and it’s important for management teams to prioritize their investments and appropriately measure the return on invested capital,” Eaton said. “The growth strategy will only be successful if the resources are prioritized and distributed properly to support it.”

 

When properly established, the growth strategy provides a vision that can be supported by the operating model for years to come — with enough flexibility to be adjusted as conditions change. This planning may not be easy, but it establishes a framework for profitable growth that won’t outgrow the supporting infrastructure.

 
 

Contacts:

 
 
David Koppy

David Koppy is a Principal within the Grant Thornton strategy practice focused on growth strategies.

Bellevue, WA

Industries
  • Banking
  • Manufacturing, Transportation & Distribution
  • Media & entertainment
  • Not-for-profit & higher education
  • Private equity
  • Services
  • Retail & consumer brands
  • Technology, media & telecommunications
Service Experience
  • Advisory
  • Operations and performance
  • Strategy
  • Technology alliances
  • Technology modernization
 
Content disclaimer

This Grant Thornton Advisors LLC content provides information and comments on current issues and developments. It is not a comprehensive analysis of the subject matter covered. It is not, and should not be construed as, accounting, legal, tax, or professional advice provided by Grant Thornton Advisors LLC. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this content.

Grant Thornton Advisors LLC and its subsidiary entities are not licensed CPA firms.

For additional information on topics covered in this content, contact a Grant Thornton Advisors LLC professional.

 

Our featured insights