In the first chapter, we issued a challenge to all takers-double your performance. We also tried to raise and dispel some of the myths that block or slow growth. In spite of this, many of you might be thinking right now. "Doubling may be possible for other companies, but... our's is a mature market... We have intense competition from Japan... Without a huge investment, we cannot grow... We cannot get the people we need..." The reasons may vary, but the conclusion is the same. "We are different."
If that is what you are thinking, then at least in this respect you have a lot in common with others. For most companies believe that their circumstances are somehow different than others-especially from companies that are more successful than they are.
How can we be so confident that doubling is possible for your company? Two reasons. The first is that we have seen companies in much more difficult circumstances than these-companies in the deepest trouble and on the verge of extinction-not only survive their ordeal but launch themselves on a fresh round of rapid and profitable growth. And so have you. Chrysler Corporation did it in the early 1980s at the very peak of the Japanese onslaught-hardly the right time or the right place for a comeback-after drawing down to their last $1 million in cash to meet daily expenses of $50 million. Chrysler not only survived, but has achieved record profits, doubled in size and increased its market share since then. Hundreds of mid-size and thousands of smaller companies have done it too.
The second reason we are so confident about doubling is that, considering the unfathomed potentials that lie dormant within every company, doubling is a modest goal. Whatever your business, you possess five unlimited resources upon which to draw for growth, five engines, any one of which is powerful enough to double your revenues or-at the very least-your profits within a year or two.
These engines are nothing new. You do not have to buy them or install them. You already possess them. If you did not, your company could not exist, could not survive, could never grow. Think for a moment. What are the essential components needed for any business to exist, survive and grow, regardless of the industry?
The words we use to answer this question may vary as does the relative importance we place on one or another of the components. But whatever our method of classification, in order to be complete it must include five fundamental components:
There must a need in society which the company serves, what is commonly called a market. There must be also a technology, a know-how for producing a product or providing a service which the company offers to meet that market need. There must, of course, be people-managers and workers who contribute their energies and ideas, talents and skills to deliver the products or services to meet the market need. There must also be capital in one form or another from one source or another to support and finance the activity. And finally there must be something which often seems vague and nebulous but which is absolutely indispensable in order to give life to the other four-there must be an organization.
Organization provides the structure and systems which direct the people and utilize the capital and technology to provide the products and services to meet the needs of the market.
The ancient philosophers spoke of the five cosmic elements from which all things in the universe are born and constituted-earth, water, air, fire and ether. The five engines are the creative forces from which all businesses are born and which give life to them. These five-market, technology, people, capital and organization-are all essential for the existence of any company. And they are more than that. They are not only the five basic elements out of which businesses are created. They are also powerful engines that can drive the growth of revenues and profits in every company. Each of these five is a vast reservoir of potential energy which can be released and utilized for higher sales and higher productivity. Drawing on the power of any one of them is enough to catapult a company into rapid growth. Drawing on the powers of all of them, even to a very limited extent, is enough to convert a near-fatal crisis into an opportunity for expansion.
Everyone knows that an expansive market can be a powerful driving force for growth, that technology can propel a company upward, that capital is essential for increasing productive capacity, that good people and good organization are keys to success. Everyone knows that some companies are market driven, some are product driven and still others are people driven. So what?
No matter how well we understand the importance of these five engines, no matter how seriously a company strives to exploit their powers, no matter how effectively you harness their potentials for growth, you can never exhaust their latent capacities. And if every reader, every company, knew and believed that and acted on that basis, they would already be doubling every year or two and our nation's $2 trillion shortfall in GNP would be a $2 trillion or perhaps a $10 trillion surplus. It is not as if the existence of these five engines is a secret from anyone. But the real depth and extent of their powers is as much a secret today as the energy pent up within the atom was to our ancestors in earlier centuries-unimagined and unutilized.
Think for a moment about your company or about a company you know well. Which of these five have been the engines that propelled its growth? How has the company harnessed their powers? How far has it really utilized their productive potentials? What more can be done to tap their capacities?
In later chapters we will explore many of the latent powers of each of these five and see how they can be applied in any business. For the moment let us contemplate a few of the miraculous feats they perform.
A CHIP OFF AN OLD BLOCK
Although most of the headlines are grabbed by the digital chips used as microprocessors and memory storage devices in computers, analog chips represents about 25% of the total market for integrated circuits. Analog chips electronically convert signals from real world parameters such as temperature.and pressure into digital language.
In 1981 three executives left the giant chip producer National Semiconductor to found a new company in Silicon Valley named Linear Technology, specializing in the manufacture of proprietary analog chips used in computers, defense and a wide variety of other electronic equipment. Since 1984 Linear's sales have soared nine-fold from $7 million to a current annual rate of $63 million with net profit margins in excess of 17%.
Linear's phenomenal growth has been generated by tapping a few of the latent potentials of the engine market. Linear has energized its market by carefully attuning all its activities to meet the needs of its market and to deliver exactly what the customer wants. That is no short order in a business which involves 20 different manufacturing processes, which produces thousands of different products specifically designed to customer requirements, and in which the key to product development is the individual circuit designer.
One of the challenges for any company is to bridge the gap between what they make or offer to customers and what the customers really want. This may not be a serious problem for the owner of a small corner grocery store who is at once check-out clerk, purchasing agent and stock boy. But as soon as a company gets much larger or more complex than the corner store, a chasm begins to grow between what we think our customers want and what they actually want. We have seen many $1 million businesses in which the chasm had already widened into an unfathomable and sometimes fatal abyss. How does your company prevent a fissure from forming between it and the changing needs of its customers?
The dangers of producing what we know or like rather than what the customer really wants are especially great for technology-intensive companies like Linear, which are founded and managed by engineers and scientists. Yet Linear has discovered a way to bridge this gap and energize its market by means of a unique product development system. Each circuit designer goes out into the marketplace with the sales people to talk with customers and find out what they want. Then the same person comes back to the laboratory and designs a product to meet that need. The designer then moves with the product through the production phase and goes back into the field to meet customers again and ensure that the product works as it was intended. When customers call in with questions or complaints, they can speak to the expert who actually designed the product, not to a customer service representative. With a base of 4,000 customers, that says a lot about the company's commitment to its customers. "I look at it as a triangle," says design director Tom Redfern. "There is a customer, the manufacturing and a designer. It is very important for the design guy to be plugged into the customer."
Linear's CEO, Robert Swanson, commented, "We go to great lengths to distill the information coming in from the field so what we design fills the real need." The result is a phenomenally high percentage of Linear's products are successful in the marketplace. Almost no product is a failure and some are very big success stories. For a technology-intensive business, Linear has shown that tapping even a single cylinder of the engine market can be a powerful lever for very rapid and very profitable growth.
A FRESH PERSPECTIVE
The energy that has fueled Linear's growth issues from an attitude, the attitude of looking at work from the customer's point of view. It may sound simple, but it is not-at least judging by how uncommon that attitude is. Therein lies a key to energizing any company-changing the way we look at people, events and things around us.
A change of perspective is also a key to unleashing the power of the engine technology. We use the word technology in its broadest sense as the "know-how" for running a business, the know-how for producing products and providing services as well as the products and services themselves.
Information can be a product, and providing it to others is a service that requires sophisticated know-how. Gartner Group is the recognized leader in a very fast moving service industry-providing information about developments in the computer industry to manufacturers, financial analysts and end-users. The company's growth has been energized by its fresh way of looking at the technology of the services that it provides.
Just before he founded the company in 1979, Gideon Gartner recognized the growing need in the marketplace for up-to-date, reliable, expert information on new developments in the computer industry. At the time, Gartner was a partner at Oppenheimer, catering to needs of institutional investors on Wall Street for information that would impact on their investments in the computer industry. But no one was using the fast moving Wall Street style to provide information on developments in the industry to other key decision-makers, such as vendors in the computer industry who needed to understand the marketing and product strategies of their competitors and large computer users who needed to know developments that might influence their decisions to purchase new systems.
So Gartner redefined the product to meet these needs and create a new market by providing information of a practically useful nature to decision-makers and presenting it in a simple and concise form for easy reference. Adding just one new dimension to the way we look at a product or service reveals new applications and provides greater value-added to customers. This is only one of the ways in which the greater potentials of technology can be tapped.
During his prior employment at IBM and Oppenheimer, Gartner had learned a variety of methods for collecting, interpreting and utilizing this type of information. But the challenge in starting his own company was to institutionalize the research process, so that every Gartner researcher would produce practically useful, accurate, timely information consistent in content with the information supplied by other researchers in the company and in an easy-to-read brief format. "The better quality has to do with our approach to research, to research concept," says Gartner.
The company has achieved a high standard by methods more commonly associated with manufacturing firms-standardized procedures, quality control and evaluation systems, and continuous training programs. The essence of this technology is set forth in the company's "bible", the Research Notebook written by Gideon Gartner. This research technology has enabled the company to expand its research staff rapidly and still maintain a reputation for innovation and high quality standards. Technology is also energized by implementing high corporate values like quality, systematic functioning, innovation and freedom.
These strategies have enabled Gartner to convert technology into a powerful engine for growth and a lucrative source of revenues. From 1979 to the time it was acquired by Saatchi & Saatchi in mid 1988, the company's revenues grew from $500,000 to $36 million, averaging an increase of about 52% each year over the last three years. Current revenues are at $62 million.
CAPITALIZING ON A DREAM
When we speak of engines of growth, the one that first comes to mind is often capital. At Patten Corporation, capital was not the first engine, but it has certainly been one of the most important. In the mid 1960s, when Harry Patten founded the company in Stamford, Vermont, there was a surging demand among the urban population to fulfill their dream of owning a home in the countryside. Harry had developed a talent for recognizing good potential homesite property and a simple mechanism for marketing it to city-dwellers through classified ads in major metropolitan newspapers. For the next twenty years, Patten Corp. remained a small land company buying 50 to 100 acre rural plots and dividing them into 5 to 20 acre homesites for resale.
Then in 1984 Harry met a young Boston financial consultant who saw the enormous potential of his business, and offered to raise capital for its growth. That year the company raised $20 million and the company's sales jumped from $4.3 million to $11.2 million. New offices were opened in Maine and New Hampshire. The following year, Patten Corp. went public and raised another $7.2 million in equity. Sales soared to $33.2 million. By 1988 the company was operating 38 branch offices, primarily in the Northeastern and Mid-Atlantic areas of the country, with revenues of $116 million, profits of $17.5 million and a strategic plan for doubling again by 1993.
Capital was the engine that enabled Patten to utilize the latent potentials of his long years of experience in the acquisition and marketing of rural land to expand his business 26-fold in four years. But the power of this engine goes way beyond mere investment value. Apart from its role as a factor of production, there is a whole other way of looking at finance as a means to energize the other components of a business. Again it comes back to attitude, to perspective. When finance is looked at as a measure and an index rather than an end in itself, it acquires new creative power. More on that in a later chapter.
A PERSONAL APPROACH
Expeditors International, based in Seattle with offices in xxx40 cities around the world, is the largest forwarder of airfreight cargo from the Far East to North America. Over the last five years its revenues have risen from $3.5 million to $147 million and profits have crossed $7 million. What has been the engine that has generated such phenomenal growth? "The people," says John Kaiser, Expeditors' founder. "In a service business, you don't have anything that anybody else couldn't get. It requires minimal capital to get in. We have a relatively good organization. The engine or drive has been the people. We've been able to motivate the people."
Kaiser's comment is based on an understanding that goes back to the time when the company was founded. In 1979 when he and ten associates with many years of experience working for another forwarding company established Expeditors, they agreed that each of the founding partners should make a sizable personal investment in the company and share in a percentage of the profits. As new offices were opened overseas, a similar arrangement was made so that branch managers also became owners and shared in the profits.
Expeditors has combined good compensation with another powerful energizer-freedom. "Our philosophy at that time was to spread the wealth amongst the people and make sure they all have a vested interest in the organization," Kaiser explained. "One of the things that made this business grow is that the people that came on board were very confident. We make a conscious effort to make our managers at the branch level as independent as possible. If you create an atmosphere where people can operate independently and you have the right people, that's the real key in our business."
Expeditors illustrates a few of the many ways in which people can be made an engine of growth-recruiting very experienced managers from the same industry, making them investors and profit sharers, and giving them a wide latitude of freedom.
GIVING NEW LIFE TO A DYING INDUSTRY
Of the five engines, organization contains the greatest creative power for growth, yet it is the least understood and the least utilized. In 1957 two Harvard MBAs travelling in Europe discovered and demonstrated this power to people around the world-literally!
Applying the market research techniques they had learned in business school, they discovered that shoe-repairing was a dying industry in Europe, where being a cobbler had very little social prestige. For instance, while the population of the Netherlands had increased by 50% during the previous twenty years, the number of cobblers had declined to half the previous level. The demographics were similar in other European countries. As a result, it took an average of six days to get shoes repaired in Paris or Zurich. Seeing opportunity where others saw none, the two entrepreneurs opened up a fast shoe repair service right in the midst of the prestigious Bon Marche department store in downtown Brussels. The shop, known as Mr Minit, offered fast (two minutes for a heel repair), quality, convenient, clean service for a premium price. These were the hey-days of the spike-heeled shoe and the cobblestone streets of Brussels played havoc with the new fashion. The new business was an instant success. Within a year Mr Minit shops had been opened all over Belgium.
The ability to recognize an unmet social need was the initial power behind the development of the business. But the real growth of this company had not yet begun. For that, the entrepreneurs had to find a means to reproduce their local success in hundreds of locations throughout Europe and they did. The means they discovered was the engine organization.
The company decided to reduce all its operations to a set of codified and standardized systems, so that virtually every step in the process of establishing new service centers, recruiting and training personnel, procuring materials, relating to customers and accounting for the results was explained and documented as a standard operating procedure (SOP). As we sat in Geneva talking with the company's chairman, Hillsdon Ryan, he waved his hand at a row of at least 15 four inch thick manuals on the board room bookcase, which set forth the organizational technology that enabled the company to grow so rapidly.
Along with these systems, the company introduced a supervisory structure that was designed to make each of the service center managers an entrepreneur in his own right, while also ensuring uniform performance standards throughout the company. "The supervisory structure is absolutely one of the keys to our success, an important key," says Ryan. "We've kept a lot of the spirit of freedom. We've kept a flat organization. It is all based on very good codification of our experience in systems, because in a service business of our kind where the units are reproducible, they lend themselves to systems."
The power of that engine was made clearly evident by the remarkable expansion of the company over the next few years. First it spread horizontally by opening centers in other European capitals. Then it expanded its range of services from shoe repair to key cutting, engraving, rubber stamps and knife sharpening. Later the range was further broadened to include instant printing of cards and letterhead, watch repair, sewing and one hour photo film development. Finally, it focused on backward integration of the retail service outlets with distribution centers and manufacturing plants for the equipment, fixtures and raw materials such as key blanks and rubber stamps, thus becoming the world's largest producer of rubber stamps.
The SOPs were expanded to include detailed guidelines for establishing new foreign subsidiaries. For a period in the late 1960s, the company was opening up new subsidiaries at the rate of one every two months as it expanded from Europe to Japan, Korea, Taiwan and Singapore. "These are detailed SOPs on how to operate the unit," Ryan explained. "You'll find this in every country in its own language. Here we have four volumes of standards for the photo business. As far as I know, no one else in the business has this. What we did was search the whole business and write our own procedures for everything by subject. We did this early in the game, so we can now reproduce our units anywhere." And the company has done just that. By 1985 Minit International was operating 4,000 service centers in 1,400 cities in 32 countries and employing 10,000 people. Organization was the driving force for this phenomenal growth.
DRIVERS, TEST YOUR ENGINES
The word driver is important. For if you perceive that any of the five engines we have described are somehow beyond your reach or control, then we have failed to convey the point.You have the power to drive each of the five engines and harness its energy for growth.
When we speak of market, we do not mean that big, impersonal and unpredictable world out there which is beyond any and everybody's control. Rather we refer to your perception of that market and the relationship you forge with it, both of which are directly and totally subject to your control.
When we speak of technology, we do not refer to the vast movement of scientific and technological evolution which is continuously changing the way we interact with each other and the world around us. Rather we mean the way you perceive the products and services you provide and the methods you employ to generate them.
When we speak of capital or finance, we do not confine ourselves to the quantity of money invested in your company or the sources and means of finance you draw upon to obtain it. Finance is also a way of looking at things-not just passively in order to track performance, but actively in order to manage it.
When we speak of people, we are not thinking in demographic terms of numbers, age, sex or qualifications, but in terms of people's energies, knowledge, skills and capacities, their understanding and their attitudes, and how these can be fully mobilized for their personal growth and the growth of the company.
When we speak of organization, we do not refer to the organizational chart which describes the division of responsibilities and levels of authority within a company. This is only an abstract, two-dimensional, structural representation of a complex, living organism with manifold and immense productive capabilities. An organizational chart has never doubled anything, except perhaps payrolls and bureaucracy, while organization in the true sense has virtually unlimited creative power.
Words are a great limitation, because we must use common nouns to describe uncommon powers. Once again, think about your own company. What is the source of its energies? What has propelled its growth?
We have included a business self-evaluation form at the end of this chapter to assist you in assessing the relative development of each of the five components of your company as they exist today. Knowing where we are is the first step for accelerating growth. Our understanding of where we are is usually based to a great extent on impressions. An exercise like this enables us to formalize and objectify our assessment and to compare it with the perception of other people.
Take a few minutes to evaluate your business.
BUSINESS SELF-EVALUATION QUESTIONNAIRE
This questionnaire contains five sections, one for each of the five engines. Each section consists of twenty statements.
Evaluate how true each of these statements is for your company on a scale from 0 (low) to 10 (high) as shown below. You may score the statements with any whole or decimal number, e.g. 2, 3.5, 6.7, 9, etc.
After answering all the questions, add up the subtotal for each of the five components.
In order to assess the absolute and relative strength of each of the five components, calculate a percentage score for each section by dividing each subtotal in half (e.g. if the subtotal score on market is 140 out of 200, the percentage score is 70%.)