I&GL Challenge #3: Driving Shareholder Value - Innovation & Growth Leadership Summit

One of the toughest challenges – especially for mature companies — is driving shareholder value. Slow, steady growth is not enough in today’s disruptive world, and R&D executives are expected to step up their game.  If this is your situation, read The Shareholder Value Triple Play, by Tom Hansson and Abhijeet Shekdar of PwC.  The authors are clear: cost-cutting and portfolio rationalization are necessary but insufficient. The way to dramatically increase shareholder value is to “identify a portfolio of big ideas..that will likely double or triple the value of most advantaged units — while ensuring that the resulting corporation will be strategically coherent.”

This means building on current capabilities, not cutting them.  Rather than mandating across-the-board cost reduction, the shareholder value formula calls for an approach that preserves and enhances the distinctive capabilities that are critical to growth.

How is this done?

  1. Rationalize your portfolio through a shareholder value/capabilities lens.
  2. Stabilize the old core. Highly branded mature categories may not always get adequate returns from divesting (or spinning off) businesses; some will therefore remain in the portfolio. Find the balance between under- and over-investing. Don’t spend excessive time and resources on the old core at the expense of new growth avenues.
  3. Expand existing profit pools. Don’t underestimate the growth potential of your existing core. Identify and ‘surgically invest’ in your most attractive profit pools to maximize profitable growth. Distinctive capabilities provide superior returns and allow the company to gain share or tap into growth pockets. These investments may take many different forms, including focusing product innovations on specific channels, boosting promotional spending for specific customers, or devoting more R&D resources to specific product categories.
  4. Pursue step-out growth. Most companies don’t have enough attractive investment opportunities in their portfolios to create sustainable, profitable growth at an annual rate of 4 to 6 percent. The key is to focus on a few material initiatives that leverage and strengthen what the company does best, and to extend those by category or geography. These step-out plays can take a variety of forms, including: “Big bang” innovation (home runs versus singles), new approach to foreign markets , nuanced approach to on-trend businesses (ie purchasing smaller entrepreneurial businesses, grow by providing sales access and distribution resources to boost the targets’ sales, while preserving startup culture); roll up your sector (focus on a narrow range of products,  develop advantaged capabilities in that category); adjacent M&A “near-in” adjacencies are the most promising.

Executing the strategic triple play of aggressive cost reduction, portfolio simplification, and substantially new approaches to growth based on capabilities is not easy, but those that succeed will reap significant rewards.

This challenge has many variations and is a key topic to be discussed at the I&GL Summit.  Jean Spence was part of Mondelez cost reduction and growth initiatives, Shiv Iyer is one of the foremost experts on leading significant transformation of operating models to build capabilities and drive reinvestment for growth, and most of the other speakers have wrestled with this challenge as well.

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