your growth strategy your orst emy? · pdf fileyour growth strategy your orst emy? growth ......

THE McKINSI 1 QUARTERLY 1995 NLiMBER2

Joseph A. Avila

Nathaniel J. Mass

Mark P. Turchan

YOURGROWTH

STRATEGYYOURORSTEMY?

GROWTH

The "brilliance" of a strategy may lie in overcoming powerful secondary effects

Why bad things happen to good strategies

Causal loops and time lags

ACHIEVING SUSTAINABLE GROWTH is a perentiial concerti for seniormanagers. Yet the strategies they pursue often capture few or notieof the intended benefits. Tbeir efforts are rewarded with outright

failure or with short-lived wins followed by rapid deterioration. Considerthese cases of thwarted initiatives:

• Growing too fast. History is littered with companies that experience"boom and bust": rapid growth followed by steep decline, often intooblivion. In the UK life insurance industry, London Life pursued anaggressive salesforce growth strategy that put it out of business by 1987. Itshiring practices had set off a vicious spiral of falling skill levels, flaggingmotivation, and sinking performance.

• Too much too soon. A polymer company spotted an attractive, fast-growing market and invested heavily in new plant and equipment to meetdemand. Four rival suppliers responded by dropping their prices. Thoughthe company succeeded in achieving a large share, eroditig margins madethe market unprofitable.

• From glitter to glut. A leading high-tech company saw first-month ordersfor its latest product exceed capacity by 30 percent, and got its suppliersto increase their raw component stocks. Two months later, as stockpiles

Jo.seph Avila is a director and Nat Mas.s a partner in McKinsey's Cleveland office; MarkTurchan is a consultant in the Chicago office. Copyright © 1995 McKinsey & Company. Allrights reserved.

The authors would like to acknowledge the contributions of Jim Davis. Jack Dempsey. GlennCornett. Zafer Achi. Andrew Doman, Abhi Ingle, and Wayne Pietraszeck in helping to developthe ideas discussed in Ihis article.

THE McKINSEY QUARTERLY 1995 NUMBER 2 49

IS YOUR GROWTH STRATEGY YOUR WORST ENEMY?

built Up, orders collapsed, precipitating a huge "sludge" inventory. Theproduct ended up being branded a dud. It transpired that much of theoriginal demand consisted of "phantom orders" placed by distributorsconcerned about short supplies. Tight initial capacity had actually boostedearly demand.

* A fix that failed. Many companies pursue growth by attempting toimprove customer satisfaction, often through staff training and skillbuilding. One automotive OEM required its dealers to increase techniciantraining, but saw little improvement in either service performance orcustomer satisfaction. It had not foreseen that technicians would reactto their extra training by spending less time in fault diagnosis, or thatdealers funding the training would cut back on their investment in toolsand equipment.

• Unintended consequences. These frustrating patterns occur in nationaleconomies too. In the United States, the 1990 luxury tax was intended togenerate an extra $76 million in annual revenues, but it actually yieldedonly $13 million. The reason: the luxury market for planes, boats, and

automobiles dried up overnight after the taxwas introduced.

Why do plans that lookgood on paper go bad when ^^^ ^^ ^^^^^ ̂ ^^^ ̂ ^^^ ^^^^ ^^ p^p^^ ^^

they are executed. ^^^ ^^^^ ^^^^ ^^^ executed? The problemoften lies in what might be called secondary

effects - unforeseen by-products of strategy that confound its originalintentions. The growth strategy of the polymer company, for instance, tookno account of how competitors might react. The company won the volume itsought, but its profits were diminished because of actions by rivalsthreatened by its new capacity

We believe that companies wishing to implement a successful and sustain-able growth strategy need a better approach - one that takes account of theimpact of these secondary effects and helps managers make more informedchoices about how to accomplish their objectives.

Achieving sustainable growth

To understand these secondary effects, it is necessary to take a dynamicview of the marketplace - one that anticipates competitive reactions andexplicitly incorporates them into strategy. An analytical technique calledBusiness Dynamics has proven especially valuable in this context. Derivedfrom system dynamics, it applies ideas about engineering control feedbackto business and economic systems. It is based on six fundamental guidingprinciples (see the boxed insert).

50 THE McKINSEY QUARTERLY 199S NUMBER 2

PRINCIPLES OF BUSINESS DYNAMICS

1. Every action produces a reaction. One 5. "Hard" and "soft" factors interact.specific secondary effect of the new US luxury Consider how the morale of a workforcetax was unemployment in the boat building affects produaivity, or how the motivationindustry. It took at least a year for the tax to save influences tax revenues. Such "soft"authorities to appreciate the full impact of variables are often overlooked in strategictheir aaions, thinking. Their interrelationships with "hard"

variables such as market share or capacity2. Structure shapes behavior. The linkages utilization add yet another layer of complexitybetween parts of a business system and the to business systems,ways in which decisions are made determineits performance. Hence behavior can be 6. Feedback reinforces and counteracts.modified only through fundamental changes Once changes gel going, some factors haveto the structure of a system. a reinforcing and others an opposing or

counteracting effect. Successful product3. Complex interrelationships make a development, for instance, enhances thesystem's behavior difficult to understand. reputation of a company, builds market share,The connection between cause and effect and yields profits to fund further productmay become obscured, rendering reactions development - an example of reinforcinghard to predict. feedback. Heavy sales of a durable good, on

the other hand, create an order backlog, delay4. Time clouds the picture. Where time deliveries, damage the product's attractivenessdelays operate in a system, understanding to future customers, and dampen sales - ahow and why things happen can be even case of counteracting feedback.more of a challenge.

In the cases below, a Business Dynamics perspective helps to explain howsustainable growth was achieved in two very different businesses.

Service satisfaction in the auto industry

For automotive OEMs, repurchase loyalty - what happens when existingcustomers return to their current auto maker to purchase their next vehicle- is worth many millions of dollars. As the quality and functionality of mostvehicles approach parity, sales and service are growing in importance.

Several auto makers have decided that improving customer satisfactionwith service at dealerships would raise repurchase loyalty. They havelavished vast sums and considerable management attention on training andtechnical support programs - but detected no noticeable impact. What hasbeen going wrong?

The OEMs' efforts have certainly not been misdirected. Analysis of customersurvey data reveals that satisfaction with service accounts for one-third oftotal customer satisfaction, and is predominantly driven by the ability to repaira vehicle correctly, on time, and at the first attempt. Average dealer perfor-mance against this target is 65 percent - meaning that one in three customerswould need to go back for further repairs. "Best in class" performance,however, approaches 90 percent, so there is ample room for improvement.



Afix that failed

The traditional solution to this performance shortfall was to establish apolicy of mandatory training to make technicians more effective. But extratraining tneant they spent less tiine at work. Exacerbated by flat-ratecompensatioti that favored throughput rather than quality of service,pressure mounted at dealerships. The diagnostic stage of the repair processwas often rushed, leading to failure to detect faults and thus defeating theobject of the training.

In addition, rising training costs and forgone revenues ate into dealers'profits, prompting them to reduce their investment in tools and equiptnent,thereby limititig technicians' overall effectiveness.

OEM strategies concerning the use of advanced diagnostic equipment werealso vitiated by unanticipated secondary effects. One extremely costlydevice designed to improve diagnostic accuracy had a very low usage rate,despite being considered technically superb. The reason for its neglect wasthe fifteen minutes or so that it took to set it up - time that pressuredtechnicians felt they could ill afford to spend. Moreover, a lack of initial

training produced low familiarity, reiti-^ . . . . 1̂ , forcmg utiderutilizatioti which in turnDisappointing results cati be • r J , r r *

J i_ . J • -u reinforced low tamilianty.reversed by addressing the •'powerful secondary effects _ /^i-*« J J J .U . • J . •^ . . . • ,̂ ^ One OEM decided that in order to improve

inherent tn the systetn „ . j j . • J . r uI performance, it needed to identity wherebottlenecks were occurring, and why. It

applied Business Dynamics to model the repair performance of an actualdealership. It tested a scenario involving several new initiatives it haddevised to fix the service problem by enhancing training and buildingtechnical and diagnostic support. The modeled initiatives produced someimprovements, but they were limited and short-lived.

Analyzing the model revealed that these disappointing results could boreversed by addressing the powerful secondary effects inherent in thesystem. Incentives to diagnose the real underlying problem with a vehiclewere weak, since pay structures encouraged technicians to complete jobs asquickly as possible. In addition, initial improvements in the service processtended to get caught up at existing bottlenecks, sometimes even makingthem worse. Service advisers became overloaded and less effective;increased retail demand, generated by better short-term performance,compounded time pressures and prompted technician shortcuts; and newtechnicians hired to meet demand diluted the average level of experience.

The analysis also showed that the OEM support initiatives brought leastbenefit to those who needed them the most - the low-performing dealers.

52 THE McKtNSEY QUARTERLY 1995 NUMBER 2


Dealer performanceafter OEM initiatives

Aspiration range

High

Average

The rate of improvement for these dealers was amere 4 percentage points, whereas their high-performing counterparts achieved an 11-point leap.Thus the aspiration to improve "fix-it-right" perfor-mance to 85 to 90 percent was still way beyondreach {Exhibit 1).

Clearly, putting more business through a poorlymanaged system of processes and incentives yieldedlittle net benefit to OEM, dealer, or customer.Modeling these dynamics revealed that the primarybottlenecks lay in dealer processes. No conceivableimprovement in support from head office couldwork if dealers responded to higher volume bycutting back diagnosis and training.

Finding the right fix

Armed with these insights, the OEM is developing aseries of dealer process initiatives that should bringabout sustainable improvements in repair accuracy.The impact of this new approach has already beenprofound. First, it has revealed that individualdealers need their own tailored solutions; no singleapproach suits all cases. Second, it has shown that a well-designed portfolioof process improvements, coupled with OEM support, could raise theaverage dealer toward an 85 percent fix-it-right score, and at the same timeenhance the net present value of the dealer franchise by around 35 percent.In short, all stakeholders should benefit.

Understanding the system at work in auto servicing should also permit theOEM to tap potent reinforcing benefits: better repair performance shouldlead to higher service volume, greater repurchase loyalty, strengthened

profitability, and increased dealerresources to reinvest in the driversof customer satisfaction. In addition,OEM programs should become

9 —s765 —43210

Processes oftow-performingdealers makethem leastequipped tobenefit fromOEM supportinitiatives

"Fix it right tint time*

The lesson for the OEM was tbatworking on a set of functional

strategies in isolation would notyield expected benefits even more effective once dealers

improve their own processes. Thiscombined approach is proving so

powerful that rolling it out across the entire dealership network shouldcreate billions of dollars of shareholder wealth.

The lesson for the OEM was that working on a set of functional strategiesin isolation would not yield expected benefits. Instead, it needed to couplethese strategies with actions in other parts of the business system to



reinforce the impact of the functional improvements and limit the extent ofany counteracting effects.

Building market share in life insurance

A ease study from a different industry provides an equally vivid illustrationof the ways unexpected secondary effects can sabotage growth strategies.

In the early 1970s, two UK life insurance companies, Equitable Life andLondon Life, enjoyed almost identical competitive positions. They evenshared a large customer in common, a university pension fund. In 1975,when it withdrew its business, both insurers suffered a setback. With similaropportunities and challenges, they subsequently followed diverging paths.

London Life grew rapidly for a while, but became virtually insolvent afterthe 1987 stock market crash, and had to be rescued via an acquisition.Equitable Life, by contrast, became one of the most profitable companies inthis market. Their contrasting stories highlight the role of managementstrategy in determining success or failure, and demonstrate how BusinessDynamics can reveal opportunities and pitfalls that conventional strategicthinking often misses.

Different destinies

After the loss of the university pension fund,London Life stuck to its core business,rapidly expanding its salesforce in order tocreate economies of scale. Equitable Life, onthe other hand, enforced a policy of puttingnew hires through more than a month oftraining to build skills oriented toward high-end business, and actually reduced itsback-office staff in line with a slow, low-costgrowth strategy.

Static versus dynamic analysis

Example: Life insurance

Analysis: Static DynamK

Growth lever Impact on NPV(10% change) Pefcent

Investmentperformance

Renewalexpense ratio

Overalllapse rate

Averagecase srze

Initialexpense ratio

Initiallapse rate

'Net present value

10.024.0

4,76,0

3.64.0

2.938.0

2,416.0

0.2,1.0

It is not immediately obvious why thisapproach proved superior; indeed, it defiesconventional industry wisdom, which holdsthat large salesforces are needed to buildany life business. Two of Equitable Life'sdistinguishing features - high average case size (the annual premium perpolicy sold by an agent) and an agent commission structure (a driver ofinitial expense ratio) that rose less than proportionately to policy sales - arerated as low in importance in a standard statistical model of the lifeinsurance business. However, a dynamic analysis of the industry identifiesthese factors as decisive strengths (Exhibit 2).

54 THE McKINSEY QUARTERLY 1995 N UMBER 2


In reality, the positive, reinforcing benefitsof higher case sizes amplified EquitableLife's success. Better compensation boostedsalesforce motivation, stimulated product-ivity, and pushed sales and compensationstill higher. At the same time, well-paidsalespeople stayed with the company longer,raising skill levels and yielding fewer poli-cies that were "orphaned" when the originalsales agent left the company. Improvedcustomer retention then reinforced the cycleof rising compensation and superior staffretention (Exhibit 3). The benefits com-pounded one another in a virtuous spiral ofimprovements.

The reinforcing effects of higherca5e sizes

Increasesales agent

Renewalcompensation

increases

Relativecompensation

increases

Lapserate drops

Productivityimproves

Another factor that shaped the fate of the two companies was their growthaspirations. For any management, the challenge is to find a sustainablegrowth rate that maximizes company value. This means striking a balancebetween growth drivers, such as skill levels and case size, and growthconstraints, such as back-office overload and limited coaching capacity.According to our cause and effect model of the business, London Life'ssustainable growth rate was around 12 percent - nothing like the 40 percentexpansion that actually took place in the salesforce.

Grow slowly

Too rapid a growth rate destroys value in a number of ways. Limitedcoaching capacity inhibits skill development, for instance, so that sales-force productivity stalls. Similarly, an overload in the back office divertssalespeople to administrative tasks, dampening sales effectiveness.The result is a downward spiral: shrinkingcompensation, salesforce defections, lowercustomer retention, flagging sales, andfalling net worth.

The challenge to find asustainable growth rate means

striking a balance betweengrowth drivers and constraintsIf this is so obvious, why doesn't manage-

ment catch on and do something about it?One reason is that the high-growth strategy does seem to work - for a while{see Exhibit 4). Faster growth, up to 24 percent a year, raises insurancepremium revenues. Productivity declines a little - but fast growth can bebumpy. For London Life, the bump it hit reflected Wall Street's adage thatbankruptcy is the market's way of telling you to slow down.

Some analysts view London Life's downfall differently. They hold that itsrisky security portfolio made it vulnerable in the 1987 stock market crash.

THE McKINSEY QUARTERLY 1995 NUMBER 55


But if we run a model of the industry that turns back the clock and replaysevents without a stock market crash, London Life still collapses -just a yearlater. The company was already severely wounded by its failed management

_....,.. policies. Indeed, its fate was sealedas early as 1983, when fallingproductivity and net worth werealready entrenched.

Effects of salesforce growth strategy

Example: Life insurance

• Indexed NPVresult I r>g after B years

Best achievable resuli - 100

Indexed premiums 31 Valueresulting after B years destruction

Matched to NPV at 12% = 100

Target for salesforce annual growth rate (%)

o o o o o o o o o o180

ISO

140

o40

12% represents bestsustainable growthrate measured by NPV

24% appears better, assessed bypremiums, but really represents22% destruction of NPV

Like the auto service case, LondonLife's story shows what happenswhen the secondary effects of agrowth strategy are ignored. So howcan senior managers factor in theseeffects in their strategic thinking?Our experience suggests that twolevels of insight are necessary. First,managers need to be alert to whatwe have termed "strategic pitfalls" -generic sources of failure. Second,they need to be able to applydynamic analysis to their businessto generate specific actionablestrategies.

Minimizing secondary effects

In order to create value-generating growth, companies must take care tominimize undesirable secondary effects so as to maximize the impact oftheir strategic initiatives. Using these potential pitfalls as "sanity checks" onproposed actions can stimulate deeper strategic thinking and pay of̂ " inincreased profits.

Strategic portfolio-related pitfalls

The first concern of the CEO should be strategic portfolio-related pitfalls,since failing here is lethal, no matter how strong is downstream strategy orexecution:

^An imbalance in growth drivers and bottlenecks destroys value. LondonLife's experience reveals the importance of understanding both the forcesthat drive growth and those that constrain it. Though the company'sstrategy was based on expanding its core business, unforeseen bottlenecksproduced by too rapid growth brought it almost to extinction.

• Overloaded initiatives reduce throughput If an organization's developmentcapabilities are stretched in too many directions, not only will fewer

56 THE McKJNSEY QUARTERLY 1995 NUMBER 2


products or services be launched, but time to market will grow longer. Withlonger development cycles, further delays in product or service launches canoccur when design changes have to be made in mid-stream to keep up withrising market targets.

• Worsening results trigger still more fixes. If tax increases are not yieldingdesired revenues, or service initiatives improving customer satisfaction, thetemptation is to introduce yet more taxes or initiatives. CEOs should avoidpatching up a sinking strategy with ever more ineffectual remedies.

Cross-functional pitfalls

Arising at the interfaces between day-to-day operations, cross-functionalpitfalls can prevent growth ever getting off the ground, or render initialgains unsustainable:

• Out-of-sync functional strategies undermine performance. A specialtysteel producer suffered chronically late deliveries because of uncoordinatedactions by various corporate departments. Finance squeezed what it per-ceived as "excess" inventory; marketing shifted some of this stock to exportmarkets at low margins; operations reducedthe working week to save money. The result:the working week to save money. The result: I T̂ . .low profits and dissatisfied customers. ^°^^^ incentives often push

problems around, but corporate• Local incentives push problems around /^"'^^ °^ hot potato canrather than solving them. Corporate games depress growth and profitsof hot potato can depress growth and profits.At an electric utility, pressured operators tried to lighten their workloadby deferring "tagouts" - the process of marking equipment due to be takenoffline for repair. The maintenance department, which normally requestedthese tagouts, responded by using more short-term fixes that could be madewhile equipment was still running. But more frequent repairs and higherforced outage rates resulted in even more requests for tagouts, increasingthe pressure on operators.

• Simplistic compliance can defeat objectives. An industrial goodsdistributor decreed that excess inventory must be reduced. Local managersresponded by cutting easily controllable, fast-moving inventory items. Asshortages emerged, customers started to mark their orders "urgent" Theresult: after a brief decline, surplus inventory soared higher than ever.

• Upstream actions trigger downstream bottlenecks. The OEM trainingstrategy aggravated problems further on in the auto service process: timepressures causing weak diagnosis and poor equipment utilization, forexample. The strategy was not inherently bad, but it failed to recognizedownstream effects - a recipe for high costs and low effectiveness.



• Layered bottlenecks frustrate single fixes. One computer company worriedthat long delays within its materials resource planning system inhibitedresponse to customer demand. Shortening MRP cycles to speed the releaseof orders for materials with long lead times helped delivery performance,but created a new problem - more "sludge" inventory piled up at the end ofproduct life cycles. Solving one bottleneck simply brought another to light.Like squeezing a balloon, the pressure is transferred elsewhere, but it doesnot go away.

• The right strategy needs the right moment. Doing the right thing at the wrongtime can be worse than taking no action at all. In the auto case, improvingtechnician training yielded negligible benefits in customer satisfactionbecause the incentive system in place still rewarded output quantity overquality. If only incentives had been addressed before training, this initiativemight have worked, and customer satisfaction would have increased.

Pitfalls in capabilities and resources

Deep in the guts of operations, yet other pitfalls surround capabilities andresource allocation:

• Reinforcing capabilities are not in place to drive growth. For manyorganizations, early wins are ephemeral, and performance soon stagnates.One company bucked this trend; its management set ambitious annual goalsthat pushed it to the outer limit of performance. The leading-edge

understanding of equipment and process^ • t. *u technology it gained paved the way forFew companies have the ^ , , , , , , , •. , ,̂ further breakthroughs. Heavy investmentnerve to operate on the . , . r , •'

, J ^ ,̂ in new tools, training, and measurementedge and stay there ^ u i ^ .1, u- -, u

^ systems helped the company achieve turbo-charged" improvements in volume, cost

reduction, and profits, with an 8 percent a year fall in unit costs at thecompany's leading plant. But such success is hardly an everyday story; fewcompanies have the nerve to operate on the edge and stay there. For most,only a couple of experiments have to fail before management reproachnudges the organization back to its old, safe culture.

• Withdrawing resources from inefficient processes ultimately raises - ratherthan lowers - costs. Managers are frequently tempted to save money by reallo-cating resources, but this seldom works unless the processes concerned areimproved at the same time. In the electric utility example, reducing short-term fixes in the field leads to more requests for tagouts, and costs rise.

• Resource limitations set up a spiral of shrinking effectiveness. Say I buya car because my dealer assures me that the current incentive scheme isabout to end. Ten days later, I discover that the program has been not only

58 THE McKINSEY QUARTERLY 1995 NUMBER 2


extended, but enhanced. I have every right to be annoyed. If customerdissatisfaction becomes widespread, promotions will falter, leaving ashortfall in auto sales that the OEM may try to make up by introducingmore "sweeteners" - the source of the discontent in the first place.Promotional spending then hits budget limits and incentive programs arecurtailed to save money, becoming still less effective. Sales fall short oncemore, and the downward spiral feeds on itself

Pitfalls in competitive response

Many companies pay insufficient attention to possible competitiveresponses to their actions. Robust strategies recognize that competitors donot stand still. Avoiding the pitfalls means understanding how the companiesin an industry are connected and how theymay react to one another's strategic moves: ~. '. \

Actions by one company can• Pressured competitors fight to regain riPP'^ t rough the industry toposition. One international chemical com- '^'^^^. *,^ ""'y assuniptiotis thatpany sought to expand into the fast-growing °"g'"ally prompted the moveAsia Pacific market, building a new plantand a strong regional sales organization. Yet even as sales rose, worldwideprofitability fell. The plant was supplying over 15 percent of the marketnormally served by North American facilities. Perceiving this as a threat,competitors were cutting prices and squeezing margins, first in NorthAmerica, then in Europe and Asia. Worst of all, traditional accountingsystems that track regional financial performance, but not interactionsbetween regions, would never detect this cannibalization of earnings.

• "Boom-bust" behavior stifles growth. In another chemical market, severalcompanies cut costs by 6 percent a year for three years in response toovercapacity and weak profits. However, they saw 85 percent of the costreductions go straight to the customer as their attempts to win market sharefailed. Low prices triggered capacity shutdowns, but some time later,product substitution stimulated demand growth of over 5 percent a year.Within two years, prices were at record levels, but producers were caught bysurprise with insufficient capacity to take advantage of the booming market.

• Competitive moves undermine the bases of profitability. Actions by onecompany can ripple through the industry to wreck the very assumptionsthat originally prompted the move. A major petroleum company invested inmaking "clean" products such as gasoline out of "dirty" products such asfuel oil at a time when the difference in price between the two wassubstantial. Within two years, the proliferation of clean products and thetighter supply of dirty goods had cut the price difference by 50 percent,transforming the expected profit into loss. A senior executive lamented:"We made a SI billion mistake."



Bottlenecks in the business system

Company

Purchasing Manufacturing

I iPlanning

i I

Potential sources of bottlenecks

— ' I ' — Cross-functional

—',— Company-to-market

Distribution

Productdevelopment

Marketing

Customersatisfaction

Customers

) Indu

Supply

strypricing

Industrypricing; supplyand demand

Competitorretaliation

Competitors

Avoiding bottlenecks

Strategies for growth can beblocked by bottlenecks any-where in a business system(Exhibit 5). Understandingwhere bottlenecks mightarise and crafting a strategyto work within or aroundthem should be a priorityfor senior managers. A goodway to start is by firstmapping out interrelation-ships across the businesssystem, then asking somefundamental questions:

• What creates the potential for growth in this business? Is it serviceperformance, as in the auto case, or choosing the right market and growthrate, as in the life insurance case, or some other source specific to ourindustry?

• What are the primary bottlenecks that limit current growth?

• If we address them, which second-level bottlenecks will surface next?And how do we deal with those?

• As we put our growth strategies in place, how do we recognize and avoidpotential strategic pitfalls?

There is certainly no shortage of ways to fail, but as the OEM and lifeinsurance cases suggest, understanding business complexity and designingstrategies around true leverage points can unleash genuinely profitablegrowth potential.

The CEO challenge

The Business Dynamics approach to building a better understanding of thesecondary effects of growth strategies raises four key questions for CEOs toconsider:

1. Under what conditions can growth be sustained in our industry?

2. How can we build skills and awareness so that our people will alwaystake account of secondary effects in their strategic thinking?

60 THE McKINSEY QUARTERLY 1995 NUMBER 2


3. How can we shape the structure and incentive systems of ourorganization in line with these insights to minimize the unintendedsecondary effects of our growth strategy and maximize its impact?

4. How can we use this capability to strike a more powerful strategicbalance between efficiency measures (such as cost reduction) andeffectiveness improvements (such as higher productivity)?

We are on the threshold of a new way of thinking for CEOs that gets at theanswer to these questions and helps them better manage the growth of theirbusinesses. The complexity of today's competitive landscape is shaping anew senior management agenda: developing profitable, sustainablestrategies for growth and understanding fully the dynamic secondary effectsof their actions in pursuit of these strategies. Only then will businessesescape the pitfalls that have held them back for so long. O


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