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The Growth Strategy Non-Option

Today’s business landscape is an uncertain place. Economic growth is sluggish, volatile and spotty; stock markets remain rich by historical measures against profits; there is the ticking time-bomb of an all-time high US consumer debt. While there is a continuing malaise in the world economy, there is a growing view that we have probably seen the last of market growth as a prime underpinning for many business strategies,

at least in the medium-term. This may be particularly relevant for the paper and packaging businesses in the developed economies. For business leaders, this means doing things differently and embracing new skill sets for a new “New Economy.”

Much of the growth in the 90’s was bought through mergers, international expansion and price increases [Adrian Slywotzky, Mercer Management Consulting]. Companies have now run up against the “limits of growth,” markets are saturated and investment is flat. This is most clearly seen in airlines, telecoms and power generation, but there is likely a deeper underlying theme for what might be described as “consumer retrenchment.” Managers must now learn to cope with the possibility of falling prices; prices of cars, food, clothes and many services are all declining; the low cost “China Effect” is also growing. Winning market share is now not a case of build and they will come, but more a zero-sum game where market growth is at the expense of someone else’s lunch. This is a different business landscape requiring different strategies and skills — as Ron Nicol from BCG Consultancy states, “Growth is not an option.” Within this context, more liberal free trade now appears on the long-range radar screen. The US has stated its intentions plainly: To promote free trade globally, regionally and bilaterally, while building support at home. Moreover, America’s trade policies are connected to their broader economic, political, and security aims [Robert Zoellick, The Economist]. However, there are opportunities in what is perhaps an uncomfortable business scenario: it is easier to shut down marginal capacity, to cancel expensive projects with uncertain returns, to take stock of and upgrade human capital [translation: fire and then hire what you need]. Above all, it is a time to explore new business horizons and strategies.

Many companies have refined manufacturing techniques over the past decade to the point where few further economies can be made. For many, business as usual will not cut it. But there may still be savings in the more obscure parts of the business such as logistics and knowledge management. Keeping inventory to a minimum both in the supply and distribution chains is critical in an environment of falling prices. If companies are willing to spend a bit instead of cut to the bone, hard times offer the opportunity to explore the structural change necessary for survival. For example, after September 11, Boeing switched to moving assembly-line and lean-production techniques borrowed from the auto sector; but it also invested in high-speed satellite links into passenger aircraft and air-traffic-management systems. Boeing also acknowledged a misread for the cost-conscious traveling consumer by abandoning its “Sonic Cruiser” project. Closer to home, the much-hyped “Convergence Strategy” of many media providers [including newspapers] has not fulfilled the promises of extra ad revenue. BCE Inc. is abandoning its massive convergence strategy; the Internet has not provided the synergies and AOL-Time Warner is in serious rethinking mode. The lesson is that if you own distribution, you don’t necessarily have to also own content to pump through the pipes.

Why is this important?

What might the Boeing and Media examples suggest for the Paper sector? It may be as simple as knowing your core business — in great depth — and finding the market synergies that can provide new value propositions to customers and consumers. Media consumption is a growth sector and it occupies 40% of people’s lives — including sleep. The bottom line is that the paper sector must find new ways to compete in a world where they will have a smaller share of the consumer attention pie. It is finding the differentiating business strategy that sets you apart from the competition.

Alan Procter provides consulting services to international clients in the fields of future-focused business strategy. He can be reached at futureviews@alanprocter.com