Harvard Business School Working Knowledg e Archive

Building a Platform for Growth

5/22/2006
Sometimes building growth in mature industries means more than simple product extensions or acquisitions. The answer? Develop "growth platforms" that extend your business into new domains. An excerpt from Harvard Business Review.

Editor's note: Researchers at Harvard Business School and INSEAD helped Boston-based consulting firm Oyster International study how executives of twenty-four successful companies achieved organic growth over time. The answer: by creating "new growth platforms, on which they could build families of products, services, and businesses and extend their capabilities into multiple new domains." United Parcel Service is a prime example, as it expanded from a small-parcel delivery service into a variety of high-growth areas, including managing the flow of goods for customers. This excerpt reveals the common characteristics of companies that successfully built new growth platforms.

Platforms as Business Models
UPS is not the only company that explicitly looks for platforms rather than products. Originally, Medtronic was highly focused on pacemakers, but under former CEO Bill George and current CEO Art Collins, it has leveraged its market knowledge and capabilities to establish broad platforms for products assisting in the treatment of cardiovascular, neurological, and spinal diseases, as well as diabetes. Branded consumer goods manufacturer Procter & Gamble has also cottoned on to the platform concept. In 2000, within six months of becoming CEO, A. G. Lafley established FutureWorks, a stand-alone business unit whose charter is to build growth platforms for P&G and search for opportunities between and beyond the scope of existing business units. Although these and the other companies we studied and worked with differ in specifics, they approach the challenge of platform focus in remarkably consistent ways. Specifically, they:

Put credible chief growth officers in charge. In every successful case we observed, the head of an New Growth Platform unit, or chief growth officer (CGO as we called him or her), was a future contender for the CEO position or a unique senior executive with credibility, organizational skill, and a deep interest in opportunities beyond the current mix of businesses. These executives typically had a sense of curiosity, an external focus, and authority to act. UPS's Mike Eskew, as we noted, subsequently became CEO. At Medtronic, physician Glen Nelson was also vice chairman and responsible for research and development, strategy, mergers and acquisitions, corporate venture initiatives, and new business/platform development. One company we worked with looked at three candidates for the job. Two of them were leaders of core business units, and the third was a senior manager who had been president of three venture-backed businesses, the most recent one having been acquired by this company. NGP leaders also had close relationships with their CEOs, which made other executives take more notice of the units. Medtronic's Nelson, and then-COO Collins, were both part of the office of the CEO at Medtronic. Lafley handpicked a young general manager, Dan Rajczak, to lead FutureWorks. Rajczak had worked in Asia when Lafley was running that regional business.

Believe that the team is more important than the idea. Many executives take the view, "Show me a good idea and I will build a team around it." But most, by our count, only see a good idea every few years, and most are not good judges of what they'd need to make it work. That's not to say that plenty of new ideas don't exist. They do, but they are often underdeveloped or unrecognizable as potential successful businesses. To identify and develop them, you cannot rely on the smarts of a single senior executive; you need an organized and empowered team in place. Think back to UPS. A critical point of that story was that Eskew's team was established to develop a pipeline of new growth platforms over time in order to become a long-term strategic partner for growth in areas beyond the scope and reach of the business units. It was not an innovation group established to pursue ideas on an ad hoc basis. Indeed, concurrent with SPL, the team was hard at work conceiving six other platforms, each with a potential comparable to SPL.

The NGP team should consist of three or four senior executives who not only possess a thorough understanding of the company's markets and operations but who are also entrepreneurial and have experience in building new businesses. They should have the ability and authority to make big decisions quickly on major investments such as acquisitions, and they should be able to advise the operating managers they recruit for the individual businesses created on the platform. CEO Ron Zwanziger explains it from an Inverness perspective: "We like people who see the future and make connections. It's an attitude we want throughout the business. We don't want a production manager cutting costs and driving efficiencies that take away the manufacturing flexibility we need as we develop a new platform for the future."

These executives typically had a sense of curiosity, an external focus, and authority to act.

Have NGP units that are independent and embedded. NGP units are both independent from and highly dependent on the corporation's existing businesses, bureaucracy, way of working, and related norms and rules. They have to be independent because looking for NGP opportunities requires a longer performance horizon than a typical business unit has and an ability to step out of an existing business model and culture. When the potential for an Implantable Cardioverter Defibrillator was first recognized at Medtronic, Nelson and Bobby Griffin, president of the pacemaker business unit, knew that, for the technology to be successfully developed and commercialized, it would have to be split off as an independent business unit and led by a high-potential manager. This move allowed the new ICD technology to develop without as much pressure to deliver short-term financial results and without oversight of traditional approaches in the pacemaker organization. It also required a collaborative relationship with the pacemaker unit because much of the technology resided there. As president of both divisions, Griffin could referee and enable functional interaction, resource allocation, and priority setting. At the same time Nelson could use his authority to champion the organization structure and allocation of resources while making certain this small unit received the same level of attention as the larger units by the office of the CEO. "It didn't lack for sunshine," he explained.

Too often, the business unit's priority is to deliver the annual plan, which means increasing productivity; that is, reducing cost while pursuing predictable, iterative growth such as product-line extensions, geographical expansion, and acquisitions of closely related businesses. Today, implantable defibrillators provide 25 percent of Medtronic's revenues. While a strong measure of freedom is important, an NGP unit must be well embedded in the corporation in order to identify and use existing knowledge, IP, processes, and assets. Although the important strategic thinking capabilities are often resident at corporate headquarters, the comprehensive knowledge about customer problems and how these might be resolved are inevitably embedded deep within the organization in people with full-time day jobs. To tap into talent and information successfully, the unit must be closely tied to and have credibility within the company. It won't take long for experienced operating managers to realize that the support functions (HR, IT, finance, and legal, for instance) that have a mandate to ensure consistency across the business may have difficulty supporting an NGP unit with a significantly different mission.

Guarantee financial independence. Top management needs to ensure that the financing for an NGP unit is not crowded out by the core business-unit demands. Nothing is more soul-destroying for a small, dedicated NGP unit than having to put in six to eight weeks a year to competing in the annual budget cycle against business units with budgets in the hundred million- or billion-dollar range. Financial planners looking for savings in the annual budget cycle inevitably challenge the unit's resource requirements: "Can't they use our corporate strategy people rather than have a dedicated person? Can't they wait until they have a platform before we assign an NGP executive to the group? Do they really need a dedicated venture and acquisition person?" And although some business-unit executives see the NGP unit as another horse in the race, others find it threatening to their authority and a waste of resources they believe would be better deployed in established units that know their customers' needs. Typically, therefore, we found that, in successful companies, investment capital—for the unit and the new products or businesses within the new platforms it identified—was separated from the budget and operated as a discretionary enterprise growth fund of some kind. The fund investments were authorized by the investment committee or a representative group within the executive team office. P&G's FutureWorks and the new platform opportunities it identifies are funded by P&G's Corporate Innovation Fund, which is managed by the CEO, CTO, and CFO. Every CEO we know who developed growth platforms describes the initial investment as "peanuts" when compared with the value created. They all recall, however, the agony of early budget debates. In every case, the CEO's personal intervention provided budget air cover during the early years.

Systematize the NGP creation process. Successful NGP companies like UPS, P&G, Medtronic, and Inverness had all systematically defined the processes of NGP creation and the roles of the various participants. The CEO framed the challenge. The executive team selected the CGO, created the unit, established the mission, identified new domains, and took stock of core capabilities. The NGP team shaped the new platforms, identified capabilities to be assembled, and noted potential acquisitions. Together, they determined the roles and way of working with the core business. This careful attention to articulating the process of platform innovation and related activities is important not only for ensuring that NGP creation becomes a continuous activity but also because it builds companywide commitment to the very idea of NGPs. Unless the activities involved in creating platforms are well defined, talented line managers will never buy into the idea that NGP innovation needs to be separate from the incremental innovation that their units already undertake. They need to understand the implications and rules of engagement for cross-unit collaboration and "what this means to me in my area of responsibility."

Excerpted with permission from "Creating New Growth Platforms," Harvard Business Review, Vol. 84, No. 5, May 2006.

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Donald L. Laurie is a managing partner at Oyster International, where Claude P. Sheer is a managing partner. Yves L. Doz is the Timken Chaired Professor of Global Technology and Innovation at INSEAD in Fontainebleau, France.