Reports

Commentary

Closing the Growth Gap: Balancing “Big I” and “small i” Innovation

George S. Day, 2006, 06-121

Organic growth is the main driver of a firm’s stockmarket value; yet most managers doubt they can consistently reach their firm’s ambitious growth targets. One reason is that spending on safe, incremental projects tends to displace more ambitious, but riskier growth initiatives. In this commentary, author Day describes the processes and strategies needed to support higher-yield, “Big I” innovations. He offers examples of several firms—among them GE, Praxair, and Philips—that have overcome the centripetal pull toward “small i” initiatives to realize “Big I” opportunities with higher risk-adjusted returns.

As the pressure for organic growth intensifies, the number of growth initiatives soon outstrips the capacity of the firm to bring them to market. The internal traffic jam that results further damages and delays all these initiatives. The antidote is a disciplined process for managing organic growth, along with sustained top management commitment that is supported with adequate resources.

The growth process starts with a realistic assessment of the inevitable gap between the ambitious goals for growth and the more limited prospects for growth from the momentum of the current strategy plus the projects already in the portfolio of growth initiatives. Achievable goals can then be set for each source of future growth.

The next step is an expanded search of the three domains for organic growth: deeper market penetration, expansion into adjacent markets, and exploration beyond adjacencies. The portfolio risk matrix shows that adjacent markets offer the best combination of revenue and profit growth with a tolerable level of risk. The risk estimates in the matrix are based on an extensive database of post-audits of successes and failures.

The full potential of each growth initiative will be realized with rigorous screening to identify points of weakness and flawed assumptions, and the risks that have to be contained. Day proposes a “Real-Win-Worth It” screening process based on three questions: Is there a real market and a real product? Can we win? Is it worth doing? Risks can be contained by probing and learning (making cautious investments to accumulate learning), collaborating and sharing with partners (using partners, suppliers, and specialized contractors to absorb some risk), or waiting in readiness to be a “fast-follower.”

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