The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise

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The Alchemy of Growth cuts through the confusion by drawing lessons from the experiences of thirty of today's greatest growth companies. Based on a detailed three-year study undertaken by one of the world's leading management consultancies, McKinsey & Company, it provides a powerful methodology for understanding, preparing for, kickstarting, and sustaining profitable growth. For the past three years, Mehrdad Baghai, Stephen Coley, and David White have led an intensive research program investigating growth in ...
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Overview

The Alchemy of Growth cuts through the confusion by drawing lessons from the experiences of thirty of today's greatest growth companies. Based on a detailed three-year study undertaken by one of the world's leading management consultancies, McKinsey & Company, it provides a powerful methodology for understanding, preparing for, kickstarting, and sustaining profitable growth. For the past three years, Mehrdad Baghai, Stephen Coley, and David White have led an intensive research program investigating growth in large corporations throughout the world. This book is the product of that research.
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Editorial Reviews

Library Journal
This slender volume is the latest in a growing number of books from accounting, management, or consulting giants. Here, the topic is that most elusive of business concepts, growth. Coauthors Baghai, Stephen Coley, and David White are partners at the renowned consulting firm of McKinsey & Company, specializing in growth strategies. They feel that the growth creation process has three stages: maximizing current business, building emerging issues, and developing viable options. This framework is used to examine successes and failures while exploring the interrelated issues of inertia, momentum, business history, opportunity, leadership, and sustained growth. The last third of the volume consists of two-page summaries of the 30 companies used as successful examples. The concepts are clear, logical, and well documented with footnotes, but this type of business book will date quickly even if the underlying theoretical framework is sound. Public and undergraduate libraries will find this an acceptable though optional purchase.--Patrick J. Brunet, Western Wisconsin Technical Coll. Lib., LaCrosse Copyright 1999 Cahners Business Information.
Bill Shepard
From experts at McKinsey & Company's world-renowned growth practice comes a highly practical, field-tested approach to initiating and sustaining corporate growth.

Growth unleashes benefits beyond the economic. It revitalizes organizations and invigorates the people in them, creating energy, a sense of purpose, and the glow of being on a winning team. Yet growth is often elusive, achieved at unacceptable costs, or managed in fits and starts. Based on over three years of research and application at high-performing companies around the world, The Alchemy of Growth is a comprehensive, practical approach to initiating, achieving, and sustaining profitable growth-today and tomorrow.
Global Finance

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Product Details

  • ISBN-13: 9780738201009
  • Publisher: Basic Books
  • Publication date: 5/1/1999
  • Pages: 250
  • Product dimensions: 6.40 (w) x 9.54 (h) x 0.97 (d)

Meet the Author

Mehrdad Baghai is a Principal in the Sydney and Toronto offices of McKinsey & Company, and co-leader of the firm’s world-wide growth practice. Stephen Coley is a Director in McKinsey’s Chicago office, and leads the firm’s corporate strategy practice group. David White is a Director of McKinsey’s Sydney office. Mehrdad Baghai is a Principal in the Sydney and Toronto offices of McKinsey & Company, and co-leader of the firm’s world-wide growth practice. Stephen Coley is a Director in McKinsey’s Chicago office, and leads the firm’s corporate strategy practice group. David White is a Director of McKinsey’s Sydney office. Mehrdad Baghai is a Principal in the Sydney and Toronto offices of McKinsey & Company, and co-leader of the firm’s world-wide growth practice. Stephen Coley is a Director in McKinsey’s Chicago office, and leads the firm’s corporate strategy practice group. David White is a Director of McKinsey’s Sydney office.

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Read an Excerpt


Chapter 3: Laying the Foundation

Profitable growth energizes people, makes for an exciting environment, and creates shareholder value. It should not, however, be the top priority for all corporations. Some are simply not ready for a growth-oriented culture. For them, growth must take a back seat to building a solid foundation of operational excellence, competitive strength, and sustainable cash flow.

Much of the corporate restructuring movement in the United States and Europe has been aimed at achieving this foundation for growth. Unfortunately, many companies, particularly in Europe and Asia, are not yet there. But restructuring and improving performance--starting to earn the right to grow, in our terminology--make up only half the picture. The other half is extraordinary leadership will.

So difficult is the task that the whole senior leadership team must share the resolve to grow. Creating this resolve is another critical part of the foundation for growth.

Many of the ideas in this chapter have emerged from our research into what we call "inflection" companies: enterprises that deliberately set out to increase their rate of growth and succeeded in doing so. These companies are distinct from our sample of 30 great growers. While the latter offer insights into how to sustain growth for a decade or more, the companies we cite in this chapter are notable for their success ill overcoming inertia to kickstart growth. Not all have managed to sustain that growth.

Earning the Right to Grow

No growth program can begin without a strategically and operationally sound base. A successful growth program will demand management's full attention, so any major problems in the core business must be resolved before work can begin. Growth also calls for investment. A company must show that it can remain profitable and generate enough cash to sustain the investment required to pursue growth. Otherwise, funding for growth initiatives may be axed during economic downturns. Few decisions are as demoralizing as cutting back investment after a company has courageously set off down the growth path.

To earn the right to grow, a company must achieve superior operating performance, sell any distracting or underperforming businesses, and build the confidence of the investment community--three critical steps that are illustrated in the recent history of the Warnaco Group.

Superior operating performance

The growth-sustaining companies in our research base are all outstanding operators, usually enjoying market-share leadership and lowcost producer status. They recognize that the issue is not growth or operational excellence, but growth and operational excellence. Superior operating performance is the product of a strong strategic position combined with executional expertise. These conditions enable management to lead and finance growth initiatives. How companies achieve superior operating performance has been the subject of hundreds of articles and books.

For more than a century, Warnaco earned a good living making bras and intimate apparel. As time passed, it branched out into men's clothing and active wear. By 1986, it had become a broadly diversified apparel maker worth $600 million, with a portfolio of popular brands including Olga, Geoffrey Beene, Hathaway, and Chaps by Ralph Lauren. Despite these business -building moves, solid growth had proved elusive for a decade, with sales increasing at just 5 percent a year. Worse, operating performance was unacceptable. Profits in 1986 were little different from those in 1978, and the company was not earning its cost of capital.

Years of cost cutting had left the business stable but only marginally profitable, and its growth pipeline empty. But this was soon to change. Andrew Galef and Linda Wachner led a leveraged buyout of the company in 1986, and Wachner became CEO.

Faced with a mountain of debt and underperforming businesses, Wachner knew she had to act quickly. She chose to focus first on improving operations, replacing most of top management and supplying her new team with cheap spiral-bound notebooks bearing the message "Do it now." She dragged her managers along to visit stores during the holiday selling season. Every Friday night, she responded to single-page memos of problems faced by division heads. Such actions signaled the sense of urgency that Wachner wanted to create in the new Warnaco. Her strong personal leadership and the new managers she brought in enabled the company to take the necessary tough actions to improve its operating performance.

Internal restructuring improved profitability early on. The Chaps by Ralph Lauren, Christian Dior, and Hathaway divisions were combined; all intimate apparel was brought together in one division; 15 underperforming stores were closed; and Olga international operations were consolidated. Slow-selling lines were dropped, working capital was managed more tightly, and manufacturing effectiveness programs were introduced. Warnaco also acquired low-cost factories in Asia.

These measures increased profits by 250 percent in 1987. Though not yet secure enough to grow sharply, Warnaco could at least consider investing in growth initiatives. Operating performance was stable and poised to improve from a sound base.

Strategic divestment

Companies with strategically distracting or badly performing businesses must use their judgment. Should they try to turn them around, or sell them off? Chief executives of growth-sustaining companies tend to opt for divestment rather than invest time, money, and energy in improving the performance of businesses that are not central to their companies' future. Most of the 30 successful growth companies in our sample shed such businesses, as did all nine of the "inflection" companies that made a deliberate choice to grow.

Chief executives contemplating growth usually follow a logic something like this: I can create far more shareholder value by investing senior management energy in improving our A businesses than by turning around our C businesses.' Needless to say, such an approach applies only to units that are not strategically important, and entails finding buyers at acceptable prices for the C businesses.

Pruning the portfolio of businesses through divestment creates capacity for growth. Although a business unit may still be earning adequate profits, these must be weighed against the opportunity costs of management distraction and competition for resources. Management attention and other resources are often more productively focused on growth opportunities than on businesses with limited potential. "We divest any part of the business we are not happy with...we are very disciplined," said Alfred Zeien, Gillette's chairman and chief executive. "We are convinced that the benefits of worldwide leadership are so great that we can't afford to waste time, money, and management talent where that leadership is not achievable."

Shedding unsatisfactory businesses has the added benefit of signaling strategic intent to both stock markets and employees. Conversely, not pruning increasingly irrelevant businesses can send mixed messages about a company's direction and resolve to grow.

At Warnaco) Wachner quickly launched a program of strategic divestment. When she took charge of the company, it was competing in four apparel groups and operating specialist retail stores. Seeking to improve cash flow and pay down debt, Wachner chose to divest and consolidate until only two lines of apparel were left. She kept cash generators that had strong distribution, but sold cash losers that did not (women's wear and 15 stores). Active wear, a Wachner favorite, was reluctantly sold in 1990 to raise cash for debt payments. By 1992, Warnaco focused exclusively on intimate apparel and menswear, profitable businesses that have laid the foundation for the company's subsequent impressive growth...

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Table of Contents

Preface
Acknowledgments
Special thanks
Pt. I Understanding growth 1
1 The three horizons 3
2 Looking in the mirror 19
Pt. II Overcoming inertia 33
3 Laying the foundation 35
4 Searching for opportunities 51
Pt. III Building momentum 69
5 Staircases to growth 71
6 Securing advantage 89
7 Winning through execution 105
Pt. IV Sustaining growth 121
8 Managing by horizon 123
9 Organizing for growth 141
App: Research base and case studies 157
Bibliography 235
Index 245
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  • Posted April 4, 2014

    Very helpful with organizational assessment work!

    This was easy to read and understand. Quickly put the ideas to practice!

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  • Anonymous

    Posted March 3, 2000

    Stories are not a good basis for action

    This book is fundamentally not about growth. The talk about growth, although relevant, misdirects a reader's attention; growth is a secondary theme. The book is about strategic development, or as the Epilogue suggests, strategic transformation. A topic such as Spinouts fits within strategic transformation; it does not fit within growth. (The subtitle is also misleading because the manuscript does not talk only about how to sustain the success of successful firms. It often talks about converting unsuccessful firms into successful ones.) The authors say nothing about their research methodology. They say nothing about the biases in and limitations of their data. They seem to be unaware of the need for a backdrop against which to cast their cases. This backdrop could be comparison cases of, say, firms with average growth rates. Or it could be the existing literature relating to strategic development, organizational learning, perception errors, strategic implementation, and so forth. Basically, the book's strengths lie in its stories and its simplistic conceptual scheme. Its weaknesses lie in the authors' ignorance of research about this topic and in their unawareness of the need for sound research mthodology.

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