Michael Treacy Focuses on Double Digit Growth

I recently sat down with Michael Treacy, who has a formidable career as top business strategist and is co-author of one of the most popular business books, The Discipline of Market Leaders^[1]. His new book, Double-Digit Growth was one of the most useful and optimistic books I have read in some time. Growth is the whole point of business. Yet many so-called leaders don’t seem to have plans to fulfill their purpose. This should be read by all business execs—no matter what your sector. AG

ChainLink: Michael—can you tell us a little about yourself—where were you born, early inspirations in life?

Michael:
I grew up in Canada, in a little town of 5,000, called Parry Sound, which is famous in hockey circles, the home of Bobby Orr. Came down to go to school in Boston in ‘78 and I never looked back.

ChainLink: Early career moments—what made you who you are?

Michael:
Although most people see me as a consultant, I really see myself as an entrepreneur. That is probably the most important thing. This is the 7th venture, at Gen3, that I am doing. And you know, you are a small business. What are you thinking about? All you’re thinking about is its growth. And when you are small (nobody wants to be a small business), that is where you have to start out. So, my whole career, all I have thought about is how you drive growth.

ChainLink: What was the impetus for writing Double-Digit Growth?

Michael:
I thought in ’95 I had cracked the code on growth with the Discipline of Market Leaders. I thought...if you are a value leader, boom, you grow. What I have subsequently found out is yes, value is important, but it’s not the whole story. And there is more to growth than simply being the value leader in the market place. That is what motivated me to do this book.

ChainLink: So, out of these ideas came the new book. How did you derive the content for the book Double-Digit Growth?

Michael:
I learn in a few ways—the way I think about things is, I learn by doing. I have had my own businesses and struggled, and over the years consulted with lots of companies—some highly successful. Putting your ideas into action makes the difference. It shapes your thinking. And the third thing is, you know I spent ten years at MIT doing research. So, when it comes to conducting this kind of research, I am very well equipped. Just as an aside, I read a lot of business books—and some of the methodologies are just atrocious. I think applying the right methodology to draw the right conclusions to guide people is critical. Well, this might be aside.

Chainlink: No, I don’t think so. How people derive their conclusions and then what actions to take is critical for people to become successful. So, what is the key message for business leaders, especially in this environment we are in now?

Michael:
Exactly what I’m learning is, if you ask any manager to cut cost by 10%—they know exactly how to do it. Why? It’s because they have a management discipline—a methodology. They have management information systems. They know what data to gather. They go out and create a project team, they meet monthly to review progress, and before long, the goal is achieved.

If you ask the same team to grow by 10%, they give you a blank stare. Why? It’s because they think it either requires luck, trial and error, or a growing economy. There is no sense that there is a disciplined way to generate growth. They don’t have a methodology. They think their growth is luck, a good economy, or trial and error. And there are lots of illustrations of that.

There is no sense that there is a disciplined way to thrive and grow with confidence, and that is demonstrated by the kind of information systems they have—for example, budget and financial system. You know how budget statements work. You get 10 lines on cost and one line on growth. So, when I go around and talk to companies, there is disbelief that you can turn growth into a discipline where you have a certainty of result. Do you know… people don’t believe that? And I find that remarkable.

ChainLink: So, why are these people leaders, why are they entrusted with the job of growing their companies?

Michael:
That we have not built a sophisticated understanding and discipline about growth, I find remarkable. We do not have a sophisticated understanding that growth can be a method—a discipline. Yet, you go into a Wal-Mart, a Mohawk or an Oshkosh, they have certainty about the results they can achieve. As certain as their cost cutting, they know why they are going to grow, and they know what initiative will drive that growth. To me, that is the biggest insight of this book—that there is a disciplined approach for growth, just like a disciplined approach to cost cutting.

ChainLink: We just went through this spent and panic phase in the business community, which to me was really frightening. Spending money, all that money, with no plan—and now there is no spending. Why do these exec’s have these jobs if they have no real plan?

Michael:
The missing component is execution—in all these businesses.

ChainLink: So, let’s talk about Johnson Controls...

Michael:
Johnson Controls has a really sophisticated approach to growth—they are very smart the way they pursue adjacent markets.

ChainLink: Adjacent markets, in fact all the cases you talk about… What is key though, is the leadership—would Oshkosh Truck Corporation be Oshkosh without Bohn running the company?

Michael:
My opinion is that growth is about the management of people, not only the strategy. That’s number one. And the strategist won’t solve the growth problem. It needs to be solved by a whole bunch of people who have a holistic approach to management. I think half of the equation is the people management discipline.

I am currently doing research on the differences between the people management state of low growth vs. high growth firms. What is interesting about people management is it is very comparable to supply chain—it’s just the supply of people. Think of the current challenges you have—getting a supply of the most knowledgeable people. Do I have my most talented people working on the growth projects? They are usually scattered throughout the organization. Firms like GE and Citigroup have really seeded their industries with leaders. We will see these people come out of Dell...

ChainLink: We just did a story about a Dell executive who is making big changes at StorageTek, so these firms do produce leadership that is transferable in other firms.

Michael:
You have to go get leadership in whatever discipline, through the right management programs. If you think about HR being the most neglected organization in the enterprise… So, my new research will address this.^[1]

ChainLink: We have been trying to bring the people side of this into our supply chain writing; our case studies are written from the point of view of ‘what did the project leader or sponsoring manager really think, really do.’

So, the big growth disciplines are:

Michael:

• First, retain your customer base. It is more than a loyalty program, but an ever-expanding value to your key customers.
• Second, gain market share...

ChainLink: But that’s like saying, you grow because you grow...

Michael:
Yes, but most companies do that by eye-to-eye slugfest, or dropping prices, which only loses money. The operating model is to devote yourself to value and make smart acquisitions and take those competitors out of the market.

The third discipline is to exploit your market position, or show up where growth is happening. This is like Johnson Controls constantly moving into an ever-expanding role in the automotive market—very smart.

ChainLink: In the software industry, I give advice to clients like that.... knowing your position in the ‘data chain’ or market, and leveraging that—using channels, being an imbedded module, etc.

Michael:
Right, finding your position and gaining share—and growth through that. I think a key idea here is in understanding the shift in customer buying criteria, then move—place your bets—on the value destination in which customers are moving. There are technology and process breakthroughs that can be identified and taken advantage of.

ChainLink: I like this concept of the adjacent markets (that’s the fourth discipline). It seems that if you are really knowledgeable about your products, supply chains, and the market players around you, that this would be the killer strategy—providing the customer a total solution.

Michael:
Right. Can you build, or should you acquire the new competitive position?

Which leads to the fifth discipline of investing in new lines of business.

ChainLink: But haven’t we gotten our fill of false synergies?

Michael:
These are not synergies. These are new sectors all together, which may be unrelated to the current business. But you have to proceed here with great caution. Outstanding errors were made buying at a premium during the last few years.

So, 5 Disciplines for growth—retain your customer base, gain market share, exploit your market position, penetrate adjacent markets, invest in new lines of business. Sony beat out Microsoft, Sega, and Nintendo for domination of the once-flat video game market by teaming up with video game developers, excelling at distribution, and creating an untapped adult market for video games. General Electric controls "customer churn" by creating "sticky" relationships with clients that make it hard for them to defect from GE.

ChainLink: This is the real stuff.

Michael:
So, how does this relate to your supply chain readers?

ChainLink: That was my question! One of the reasons we started this magazine was to address ways the SC team could identify and initiate and support the growth side and the growth language of the CEO.

Here are some ways:

ChainLink: I am most interested in this discussion about leadership and talent development. When I think of the US, it doesn’t strike me actually as a place where we are grooming talent these days...the mid tier jobs are moving off-shore.

Michael:
In my lifetime, we will see the US change. Even the higher-level knowledge workers—radiologists, for example—will be offshore.

ChainLink: It makes me think about where will be the strong places for growth, to invest in.

Michael:
Think about it. By today’s standards, Ozzie and Harriet would be considered poor—one TV, one phone, one car. Now, there is a TV in every room in the house! The entertainment business is not only something that sells here, but can be exported.

ChainLink: And services.

Michael:
But those are low-level jobs. Think about it, firms like Jet Blue and South West are successful, because they operate on a lower labor cost—all this talk about hubs, etc. It’s really the labor costs.

ChainLink: I was thinking about repair. You know, as manufacturing goes east, the need to serve the western market still exists.

Michael:
But even there, the service firm is doing everything it can to avoid actually sending someone on the road.

ChainLink: Right. Automation—optimizing the service network, remote diagnostics, etc. should all be decent businesses.

Michael:
Well, I guess a really good paying job—will be a global logistics person.

We think so too!

[1] The Discipline of Market Leaders—Choose Your Customers, Narrow Your Focus, Dominate Your Market, by Michael Treacy and Fred Wiesema

[2] Parallax View readers will see more of this in the new year

©2003 ChainLink Research, Inc.