Driving the next wave of growth

Advisors love to tout the failures of traditional transformation (“75 percent of all transformations fail”). At A&M, we are increasingly seeing and helping clients overcome even more pressing matters…less than 50 percent of all digital, data, and AI spend by the F1000 is delivering ANY value to shareholders, customers, or employees. We believe business strategy and transformation have evolved, elevating “digital transformation” to a catalyst for business leaders as they drive a step change in capturing the next wave of value with greater pace and certainty. 

In part one of the series, we outlined how leaders see beyond the technology hype, tailor solutions to the use cases that matter, and drive practical investments with strategic partners to accelerate and maximise value creation with digital, data, and AI, read more here. In part two of the series, we explore “what”, “why”, “when”, and “how” to invest, prepare a business, and drive the next wave. Standalone innovation initiatives belong in Research & Development (R&D) and not at the centre of a business transformation and growth agenda.

Purposeful growth agendas balance measurable financial value today, while systematically pushing the boundaries of the business tomorrow. Successful growth agendas are customer-focused by design but also enabled by finance and operations to ensure scalability, sustainability, and sizeable contribution to the Profit & Loss (P&L) of the resulting new business, products, or services. Business transformation and the growth agenda are intrinsically connected. Leaders can create and maximise value by positioning growth at the centre of transformation to energise and sustain momentum with customers, operations, talent, and investors. Advances in technology – from AI in product development to new forms of digital engagement, loyalty, growth, and retention – entice leaders with an endless set of possibilities to grow new digital businesses. Unfortunately, the promises for new profitable revenue streams and shorter time to market are rarely delivered. The market’s prerogative on near-term profits has also heightened the scrutiny of owners or investors requiring CEOs to drive simple, focused, and executable growth strategies. Whether growing organically or through Mergers & Acquisitions (M&A), leaders are tasked with maximising value to support growth.

Leaders face a choice; develop a growth engine that creates ventures and business lines; or deliver growth through the core business and value proposition; both choices can be delivered through a mix of organic or M&A options. A&M’s recent research and experience highlights the inability for most companies to do both simultaneously and at pace.

For the first choice, companies typically set up a dedicated and funded new business line, corporate venture arm or lab. Breakthrough ideas with the potential to change the nature of the business are seldom incubated in isolation and in most cases are a byproduct  of core business necessity. Many of the innovations that are touted as success stories drive a broader market re-positioning with limited results to date (e.g., Oil & Gas investing in B2B digital experiences or marketplaces to sell, deliver, and bill for renewable energy services). Research shows that 95 percent of product innovation fails. Innovation is not a golden ticket to profitable growth. 

The second choice deliberately builds from an existing business and market position seeking ways to create additional stickiness and raising the barriers of entry for the competition along the way. This doesn’t imply a lack of customer, product, or service innovation, but requires a clear alignment to customer need and product/market fit, a financial grip to balance investment or divestment decisions, and operational scalability (e.g., Amazon Web Services (AWS) was born from the need to support Amazon Retail’s hypergrowth and has more recently white labelled new Amazon solutions, including its proprietary Supply Chain solution).

Leaders must transform and innovate with an integrated approach, creating the fuel for targeted reinvestments to fund growth for more speculative and disruptive concepts. They must periodically revisit and rebalance their portfolio – its profitability, customers, products and services, partnerships, operations, and technology – to address changes in the market, or, in some cases, shape the future of the market. 

Companies that do this well outperform their peers, regardless of market conditions, delivering revenue and profit growth of 2.5x and 3.5x respectively. Kodak and Nokia are famous examples of companies that failed because they didn’t proactively invest in the next wave of growth. Global brands such as Hertz managed to revive their business by strengthening the core proposition, tying restructuring with transformation and growth inclusive of selective digital investment. Even “sexy” digital challengers are not immune, with Made.com and Revolut highlighting that digital business models struggle and in cases fail without a focus on value creation, financial objectivity, and operational rigor. 

Successful leaders enable growth by:

1) Serving great customers through differentiated value propositions; 
2) Optimising operations; 
3) Preparing leadership and talent for the next wave of growth; and/or 
4) Repositioning M&A as a catalyst and accelerator.
 

Customers: Actionable data and intelligence, enhanced value propositions, and a deliberate choice to serve great customers

To drive growth, leaders must develop and apply a richer understanding of the markets they serve (or could serve) balancing global and local financial, customer, competitive, and operational data points. The key word is “apply.” If anything, today’s AI craze further accentuates the need to go beyond ingesting additional data sources and developing new insights to structuring and making these insights consumable by technical and non-technical talent. A practical approach delivers a common data foundation based on the use cases that matter, governance of the data, learning models, and self-service dashboards with simple to interpret and actionable insights to inform and execute the growth agenda. Collectively, these provide near-real time decision support to finance, commercial, and operations, tracking actions and results, learning from those results, and evolving the understanding of the use cases and models accordingly. 

Leaders have a deep understanding of their current customers beyond just qualitative needs; they know the market share and profitability of their customer base, with visibility and controls across the P&L. This translates to clarity on the drivers for today’s customer and product revenue base, cost to acquire, cost to sell, and cost to serve. Leaders also forecast the potential lifetime value of each customer. With these insights, they determine who the great customers are and how to focus on them, defining ideal customer profiles (or macro-segments) and personalised value propositions. Leaders then shift the customer mix and enhance or revamp their offerings accordingly. 

P&L owners use these insights to decide which customers to target, pursue or retain. They allocate resources and funding for R&D, marketing and sales based on which customers represent growth opportunities. Importantly, they are brave enough to divest from unprofitable customers to double down on the most valuable ones. In short, data-driven leaders invest in the right customers and ideas and ditch the bad ones, based on a fact-based view of past and future customer value.

Changes to the value proposition range from having the right offer – products, services, experiences, pricing, promotions – to a brand customers can relate or even belong to, including the company’s mission and story. Hot topics that support a differentiated value proposition such as digital marketplaces, membership or loyalty programmes, or value-added services can now be stress tested, evaluated, and funded (or killed) in the context of the overall customer portfolio and expected returns, spanning new or existing products, channels, operations, and technology.  

For example, a US-based telecommunications leader set up new visibility and controls, organisation, and a portfolio of investments to deliver a double-digit profit improvement agenda. They started with a robust business case balancing financial, customer, and operational Key Performance Indicators (KPIs) required to address investor concerns. They embarked on a transformation delivering initial savings by divesting from underperforming customer and product segments while streamlining operations and technology. They then selectively reinvested in target customers, an integrated product catalogue, and Customer Relationship Management (CRM) in the subsequent 12 months, delivering new personalised propositions, standardisation and intelligent automation in their operations and platforms for scalability and faster time to market.
 

Operations: Tighter connectivity across Product, Marketing, Sales, and Finance

At the centre of the growth and innovation dilemma is not just “what” to invest in but “how.” C-suite members are often at opposite ends of prioritising customer-centricity and pace with scalability and overall impact to the P&L. Reimagining the customer mix and value proposition requires engagement and active participation across the C-suite, quantitative research, and early and frequent market validation. 

Today’s digital methods and tools help shorten traditional studies from 6-12 weeks down to bi-weekly sprints run by multidisciplinary squads of creatives, engineers, scientists, and technologists. These methods ensure leaders don’t commit to large scale deployment of capital or resources, leveraging talent from across the organisation with clear “home bases” and functional skills. The squads extend across the business (tech, finance, HR, and legal) to drive complete growth agendas end to end. 

The squads have a clear mission and a common commitment to grow the overall P&L, balancing seed funding for a focused scope and managed with a very short leash, near-term gains, and mid-term outcomes with scale. This in turn accelerates the education curve adoption by the organisation when it is time to go from a concept to scale. These squads also leverage an integrated partner ecosystem, bringing together new business or corporate venturing partners core to their industry (e.g., a start-up/scale-up) with more established tech partners to deliver the underlying digital, data, and AI infrastructure.

In parallel, leaders must get creative in how they align and fund new growth agendas as part of a broader business transformation. This will ensure they reap the full benefit of their investments in efficient and scalable digital marketing, sales, service, and supply chain operations leveraging common data sources and technology platforms.

Market leaders invest in the capacity to transform and the enabling of operations and tech architecture to balance customer experience (CX) personalisation and back-end standardisation to support scale without a linear increase in costs. An analytical, financial, and operational grip on investments, long absent in digital and innovation programmes, enables practical business cases with clear P&L ownership, progress monitoring and even making the tough decision to pivot away from the idea. In short, leaders are clear on what they are investing in, returns, and the full cost required to scale. 
 

Leadership: CFOs and COOs are at the heart of making “digital” growth investments stick

Growth agendas dependent on new digital businesses, products, or services are in a real sense never “finished.” Mature and emerging tech is changing how businesses transform and grow, requiring the full C-suite to adapt and adopt. Product and service lifecycles are being disrupted by the same technologies, materially changing how the organisation is structured and incentivised. This includes the skillsets required and the level of intelligence and automation required to effectively execute new workflows (e.g., AI in customer feedback analysis, product recommenders, pricing, or promotional content creation). 

Continuous shocks in the market – geopolitical tensions, macro-economic uncertainty, impacts to cash, liquidity, and supply chains – require leaders to take stock of their growth ambitions and investments more frequently than ever before. 

The relevance of the CEO in championing growth has been well researched and documented. However, CFOs and COOs don’t have the option to be passive or passengers anymore and need to upskill and become drivers for growth moving forward. They are trusted by owners and investors to turn up the dial and scale winning initiatives to either steer the ship or accelerate a winning formula. This demands a new set of responsibilities; from understanding the CIO or CTO’s agenda and target architecture to guiding business leaders to effectively prioritise and fund new ventures and activate the company to go all in on execution. The data and AI revolution isn’t just for customers and products; it enables finance and operations to evolve and shape how their company pursues growth. 

Measuring success can be more complex for the CFO of a company pursuing new digital business opportunities. While lagging indicators such as annual recurring revenue are appropriate for well-established business lines, for new opportunities the right leading indicators (e.g., activation, adoption) are much more effective. Digital businesses likely imply new business models, ranging from subscriptions to alternative fee structures or recurring revenues. These will also require different metrics (e.g., conversion from free to paid, monthly users) and a shift in unit economics, revenue, and cashflow management to accurately measure the value of the digital business.

Finally, successful CFOs carefully manage the investor community story, ensuring investors understand that industry peer comparisons will change and that longer time horizons will be required to shift to more tech forward industry comparisons which will deliver a greater valuation/multiple.
 

The role of M&A: Focus Acquisitions, Simplify the Portfolio with Divestitures, and Accelerate change with a common Digital Foundation

M&A continues to be a driver for growth as continued market disruption creates attractive targets and valuations. Leaders of acquisitive companies have increasingly focused on full(er) integration across both target and acquirer to fully operationalise the value and realise the benefits of the transaction. Clarity in the growth strategy of the acquirer–customers, value propositions, and enabling operations – digitisation, modern data management, and interoperable target architecture should drive the deal value creation planning, investment thesis, and post-deal execution.

Conversely, as leaders focus the company on their growth strategy, they have an opportunity to simplify their portfolio through divestitures and carveouts. Sellers that aim to maximise the value of their assets assess transaction scenarios applying the previously articulated customer, operations, and leadership methods, specifically the upfront build of the data foundation, AI/ML modelling, and actionable views of the P&L and its drivers. This is of particular importance for asset-based companies with physical infrastructure near the customers they serve – plants, warehouses, fleets, network towers, real estate, and supporting IT and OT. They weigh trade-offs and implications of partially or fully divesting from that customer perimeter and the associated operations, data, and technology change required to meet industry performance benchmarks. With this information in hand, they pursue “just enough” investment to transform the assets deemed not part of the future portfolio, whether it be commercial, operational, or technological to give buyers comfort as they assess, bid, and, if successful, assume ownership of the asset. 

The same ability to integrate in an acquisition scenario applies to effectively decoupling customer, product, and operational tech and data assets. This improves pace and buyer/seller confidence in the transaction value and negotiations, planning, sizing of the cost to achieve, risk management and execution. 
 

How Can A&M Help?

A&M’s Digital and Technology Services team supports companies in defining and operationalising their growth agendas, conceptualising new digital businesses, products, or services, and delivering the near-term gains required to reinvest and fuel future growth. Specifically, we help you:
 

1. Establish a financial, customer, operational, and technology fact base to quickly align on the current state, contributions to the P&L, digital maturity and opportunities to maximise growth potential in your existing business;
2. Define “where to play?”, identifying market catalysts for change and potential customers, new growth opportunities, business model options, and target P&L; 
3. Define “how to win?”, designing and prototyping new business models and value propositions, exploring M&A options, validating their business case, and building momentum with quick wins;
4. Pivot to execution, from incubation to scale-up, delivering new digitally enabled value propositions to existing or new customers, activating the business and partner ecosystem, tracking and monitoring progress with a Value Creation Office, and initiating strategic communications with investors;
5. Step into leadership roles critical to the growth agenda with seasoned digitally savvy CFOs, COOs, and heads of new business or corporate ventures to set the foundations to deliver tomorrow’s business opportunities

 About A&MPLIFY

A&MPLIFY is an AI-powered agency that combines experience design, artificial intelligence and technology to help companies amplify growth, digital transformation and impact on the communities they serve.

Learn more: www.a-mplify.com