Cutting. Tightening. Restricting. Limiting. Scrutinizing. Postponing. And, of course, laying off. Those activities have dominated corporate life for the past two years as companies have endured the endless economic winter known as the Great Recession. Many CFOs now say, however, that a change of season is upon us. Instead of hunkering down they are lifting their heads, studying the horizon, and thinking about expansion, not contraction.
But determining when and how to move from a conservative, defensive position to a more aggressive, growth-oriented stance may be the single biggest challenge facing finance executives today. The economic signals are decidedly mixed, and while CFO optimism is on the rise, as measured by the most recent quarterly Duke University/CFO Magazine Global Business Outlook Survey, CFOs are wary of ramping up too quickly to seize opportunities that may not materialize.
In fact, while companies differ in their renewed quest for growth, they all share one trait: caution. With GDP growth expected to hover in the low single digits for at least several years, and with consumer spending blunted by lingering unemployment, growth will likely spring from improved execution and a very careful reading of customer needs.
That’s as it should be, says Edward Hess, a professor at the University of Virginia’s Darden School of Business and the author of Smart Growth, a new book that studies the way in which successful growth companies approach innovation and expansion. “Don’t look at growth in terms of large bets,” he says. “Look at growth as multiple small experiments that are cheaply made to see what resonates with customers. Don’t bet the ranch.”
But what about the theory of risk and reward, and the fear that by taking only incremental steps a business will lose ground to bolder competitors? Hess argues that the big moves that make headlines don’t necessarily result in sustained growth. In fact, they may be counterproductive. “Many companies that have been great growth companies for 20 years have not done anything innovative,” he says. “They’ve continued to evolve and move out from their core. They add new products, services, and things their customers want.”
That view resonates with finance executives charting growth strategies today. Most are sticking close to their core: investing in the existing business to achieve incremental improvements and gain market share; making trade-offs within the business to focus on the highest-potential projects; changing their pricing strategy and product mix to better meet changed customer needs and demands; and looking to expand in new geographic markets or product lines — but only ones in which they already have a secure foothold. Some are also considering carefully vetted strategic acquisitions. Are you ready to focus on growth? If so, your fellow CFOs suggest that you:
Cultivate What You Have
While it may not be glamorous, spending wisely on the existing business can strengthen a company’s brand and build its market share. “In the current environment, you don’t have the luxury of investing huge dollars with long rollouts and being wrong,” Hess says. “You’ve got to hit lots of singles and doubles by looking at improvements to existing products and services.”