Kellogg Professor Shares Insight for Middle-Market Execs
The following article was originally sourced from the piece “Built to Scale” on Kellogg’s News & Events page.
In the second installment of the Kellogg-Chase “Growth in Middle-Market Companies” series, Kellogg School of Management Professor Mohan Sawhney highlights five strategic areas where middle-market executives must shift their mindset to achieve scale.
To take their company to the next level, middle-market companies need to navigate five transitions to ensure that the company is “built to scale.”
1. Opportunistic to Strategic.
“In the early growth phase, companies need to “probe and learn” to find the sweet spot in markets, customers and products. While this approach can pay dividends initially, it can quickly leave companies spread too thin. As companies grow, they need to reign in opportunism and become more strategic in the opportunities they pursue. Executives should seek to narrow their markets and focus on targeted customer segments. Although it seems counterintuitive, middle-market executives will be able to increase revenues by narrowing the number of markets and making fewer, bigger—and bolder—bets.”
2. Projects to Products.
“With project-based work, a company can learn at the client’s expense while gaining vital experience, services-based revenues and a better understanding of market opportunities. However, since services are people-intensive, they don’t scale nonlinearly. To fuel sustained growth, companies must translate project-based work into scalable products and develop different business models. Executives should seek to identify patterns in the delivery of services and then design products based on what can be repeated. Adobe, for example, has achieved high margins by using its experience in serving customers to develop solutions that facilitate common business tasks.”
3. Ownership to Partnership.
“To satisfy and understand customers, startups typically seek to control every facet of operations—such as sales channels, supply chains and product development. But to scale, middle-market companies should tap partnerships to access capabilities, technology, and customers. These partnerships fall into two categories: market access, whereby a company can reach potential customers through the direct channels that its partners offer; and capability access, in which an external party is able to handle a function, such as supply chain management or human resources, at more effectively (and often at lower cost) than the company could on its own. The benefit of these arrangements is that they free executives to focus on their core areas of expertise without being distracted or constrained by operational limitations.”
4. People to Process
“In most startups, a handful of talented employees are the driving force. When this core team can’t scale, the shortage of talent can quickly become an impediment to expansion. As a result, executives need to embed expertise into the company’s processes and structure to lessen its reliance on a few key people. Core functions―such as strategic planning, sales and client management, product development and talent attraction and retention―can be improved significantly by implementing processes. To set priorities, executives should systematically look at the enterprise and identify bottlenecks that are holding back operational performance and address them first.”
5. Relationships to Brands
“In the early stages, companies tend to drive sales through relationships that are built by key rainmakers and their contacts. If key team members depart, organizations lose not only those relationships but also intellectual property and institutional knowledge. Therefore, to reach new customers and markets, companies must build a strong brand that communicates their value to a broader audience. Middle-market companies need to invest in building and promoting their brand as an embodiment of the enterprise’s value proposition. This process involves delinking the brand from relationships while still embodying the critical attributes that the company has delivered in its relationships.”
