OF GREAT ORGANIC GROWTH COMPANIES:
THE FEW & THE HUMBLE
Every business leader
strives for more organic growth-more customers, more revenues, and more
operating efficiencies. Organic growth is creating earnings the old-fashioned
way. It is not the creation of earnings through accounting elections
or valuations, financial engineering, structured transactions, related
party transactions, nor the serial acquisition of revenue through mergers
I have spent the
last 4 years finding and studying high organic growth companies. I began
my research by creating a financial model which was designed to illuminate
high economic value creating companies who have consistently outperformed
their industry competition primarily through organic growth. I did three
separate studies of over 800 high economic value-creating public companies
and found that less than 5% of them consistently created high economic
value through organic growth. I then looked in depth at 22 of those
companies in an attempt to understand how they achieved such spectacular
results. The findings of those studies are found in my book THE
ROAD TO ORGANIC GROWTH: HOW GREAT COMPANIES CONSISTENTLY GROW MARKETSHARE
FROM WITHIN (McGraw-Hill, 2006).
My findings include:
(1) the 6 keys to organic growth; (2) the surprising absence in these
companies of many of the current management consulting theories; (3)
organic growth is not just a strategy- it is a system. The 22 companies
that my model produced as consistent high organic growth companies earned
an Average Return on Equity of 28% for the period 1999-2004. And for
the period of 1996-2003, their cumulative stock market returns outperformed
the NASDAQ, DJIA, S&P500 by multiples four, seven, and 10 times,
respectively. Some of the 22 companies are: American Eagle Outfitters,
Best Buy, Gentex, Harley-Davidson, Outback Steakhouses, Stryker Corporation,
SYSCO , Tiffany & Company, Total Systems Services, Walgreen, Wal-Mart,
and Waters Corporation.
I expected that
high organic growers would have , as current management theories teach
us, better talent, better strategies, unique products or services, be
the lowest-cost provider, have visionary leaders, be the most innovative,
and be high outsourcers and off-shorers. To my surprise, none of these
theories are necessary to be a consistent high organic growth company.
What I did find common across the companies is the 6 keys to organic
The 6 keys to organic
growth are: (1) An elevator pitch business model which is easily understood
by the average employee; (2) a "small company soul" in a big
company body- companies structured and cultured to be entrepreneurial
but with strong central controls over quality, risk, and capital; (3)measurement
maniacs- these companies measure many financial, operational, and behavioral
metrics daily and weekly, with transparency , frequent feedback, and
the alignment of measurements and rewards; (4) they have highly engaged
workforces with high loyalty, retention, and productivity ; (5) they
are led by home grown humble leaders who are passionate operators intimately
involved on a daily basis in the details of execution; and (6) they
are technology and execution champions. Many of you are saying to yourself
I know many companies that do some of those well. Yes, the difference
is these 22 companies do ALL 6 well and as importantly, they have created
an internal growth system which is consistent, linked, and self-reinforcing
across culture, operational processes, HR policies, and measurement
and reward systems.
Because our focus
here is leadership, let me drill down into the leadership part of my
findings. I did not find among the leaders I studied great visionaries
nor highly charismatic leaders. Nor did I find many MBAs from the top
schools. What I did find was very humble people who primarily spent
their entire careers at their company working their way up from the
line to the top. And they have not forgotten where they have come from.
They were primarily operators, not financial types nor marketing types.
And they were passionately involved in the details of the business-
not focused on Wall Street. Of the 26 CEOs, only 3 had an MBA and the
majority only had an undergraduate degree mostly from small state universities.
Paranoia was prevalent
in these leaders- not about globalization or the competition- but about
complacency, hubris, and arrogance. They fought these deadly killers
of leadership in themselves and their leadership team. Many companies
devalued the elitist trappings of" executivedom"- many had
no corporate jets, no executive dining rooms, no special parking places.
At Best Buy, for example, every officer from the CEO to the lowest Vice-President
has the same size small windowless office. What I found is best evidenced
by 2 statements. First, Brad Anderson , the CEO of Best Buy stated:
"Our customers are 'Kings and Queens"- our employees are 'Royalty"
and headquarters employees are 'Servant Leaders".
Jim Quinn, the
President of Tiffany & Company summed it up this way: "There
is only one star here, and it is Tiffany."
the CEO of TSYS, stated it this way: "Leaders serve employees and
employees serve clients". The leaders I studied all followed simple
leadership principles: Take Care of Your People, Lead By Example, Always
Do What Is Right ( even if not legally required), Follow the Golden
Rule, and Eat With the Troops. Timeless often verbalized principles.
What made these leaders different is that they worked daily at leadership-
they were sensitive that inconsistency and hypocrisy destroys trust
and they were paranoid about anything that sent the wrong message to
their people. They were aware of the impact and message sent by their
office design, their dress, their demeanor, their access to employees,
and worked hard at staying out front and in touch with employees and
customers. They understand that being a good leader is in of of itself
a daily job and takes disciplined focus and hard work.
To lead a high performance
company you can be a quiet person; you can be low-key; and you can be
soft spoken. You do not need to be "larger than life" nor
do you "need to fill a room " when you walk in. Students of
leadership need to study leaders like Rick Schnieders of SYSCO, John
Brown of Stryker, Mike Eskew of UPS, Phil Tomlinson of TSYS, and Mike
Kowalski of Tiffany & Co to find highly successful leaders who are
authentic, humble, and true stewards.
When I talked to
many of these leaders and asked them about their success, all deflected
the question repeatedly giving credit to others, giving credit to their
employees and emphasized the role of timing, being in a growth industry,
and luck. Most of these leaders avoid publicity and the limelight outside
there company. They want the focus on their company not them. These
leaders understand the fundamental rule of enduring and great leadership:
"it is not about you- it is about them".
Edward D. Hess is Adjunct Professor of Organization & Management
and Founder and Executive Director of both The Center for Entrepreneurship
& Corporate Growth and The Values-Based Leadership Institute @ Goizueta
Business School , Emory University. He is the author of 5 books and
over 40 articles. His recent books include Hess & Cameron,eds.,
LEADING WITH VALUES: POSITIVITY, VIRTUE, & HIGH PERFORMANCE( Cambridge
U Press, 2006) and THE ROAD TO ORGANIC GROWTH ( McGraw-Hill, 2006).
Professor Hess can be reached at his website www.EDHLTD.com or @ Edward_hess@bus.emory.edu