Moffatt: What Exceptional Companies Know
In any given industry, the goal of market dominance is tied closely to size.
You don't have to be the biggest to be the best, but very often you have to be big. Any company, in any sector, recognizes that with scale can come significant market advantages.
But in today's low-growth economic environment, we still see companies forgoing growth in order to boost profits through cost cutting. We see it all the time: when a company has to choose between reductions in the cost structure and a drive for more revenue, cost reduction typically gets the nod.
Sometimes, this is the right choice. When a business has a cost structure out of line with its strategic goals, you simply must fix your cost problem.
But ultimately, growth in the top-line is essential. We studied tens of thousands of companies over more than four decades. We found that even when the economy is giving very few signals of growth, the leading and most consistently profitable companies are systematically biased in favor of revenue growth over cost reduction.
We've concluded that when you have a tough choice to make between the pursuit of growth or retrenching through lower cost, you have the best chance of improving your overall performance by choosing revenue. You can use cost controls to get yourself into the game with other market leaders. But once you're there, you want to win. And if you want to win, you have to grow.
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A useful illustration comes from the world of college basketball, where coaching legend John Wooden dominated. When Wooden started at UCLA, the only remarkable thing about his players was their size – they were uniformly smaller than their opponents. So Wooden decided to pursue a "costs" strategy – doing more with less. He got his players to punish opponents with a high-energy, full-court press for the entire game.
For a while, the strategy worked. But teams eventually figured out how to beat the press. They neutralized the "costs" strategy.
By then, it didn't matter. Wooden's winning ways started attracting taller players such as Lew Alcindor (who later changed his name to Kareem Abdul Jabbar) and Bill Walton. Wooden had adopted a growth strategy – literally.
In times like these, companies often turn to cost cutting – the equivalent of the full-court press – to pave the way to profits. And for a while, that works. But eventually, companies need to get bigger, and build the kind of scale that is essential to market leadership.
Growth demands investment, in capital, talent, training, innovation efforts, new processes, and so on. More importantly, senior management should focus their strategic energy on growth – giving that goal more time and effort than the focus on costs.
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Wooden understood that running the full-court press could neutralize a weakness. But ultimately, long-term dominance would have to come from going big. And UCLA won 12 championships because of it.
Jim Moffatt is Chairman & CEO of Deloitte Consulting LLP (Deloitte Consulting). During his 25 years with Deloitte, he has steadily taken on new assignments and leadership roles in the organization, with a focus on health care and companies in crisis. In his role as Chairman & CEO, Moffatt is helping Deloitte Consulting accelerate its growth through a variety of meaningful acquisitions and initiatives, emphasizing global growth, integrated services to clients, collaborating with clients to help create a lasting impact, and innovative approaches to leadership and management of Deloitte Consulting's 23,000 employees.