Reprinted from Leadership Excellence Magazine
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 and acquisitions.
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 growth.
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.”
Phil Tomlinson, 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”.
AUTHOR: Professor 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