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THE LEADERS OF GREAT ORGANIC GROWTH COMPANIES:
THE FEW & THE HUMBLE
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
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