How to Find Sources of Growth
Growth is a mantra for business, but growth strategy is more complex than many businesspeople realize. That's the premise of The Granularity of Growth: How to Identify the Sources of Growth and Drive Enduring Company Performance, written by McKinsey & Co. directors Patrick Viguerie and Sven Smit, and Mehrdad Baghai of Alchemy Growth Partners. They advise companies to better understand their markets at a more granular level. The challenge lies in making granular decisions without "losing focus or drowning in a sea of complexity."
Designing an organization's blueprint to accommodate greater granularity is far from simple. How do you know what the right level of granularity is? It should allow your company to exploit the texture of the market without sacrificing the benefits of scale. We call this the "sweet spot."
When a tennis player hits a ball with the sweet spot in the middle of the racquet, it flies through the air with surprising power and minimum vibration. In much the same way, operating your business at the sweet spot of granularity magnifies the effectiveness of your actions to achieve growth.
Over the past decade, the deregulation of markets and advances in information technology are likely to have increased the level of granularity at which you should be managing your business and driving your growth strategies. As you begin to target your market segments in more granular ways, the sales benefits typically increase quite quickly, but then start to taper off as you add smaller and smaller variations.
On the cost side, the most efficient business model would offer no variation at all. When you add complexity by catering to a broader range of customer needs, the costs begin to rise quite sharply. The intersection of these two curves (sales benefits and costs) is the sweet spot for granularity in your market.
The Internet has moved the sweet spot of granularity in the book business. Amazon isn't constrained by a physical storefront; customers using its Web site can choose from some 3.7 million titles [vs. 100,000 for a typical superstore]. With no bricks-and-mortar presence, a fully developed and scalable IT platform and infrastructure, and many of its books delivered not from its own warehouse, but via a virtual supply chain, Amazon is able to act in a much more granular way at a very low marginal cost.