The purpose of this article is to examine the drivers, decisions and critical events that the CEOs of high growth partners need to be involved in as they develop workable Transition Plans.
ChannelCorp discovered several key drivers of Transition Plans in the partners that we examined. In some cases, the fundamental driver of the Transition Plan is simply founder dissatisfaction. Having been in “arrested growth mode” for too long, founders get fed up with their situations and attempt to do something that will result in increased growth. The result, for many, is a Transition Plan . . . better late than never.
Investor dissatisfaction and impatience drives many Transition Plans that we discovered. Having invested their money, and wanting to get it out with a significant return, investors (often using their Board influence or financing leverage) attempt to drive CEOs to create and execute Transition Plans.
In several cases that we examined, the investor dissatisfaction and impatience resulted in ouster and replacement of the poorly performing Founder/CEO or outside hire CEO by a CEO who could get the job done. Market pressure drives many of the Transition Plans of the partners that we were exposed to.
In many markets there is a strategic need to have a minimum share of a market or niche to be both credible and viable. In market pressure growth situations, it seems clear that if a partner is not moving forward or growing, then it will inevitably slide backward and shrink. The Transition Plans in these situations are critical to survival, and the avoidance of Backsliding growth is central to these plans.
Proactive management push is a driver that is behind a number of Transition Plans that were revealed to us. Management, often those who have been exposed to one or more high growth experiences in prior companies, appeared to drive growth simply because they know that it can be done. “Growth is fun” or “it is fun to grow” is a dominant component of the culture of these partners. The Transition Plans in these situations are often extremely ambitious to the point of pushing the boundaries of what seems reasonable or possible. Reactive customer pull is a surprising driver that we discovered in our research.
Customer pull driven Transition Plans occur when the customers of the partners let it be known that they need the partners to grow to meet their own expanding needs. In some cases, the pressure on the partners was brought to bear by end users, vendors and/or other distribution channel partners. In these situations, it is not uncommon for the company demanding growth to assist the growth company with some of the resources required to grow. In some cases, these alliances turn into more formal relationships over time. Inertia, unfortunately, is the driver of many of the Transition (actually Non-growth) Plans that we discovered.
Lack of desire to change appears to result in partners that have patterns of Arrested or Backsliding growth. We discovered many companies headed by executives (who called themselves CEOs) hoping for “A” (transition) while doing “B” (nothing to drive change). As a result, many partners appear to hit impenetrable “walls” in their transition and development.
Decisions
Our research reveals that the development of a workable Transition Plan requires the CEO to make a series of fundamental yet critical decisions:
Where should the company grow, or shrink?
How should the company grow?
If the company should grow internally, how should the company grow?
If the company should grow externally, how should the company grow?
In those partners where these questions are not explicitly addressed in the Transition Plan, problems inevitably arise. The first question, regarding growth or shrinkage of parts of the company, is very tough for CEOs to answer. In some cases, the decision is made to “re-focus” growth in new areas, but still retain some of the historic business. In other situations, decisions are made to totally exit one business in order to focus all the resources on another. This high risk “bet the company” approach is more common than we expected. The differential growth/exit the historic business decision is a crucial early decision in the development of a Transition Plan. Made too early, resources are not available to finance the growth of the retained business.
If the decision is made too late, the opportunity to smoothly exit the historic business can be lost and the “growth” opportunity will have lost its attractiveness. The voice/data vs. convergence business dilemma that is facing many partners is an excellent example of a classic growth or shrinkage issue. Should the traditional voice/data business be maintained and the convergence business be grown, or should the traditional voice/data business be minimized to finance the growth of the convergence business? Figure 1 diagrams the dilemma.
The decision to Buy the business versus Make the business also requires the development of partners with entirely different leadership styles, management process, management knowledge and organizational culture. Transition Plans that successfully employ simultaneous making and buying of businesses are rare. When these Transition Plans occur, they require a tremendously skilled management team and experienced CEOs. Even then, many of the acquiring partners in the industry are having trouble digesting their new acquisitions.
As the CEO causes the partner to focus on newer products/services/technologies and newer customers and markets, the investment costs to the partner rise.
Radical transition through refocusing requires partners to make simultaneous investments in new marketing/sales/service capabilities and new services/ technologies/solutions.
This is obviously a very expensive strategy. In some situations, financial resources do not allow the required investments to be completed at the right time. Any refocusing of the partner from the existing base of customers and products/services requires a different set of Functional Underpinnings.
Failure to recognize the required core skills/capabilities of the partner prior to repositioning could have been disastrous. Moving too early has proven to be equally damaging. The second aspect of the question of how internal growth should take place becomes critical when the Transition Plans of CEOs call for changes in the products/services/technologies. Critical decisions are required regarding how close to the state-of-the-art the company wants to go with its product and service offerings. The state-of-the-art question is of particular concern when the service operations of partners are involved.
The first-to-market and market segmentation approaches are consistent with the medical model of consulting operations. The medical model is based on high levels of expertise solving “frontier” problems. The second-to-market or cost minimization approach is consistent with the leverage model of consulting. The functional underpinnings required for the different approaches are dramatically different.
Successful external growth appears to be a component of a proactive Transition Plan. The following matrix provides an outline of the various approaches that are observed, as well as the relative business risk of each move. The risk designation represents the relative probably of the relationship being successful.
Implications for management
In order to reduce levels of business risk, growth organizations executing external growth options build Functional Capabilities that are of value in executing partnerships, alliances, mergers or acquisitions. These capabilities included superior boards of directors, better than average financial capabilities and high quality talent in key functional areas.
As a CEO, are you providing the guidance and leadership in the areas of where to grow/shrink, how to grow/shrink, and what products/services/markets to focus on? Are you using