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    Review and evaluation of:

    THE ALCHEMY OF GROWTH - Kickstarting and sustaining growth in your company, 2000. Baghai, M; Coley, S; White, D.

    © BrainMass Inc. brainmass.com October 1, 2020, 6:16 pm ad1c9bdddf

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    PART 1 - Understanding Growth
    Chapter 1 - The three horizons
    What is Horizon 1?
    What is Horizon 2?
    What is Horizon 3?
    Managing all three horizons concurrently
    Cascading the three horizons through the organisation

    Chapter 2 - Looking in the mirror
    Unhealthy Patterns
    Under siege
    Losing the right to
    Running out of steam
    Inventing a new future
    Generating ideas but not new businesses
    Failing to seed for the future
    Defining balance

    PART 2 - Overcoming Inertia
    Chapter 3 - Laying the foundation
    Earning the right to grow
    Superior operating performance
    Strategic divestment
    Building investor confidence
    Resolving to grow
    Gaining senior team commitment
    Raising the bar
    Removing organisational barriers
    Creating a point of Inflection
    If you are under siege ...
    If you are losing the right to grow ...
    If you are running out of steam ...

    Chapter 4 - Searching for Opportunities
    The Seven Degrees of Freedom - in practice
    Breaking the Shackles
    Expansive mindsets
    The legitimacy of passion

    PART 3 - Building Momentum
    Chapter 5 - Staircases to growth
    One step at a time
    Staircase Architecture
    Seeding growth options
    Testing the business model
    Replicating the business model
    Managing the business for profitability
    The value of staircases
    Market Uncertainty
    Gaps in capability
    Chapter 6 - Securing advantage
    Capabilities not Competencies
    Privileged Assets
    Distribution networks
    Brands and reputation
    Customer information
    Growth-enabling skills
    Acquisition and post-merger management skills
    Financing and risk management skills
    Capital management skills
    Special relationships
    From capability to advantage
    Controlling critical capabilities early
    Bundling capabilities for enduring advantage

    Chapter 7 - Winning through execution
    Actively adapting the business model
    Making the business model work
    Stretching the growth potential of the business
    Jumping onto new staircases
    Protecting a new staircase
    Shelter and feed the new staircase
    Exempt the new staircase from horizon 1 management systems

    PART 4 - Sustaining Growth
    Chapter 8 - Managing by Horizon
    Talent Management
    Horizon 1 operators
    Horizon 2 Business Builders
    Horizon 3 Visionaries
    Planning for Growth
    Horizon 1 Planning
    Horizon 2 Planning
    Horizon 3 Planning
    Performance Management
    Horizon 1 Metrics
    Horizon 2 Metrics
    Horizon 3 Metrics

    Chapter 9 - Organising for Growth
    Creating small communities
    Independent operating companies
    Small-group environments based on teams
    Shaping new communities
    Connecting communities
    Connecting to the centre
    Connecting to other communities
    Inspiring the organisation

    PART 1 - Understanding Growth
    What under pins sustainable growth?
    The answer: a company must maintain a continuous pipeline of business building initiatives. Only if it keeps the pipeline full will it have new growth engines ready when existing ones begin to falter.

    Chapter 1 - The three horizons
    To sustain growth, there must be a continuous pipeline of new businesses that represent new sources of profit.
    We believe that building and managing a continuous pipeline of business creation is the central challenge of sustained growth.

    Three horizons of growth
    A three-stage pipeline is useful in that it allows us to distinguish between the embryonic, emergent, and mature stages of business's life cycle. We refer to these stages as the three horizons of growth.
    What is Horizon 1?
    Horizon 1 encompasses businesses that are at the heart of an organisation. Without the support of a successful horizon 1, initiatives in horizons 2 & 3 are likely to stagnate and die.
    What is Horizon 2?
    Horizon 2 comprises businesses on the rise: fast-moving, entrepreneurial ventures in which a concept is taking root or growth is accelerating.
    Horizon 2 initiatives are usually characterised by a single-minded drive to increase revenue and market share. Horizon 2 is about building new streams of revenue.
    A good growth company needs to have several of these emerging businesses "on the boil," working to convert promising ideas into future earnings generators.
    What is Horizon 3?
    Horizon 3 contains the seeds of tomorrow's businesses - options on future opportunities.
    Building successful businesses means seeding numerous options.
    The challenge is to nurture promising options while ruthlessly excising those with diminishing potential.

    Managing all three horizons concurrently
    The goal of managing the three horizons is to develop many businesses in parallel without regard to their stage of maturity.
    Neglecting any horizon at any time weakens a firm's prospects of long-term growth.
    The business-building pipeline can be managed by geography, product or service in the three horizons of growth simultaneously with the result being sustained growth.

    Cascading the three horizons through the organisation
    To create robust pipelines, the most successful growers identify three horizons for each of their businesses.
    The value of the three horizons approach increases exponentially when it is pushed beyond the top executive team and into the hands of managers at lower levels. In short, every leader should have three horizons to manage.

    The three horizons can be used to promote growth in three ways. First, as a diagnostic tool, the three horizons can help managers assess the prospects for growth at any level in an organisation and reveal possible gaps in the volume and consistency of new profit sources.
    Second, as a language, the three horizons approach offers a coherent way to communicate with employees and investors. Its simple terminology makes it easier for both groups to understand and discuss corporate priorities.
    Third, as a management philosophy, the framework forces managers and organisations to consider the future, as well as this quarter's results.

    Chapter 2 - Looking in the mirror
    To pursue growth, leaders at all levels of an organisation should first look in the mirror and ask,"How healthy are my horizons?"
    Knowing the strong and weak points in the pipeline gives managers a good indication of how to prioritize growth initiatives.

    To look in the mirror, a business leader should begin with the current engines of profitability in horizon 1, and ask these questions:
     Are our core businesses generating sufficient earnings to allow us to invest in growth?
     Do we have a strong performance orientation to push profits higher an the next few years?
     Is our cost structure competitive with that of the rest of our industry?
     Has operating performance been stable?
     Has market share grown or been stable?
     Are we reasonably well protected from new competitors, technologies, or regulations that could change the rules of the game?

    In horizon 2 they should ask the following questions about their emerging businesses:
     Do we have any new businesses capable of creating as much economic value as the current core business?
     Are these new businesses gaining momentum in the marketplace?
     Are we prepared to make substantial investments to accelerate their growth?
     Is there mounting investor confidence in these businesses?
     Are the new businesses attracting entrepreneurial talent to our organisation?
    Finally, reflect upon the options for future businesses in horizon 3:
     Does our leadership team set aside time to think about growth opportunities and industry evolution?
     Have we developed a rich portfolio of options for reinventing existing businesses and creating new ones?
     Are these ideas very different from those on the list last year? Three years ago? Five years ago?
     Are we developing effective ways to turn these ideas into new businesses?
     Have the ideas been made tangible in concrete, measurable first steps?#

    If a leader cannot answer yes to most of these questions, then the company's horizons are probably not all healthy.

    Unhealthy Patterns
    For the most part though leaders find themselves in one of six other patterns:
    1. Under siege - None of the horizons are healthy. Companies undergoing a turnaround are usually under siege, as are companies blindsided by rapid industry change or deregulation.
    2. Losing the right to grow - While companies under siege suffer mainly because they have failed to fill their business creation pipeline, others lose the right to grow when they become obsessed with new businesses. The novelty of these opportunities can be so exciting that managers take their eyes off horizon 1, forgetting that it must be maintained in order to provide the financial capacity to drive growth.
    3. Running out of steam - Even world-class companies can run out of steam when these businesses mature and there are no new enterprises in the pipeline to take their place. Companies that have raised their performance by boosting efficiency and cutting costs will eventually face diminishing returns. This often happens after the completion of rigorous turnaround programmes.
    4. Inventing a new future - Some organisations boast promising horizon 2 or 3 businesses, but no viable horizon 1. This is most common in start-up companies whose business is still a few years from posting substantial profits and building market value. It can also occur in large corporations. Horizon 1 must finance the new initiatives in horizons 2 and 3, yet it is probably not generating enough earnings to do so. Consequently, it must be harvested and perhaps even divested to create the financial capacity to invest in the organisation's future. The goal in such situations is to manage the timing and pace of the transition.
    5. Generating ideas but not new businesses - This occurs when companies have strong horizon 1 businesses and lots of ideas in horizon 3, but few people working to turn these ideas into real businesses. No matter how exciting the ideas may be, horizon 2 will remain empty until businesses are built. As the gap between market expectations and the company's actual growth widens, a steep fall in stock price becomes more likely. This pattern tends to appear among the high-technology companies and those that have traditionally lacked new ideas but have worked hard to address the gap.
    6. Failing to seed for the future - Organizations that launch a successful growth effort may find themselves with strong earnings in horizon 1 and promising businesses in horizon 2. This will fuel profitable growth for several years, but if they are to sustain success, they must be able to institutionalise the creation of new ideas. Without a continuous stream of new options in horizon 3, the next generation of horizon 2 businesses will not come on stream quickly enough, and growth will stall.

    Defining balance
    Financial markets implicitly recognize the value of a balance of activity across the three horizons. While horizons 2 and 3 may account for little or no current earnings, they are crucial to how much investors are willing to pay for a company's stock. A balanced portfolio across the three horizons produces a development pipeline that looks more like a funnel than a cylinder. The number of initiatives a company has under way is less important than whether the balance of initiatives addresses its needs across all three horizons; balance means having the next engine of growth ready when it is needed.

    An objective assessment of the health of the three horizons can point to recovery and growth. Achieving them may take several years, but the journey is one full of reward and excitement. Companies must begin by filling the holes in their horizons.

    PART 2 - Overcoming Inertia
    Successful companies must first lay the foundation for growth ...

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