30 May 06

Bottom-up approaches to generating growth have been popular for more than a decade.  Proponents of bottom up approaches focus on new idea generation -- a company can raise its internally generated growth rates by improving its ability to explore and evaluate as many new ideas as possible. 

Many of these bottom-up efforts have recently reported disappointing results.  Whirlpool, for example, started with a well-publicized bottom-up approach, encouraging many of its junior managers in distant outposts to experiment and develop a range of new ideas. 

The problem was that few of these ideas fit into the company’s existing business and structure.  According to a recent article in Business Week, the innovative teams at Whirlpool came up with ideas like stationary bicycles that would allow people to race each other over the internet.  Once this proposal came back to headquarters, it was quickly killed.

It was only after Whirlpool became more systematic and disciplined in its approach that its innovation initiatives began to pay off.  It now focuses on fewer initiatives with more senior management involvement.  

Since it has made this change, innovation has had a significant impact on Whirlpool’s growth and financial performance.  The company estimates that it is getting approximately $800 million in revenues from innovative products, up from $10 million five years ago.  The company’s stock price has almost doubled since 2001.  In the summer of 2005, Whirlpool acquired its archrival Maytag for $2.6 billion.

Sources of Growth – Top Down or Bottom-up?

Don Laurie and several of his colleagues at the consulting firm Oyster International have suggested that the Whirlpool story is the rule rather than the exception.  Bottom-up initiatives without hands-on senior management involvement are rarely successful.  As Laurie noted in a recent conversation I had with him:

“We’re challenging the conventional and mostly failed notion that a good innovation process [coupled with] smart but inexperienced temporary teams will create value.”

Don Laurie interview, 23 May 06

Laurie’s conclusions come from the findings of a 12 year research study undertaken by Oyster and Harvard Business School, called The CEO Agenda and Growth.  Over the course of these dozen years, Laurie and his colleagues interviewed the senior executive teams of 24 large companies that had achieved significant organic growth performance.

Based on this research, Laurie advocates the creation of “New Growth Platform” (NGP) initiatives.   Rather than a single product or service, the New Growth Platform is a family of products, services and businesses.  For United Parcel Service, for example, one NGP was the creation of a new outsourced logistics business, the “Service Parts Logistics” unit.  This unit has taken a leadership position in the emerging market for outsourced logistics management. 

The approach taken by UPS was one in which the responsibility for generating new growth rested firmly at the very top of the organization, with the CEO and a lieutenant that Laurie calls the “Chief Growth Officer.” 

“In every successful case we have worked with or studied, we observed that the head of a [new growth platform] unit – or Chief Growth Officer (CGO) as we called them – was a future contender for the CEO position or a unique senior executive with credibility, organization skill and a deep interest in opportunities beyond the current mix of businesses.”

Laurie et al, Harvard Business Review, May 2006.

In large companies that have grown successfully, the top executives get into the details of the new innovation initiatives and growth platforms.  When Procter & Gamble’s CEO A.G. Lafley visits the company’s “Futureworks” division, which he does every six to eight weeks, he is an active participant in the development of P&G’s new businesses.  He learns about the opportunities, and brings his experiences to bear at the early stages of the new business development process.  As Laurie notes:

“Too many CEOs see their involvement in generating growth as blessing or killing a growth initiative.   When we worked with Lafley, it was clear that he was deeply involved in each growth project. When he chooses to fund something, he’s in the middle of it – he really knows what the initiative is about.”

Don Laurie interview, 23 May 06

Ideas that can generate growth often come from the periphery of a company’s existing operations.  Bottom-up approaches focus on these peripheries to identify new opportunities.

The ability for a company to succeed in creating new businesses from the opportunities it identifies relies on the commitment of its senior leaders.  Their understanding of new domains and emerging and converging technologies is essential. They have the resources and experience to build on the company’s existing strengths and to identify and develop additional capabilities.   Without their active involvement, new initiatives will flounder.  

The NGP approaches to growth aim to bring the promising ideas at the periphery of a business under the experienced hand of senior management.  Leaders of growth platforms are company insiders, usually people who have made their careers at the company.  They know how to marshal resources to support their new approaches, and they know which approaches and which businesses will fit best with the existing capabilities of their companies. 

Next week: Chief Growth Officers – Do’s and Don’ts

More Information:

1. For a recent discussion of bottom-up growth approaches, see “Funding Growth in an Age of Austerity,” by Gary Hamel and Gary Getz.  It was published in Harvard Business Review in July/August 2004.
2. “Creating New Growth Platforms,” by Don Laurie, Yves Doz, and Claude Sheer, was published in Harvard Business Review in May, 2006.
3. The Business Week story on Whirlpool was published on 8 May 2006.
4. I recently wrote an article for Babson’s online magazine Insight on Top-Down vs Bottom-Up Approaches to Innovation, using GE as an example.  That is available here.
5. The web site for the consulting firm Oyster International is here.