Dec 10, 2022
4 Approaches to Capabilities-driven Growth Strategy
A firm is sustainable so long as it continues to expand. However, it is impossible for any company owner to predict how much the firm will expand in a year or during a certain length of time. Similarly, it is difficult for leaders to envision the following scenarios:
• How much expansion is required for their business?
• Should we prioritize sales growth or margin expansion? How can we reconcile the two?
• How can growth genuinely be achieved?
Sustainable development requires a Capabilities-driven Strategy (CDS) as opposed to typical market-driven methods, which concentrate on whatever clients’ desire are.
The Capabilities-driven Growth Strategy comprises leveraging on the organization’s present strengths via all feasible channels, including existing or adjacent markets, organic channels (Marketing or Innovation), and inorganic means (Mergers & Acquisitions).
The Capabilities-driven Strategy enables the leaders to accomplish growth by integrating all methods in an agile manner, so long as they fit with the company’s current competencies and Competitive Advantages. A cohesive Capabilities-driven Growth Strategy necessitates the establishment of 3 primary criteria prior to implementation:
• The company’s product or service offerings
• A distinctive system of capabilities that rivals cannot copy
• A value proposition that resonates with what clients want
Organizations should be able to translate ideas into a strong position and have a Business Model that is capable of generating long-term income and profitability.
Organizations that want to compete in new business categories must have a clear strategy for generating value and the necessary resources. Once a company has achieved a position of competitive strength, i.e., a Capabilities-driven Strategy and the means to exploit it, senior management should next create a route to achieve profitable long-term growth by combining together 4 approaches to Growth Strategy:
- In-market Opportunities
- Near-market Opportunities
- Disruptive Opportunities
- Capability Development
The connection between these 4 approaches is important to success, although it is often overlooked. It contributes to the development of a cycle of continuous improvement.
Let’s examine the first 2 of these Capabilities-driven Growth Strategy approaches in further detail.
In-market Opportunities
The first approach to Growth Strategy involves extracting maximum potential from the present market. Leaders sometimes overlook potential development opportunities in established markets. They are tempted by opportunities in other industries and international marketplaces. Before considering other enterprises and expanding into new markets, it is prudent to assess current markets with a fresh perspective and identify new sources of business and income. Identifying the scale of these undiscovered prospects in current markets requires three essential steps, namely:
• Identify gaps between consumer needs and market-available products/services and fill those gaps with new or enhanced solutions.
• Determine the factors that will persuade clients to switch to the new offers, including features, perks, and communication.
• Construct, enhance, restructure, or redirect your organization’s distinctive competencies to bridge the gap and urge clients to switch.
For instance, fast-food restaurants may increase their market’s development potential by adding premium coffee, desserts, and beverages in addition to their standard breakfast and lunch offerings. This is extra money that would normally be gathered by coffee shops, juice bars, and other similar establishments by extending their menus, serving meals, and convincing clients to move to them.
Near-market Opportunities
When considering growth, it is usual for businesses to consider local markets first. Although these neighboring markets seem alluring, they are built by other businesses with processes that are difficult to replicate. Therefore, expanding your skills into neighboring areas should be approached with extreme caution.
Enterprises desiring to grow into adjacent markets or other sectors must first do a comprehensive review of their skills and appropriateness for these areas, including cost reduction, operational strengths, IT infrastructure and systems, supply chain, and customer data. They should determine which markets they can service with their particular talents, find new clients for their current products, or create new offers based on their strengths.
Interested in learning more about the other approaches to Growth Strategy? You can download an editable PowerPoint presentation on Capabilities-driven Growth Strategy here on the Flevy documents marketplace.
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