Masters of organic growth

Masters of organic growth

GROWTH by Janet Leiser | Senior Editor

An activist hedge fund tried to force Outback Steakhouse to divest several of its restaurant concepts last year to boost short-term performance, but Emory University Business Professor Edward D. Hess has only praise for the Tampa-based chain.

Outback, which has changed its name to OSI Restaurant Partners Inc., is the only Florida company studied by Hess and included in his recently released book, "The Road to Organic Growth: How Great Companies Consistently Grow Marketshare."

OSI, which operates Carrabba's Italian Grills, Lee Roy Selmon's, Bonefish Grill, Flemings Prime Steakhouse and Cheeseburger in Paradise, is one of 22 companies that Hess says "thrive via positive, healthy, organic growth - by growing their customer base, creating new products and mastering operational efficiency."

Most of the others also have recognizable names: American Eagle Outfitters, Automatic Data Processing, Bed Bath & Beyond, Best Buy Co., Brinker International, EOG Resources, Family Dollar Stores, Gentex Corp., Harley-Davidson, Mylan Laboratories, NVR Inc., Omnicom Group, PACCAR Inc., Ross Stores, Stryker Corp., SYSCO Corp., Tiffany & Co., Total Systems Services (TSYS), Walgreen Co., Wal-Mart Stores and Waters Corp.

Hess says there are six areas in which Outback and the other companies excel:

Live by an elevator pitch, a simple, easy-to-understand strategy and business model. For example, Harley-Davidson manufactures and sells motorcycle parts, related apparel and accessories. "Simplicity is key," Hess says.

Instill a small company soul into a big company body. The entrepreneurial spirit allows employees to feel a sense of ownership, where they are held accountable for results, but also share in the rewards. SYSCO, the largest wholesale food distributor in the country, "has infused its employees - from truck drivers to sales people - with a sense of ownership," the author says.

Measure everything, not just financial results. Operational and behavioral metrics make accountability more transparent, fair and objective. "They are mission critical to long-term organic growth," Hess says.

Best Buy turned to measurements to enhance growth more than a decade ago. Store managers receive in-depth financial training so they understand store return on investment and recognize which customer segment produces the most profit. Sales may not translate to profit.

"We've all heard that line from the field of dreams, 'If you build it, they will come.' Well, in business, if you measure and reward it, it will get done," Hess states.

Build a people pipeline. Committed, loyal employees are one of the greatest advantages a company can have. If you have high turnover, it's hard to build a 'be better' entrepreneurial attitude. A good example is Tiffany & Co., which has an employee retention rate of 90%. The company rarely hires a vice president-level candidate from the outside.

"With high-performance organic growth companies, there is an implied social contract between the corporation and its employees that the rules of the game will not change mid-stream," Hess says.

Make sure leaders are humble, passionate, focused operators. CEOs at high-performance, organic growth companies don't fit the stereotype as being larger than life, high-flying leaders.

"There's something special about organic growth CEOs," Hess states. "These leaders value their employees."

Maybe that's because they didn't start at the top. CEOs at 15 of the 22 corporations studied spent 20 years or more climbing to the top.

When Tiffany's President Jim Quinn was asked to describe the company's culture in one word, he replied, "Humility. There is only one star here and it is Tiffany," according to Hess.

Execution and technology champions. Hess contends that high organic growth companies don't tend to have unique strategies, products or services. Neither are they market-leading innovators. But they consistently execute and use technology to enhance productivity, efficiency.

"They have figured out how to get consistent, high-quality performance from their people."

Harley-Davidson has three rules: Know the customer. Take nothing for granted. And never stop learning.

Plus, it has invested heavily in technology systems to maintain efficiency and keep all of its manufacturing operations in the United States.

INFORMATION

What Makes Cos. Thrive

1. Contrary to popular belief, it's not necessarily a war of talent or about having the best people. You do need intensely focused, emotionally invested employees committed to excellence.

2. You don't necessarily need unique products or services. You do need good enough products, great customer service and great execution.

3. You do not necessarily need to control a unique supply of raw materials or control a unique distribution channel.

4. You do not necessarily need sophisticated/diversified strategies. You do need a focused, narrow strategy that the average employee can understand.

5. You do not necessarily need to be an innovation leader with big breakthroughs. But you do need to constantly iterate and incrementally improve.

6. You do not necessarily need to have the lowest labor costs. Most of the 22 organic growth winners do not.

7. You do not necessarily need to be global. Many of the 22 winners do not have international operations.

8. You do not necessarily need to outsource or head off-shore.

Source: "The Road to Organic Growth: How Great Companies Consistently Grow Marketshare from Within," by Edward D. Hess.