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Why Companies Adopt Growth Strategies: The Good, the Bad, and the Ugly

Aug 10, 2011 |

After asking top marketers to describe the nature of their growth strategies (see 8/6 post), The CMO Survey asked them to “Rate the top three reasons why your firm is pursuing this growth strategy.” I gave marketers the following options: (1) opportunity to leverage brands; (2) opportunity to leverage existing customer relationships; (3) threat of domestic competitors; (4) threat of foreign competitors; (5) pressure from price-sensitive customers; (6) pressure from the stock market; and (7) ambition of company leaders.

Here’s the good news. When I sum up the ratings across the three top spots, the most highly cited reason is the “opportunity to leverage existing customer relationships” (27.3%). This is the always a good reason to grow and usually one that companies can do rather effectively and efficiently. Companies best understand their existing customers and so extending offerings to cross-sell or asking the customer to help reach other customers like them usually works. It can also be very cost effective. The third most highly cited reason is the “opportunity to leverage existing brands” (18%), which also allows the company to grow current brand assets into current markets or into new markets.

Here’s the bad news. The second most highly cited reason is “the ambition of company leaders.” Ouch. I tossed in this response almost on a lark because I’m working on a research project examining the effect of leader power on company strategies. I expected this reason to show up in last place. It didn’t. What I’m learning about studies of CEO power is that there is a fair amount of other evidence out there indicating that CEO investment decisions are often driven by “empire building” motivations rather than the advancement of shareholder and company interests.

One generous interpretation of these results is that the ambition of company leaders is being deployed through leveraging customer relationships and brands. Additional data analysis doesn’t support this idea, however. For example, of those marketing leaders that rated their company as leveraging customer relationships as the first, second, or third reason for the growth strategy, only 56% also rated “the ambition of company leaders” among the top three reasons. For leveraging existing brands, only 40% also rated the ambition of company leaders.

A less generous and perhaps even ugly interpretation of these results is that strategies are driven by what makes leaders look good to both the stock market, which often can determine the CEO’s wealth, or to other boards of directors that may want to lure him or her away for even more compensation.

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