The race to change the rules of the game in an industry has two distinct legs. First, the company works toward perfection of its complex business system – learning to achieve industry-leading levels of performance, tuning its value proposition and developing a viable economic model. In our sample, the first leg required an average of 4.5 years. That was the time it took FedEx to refocus its business system on next-day delivery of papers. McDonald’s spent an equivalent period developing a replicable model for operating restaurants, learning what sort of franchisees were most desirable and anchoring its economics in royalties and rent overrides from successful outlets.
Once the business system is perfected, a breakout company must run the second leg: explosive growth through replication of the business system.
Sustained growth in earnings in excess of 20 percent per year – typical of companies changing the rules of the game – requires disciplined reproduction of a powerful business system along one of three tracks: acquisitions, geographic expansion, or expansion into new market segments. During this second leg, the business system is extended to include the capability to grow rapidly along the selected track (to acquire and assimilate companies, for example, or to open a large number of new outlets). But to consistently perform at these levels, a company can manage only one of these three growth tracks. When Home Depot departed from its track of opening outlets in new geographies and tried to grow by acquisition, it stumbled. So do most companies that experiment with a second track.
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