Why Companies Should Measure “Share of Growth,” Not Just Market Share
Accelerating growth is on every CEO’s agenda. Each year business leaders commit to an overall revenue growth target, but the reality is that growth within a business is often very uneven. Some parts grow faster, and one hopes that they offset the other parts that may be declining. Dave Calhoun, former vice chair at General Electric and now senior managing director at Blackstone, says that it’s better to double down on your winners than to invest in fixing the losers. But many companies have a one-size-fits-all mindset toward metrics, which makes it hard to use that judgment when allocating resources from the top.
Similarly, there tends to be very little incentive for leaders below the C-suite to double down, even when they see a great opportunity. We personally know of three executives who were pivotal in launching $100 million-plus innovations. Despite the huge incremental value all three created for their corporations, their compensation plans failed to adequately reward them for creating such explosive growth. Yes, they received bonuses and public recognition, but they had to fight with HR to ensure their teams received just a tiny fraction of the value they’d created. Why? Again, it comes down to metrics and key performance indicators (KPIs) that don’t properly capture the subtleties of how a business is growing. Sadly, all three of these executives left their big companies to work in smaller, more entrepreneurial firms.
How do we fix the problems of properly measuring, allocating resources to, and compensating people for driving growth? Here are two ideas: First, companies should move beyond looking simply at market share, and instead focus on “share of growth” as the key metric when driving a business forward. Second, companies should find ways to exponentially reward leaders who drive share of growth.
Read the full article at the Harvard Business Review.