Leveraged Growth: Expanding Sales Without Sacrificing Profits

The traditional growth strategies of organic expansion and acquisition require up-front investments in additional assets, with an uncertain payoff. So the pursuit of growth almost always narrows margins, for a time or, in the worst case, forever. But another kind of strategy--leveraged growth--doesn't require companies to trade profitability for growth. That's because instead of owning assets, a company leverages the assets of other businesses operating at many levels of the value chain, capturing value for itself as a knowledge broker. The Hong Kong-based trading company Li & Fung, for instance, owns none of the facilities involved in processing raw material into the finished goods it supplies to European garment retailers and designers. It does, however, have privileged access to some 7,500 companies around the world that possess specialized production and distribution capabilities. Li & Fung uses its knowledge of the apparel market to leverage those companies' assets, using whichever companies are most suited to making whatever goods its customers demand. Orchestrating such a process network is one way to leverage other companies' assets. Another involves aggregating their resources, as Charles Schwab does when it makes the services of many related companies available through its web site or IBM does when it sponsors user groups. And Microsoft and Intel engage in possibly the subtlest of the leveraged growth strategies--shaping an economic web--by placing themselves at the center of a vast, ever-shifting group of companies that build on the Wintel computing platform. In a world of leveraged growth, the key question becomes: Which of your assets would give you the greatest power over other organizations? The company with the most powerful assets will have the greatest growth potential.

• Profitability
• Outsourcing
• Mergers and acquisitions
• Competitive advantage
• Asset management
• Sales
• Supply chain management