Senior management at Levi Strauss & Company could be forgiven for not seeing it coming. The year was 1996. The company had just achieved a personal best, with sales cresting $7 billion for the first time in its history. This performance extended a run of growth in which overall revenue had more than doubled within a decade. Since taking the company private in 1985, management had relaunched the flagship 501 brand, introduced the Dockers line of khaki pants, and increased international sales from 23% to 38% of revenue and more than 50% of profits. Growth in 1995 was the strongest it had been in recent years.
When Growth Stalls
Reprint: R0803C
An abrupt and lasting drop in revenue growth is a crisis that can strike even the most exemplary organization. The authors’ comprehensive analysis of growth in
Fortune
100–size companies over the past half century revealed, in fact, that 87% of them had stalled out at least once. The record shows that if management cannot turn a company
around within a few years, the odds are that it will never again see healthy top-line growth.
Fortunately, Olson, van Bever, and Verry, of the Corporate Executive Board, have uncovered and categorized the most common causes of growth stalls. The majority of
these standstills are preventable because, according to the authors, they arise from management choices about strategy or organizational design; external factors, such as
regulatory actions or economic downturns, account for only 13%. Four categories predominate:
Premium-position captivity.
When a firm’s world-class offering has won the most demanding customers in the market, it often fails to respond effectively to new, low-cost competitive challenges or
shifts in customer valuation of product features.
Innovation management breakdown.
Because most large corporations generate sequential product innovations, any systemic inefficiency or dysfunction in the innovation chain can cause extremely serious
problems that last for years.
Premature core abandonment.
Managers may conclude too quickly that a core market is saturated. Or they may incorrectly interpret operational impediments in the core business as evidence that it’s time
to move into new competitive terrain.
Talent bench shortfall.
Insufficient capabilities—particularly at the executive level and typically in areas of acute and specialized need—will stop growth dead in its tracks.
The authors also identified a common culprit in detailed case studies of 50 stalled companies—failure to adapt the assumptions that drive company strategy to
changes in the external environment. Two tools can help managers avoid growth stalls: a self-test to diagnose impending stalls and a choice of practices to explicitly
identify strategic assumptions and test them for ongoing relevance.