What’s Your Theory of Growth?
Q: “Theory of growth” sounds like a B-school seminar. What is it?
Riham: It’s a thesis describing the actions or conditions a business believes will lead to organizational growth. For example, at a healthcare system where I worked, the theory of growth was to meet the needs of consumers, whatever those might be, by demonstrating we were a network of hospitals conveniently located wherever care was needed.
Al: At VShift, our theory of growth is: First, to nurture and grow our existing accounts and relationships. Second, to generate net new clients via content marketing, ABM and events. And third, to develop new services that align with our existing offerings and are of value to our accounts.
Riham: The power of the theory of growth is it helps prioritize what you focus on and how you use your resources. Al’s examples are marketing-focused, but the theory of growth can also be used to prioritize IT, supply chain, talent acquisition activities and investment—all of it.
Q: How does the theory of growth affect what people actually do?
Riham: It enables us to draw a short, direct line between the work we are doing and our company’s growth objectives. So it’s very clear to everyone what we do and why we do it. We build it into our budgeting, strategic planning, org structure and reporting or results processes. Theory of growth lets us say with confidence: “The organization has agreed that we will grow in these ways, so we have deployed our budget and work to support that growth through these activities.” It becomes your North Star.
Q: Practically speaking, what does this accomplish?
Riham: For starters, it gives us a framework to measure our effectiveness, which is extremely helpful. Second, it gives people clarity and helps motivate them. Everyone can understand how their efforts ladder up to the overarching goals. If someone sees a particular work effort doesn’t support the theory of growth, that gives them “permission” either to change it or drop it.
Al: It also allows us more autonomy on how to allocate our resources. We can make decisions based on clear contribution to organization growth, and not, for example, on whatever wheel is the squeakiest at the moment.
Q: Can you give an example?
Al: Take marketing spend. We’ve got an annual budget for media, and having a theory of growth lets us look at all the asks and say, “This one is a great idea, or this other idea isn’t well aligned with our growth objectives … so we won’t spend on that this year.”
Riham: Having a theory of growth lets you measure performance based on goals instead of “vanity” or irrelevant metrics.
Q: Whose responsibility is it to articulate the theory of growth?
Al: I ask a lot of marketers what their company’s theory of growth is and am often surprised it can be hard to answer. It needs to be determined at the top of the organization—the CEO and C-suite. And in many cases, even if there is a theory, it may not be communicated widely. A few organizations run annual cascading goals processes, and that can make things clear, but in my experience, this is fairly uncommon.
Q: So, how do those organizations prioritize spending?
Riham: Well, my advice to CMOs who don’t know their theory of growth is to start by coming up with what you think it is, then get it reviewed and revised by your boss and your peers.
Q: So, is this something marketing drives?
Riham: Yes, marketing can play a unique “orchestrator” role in aligning departments and driving strategic conversations. If, for example, your theory of growth calls for rapidly rolling out some new product, then you should be kicking off planning with your counterparts in IT, product, sales or whoever to make sure you are all aligned and ready to go. This kind of cross-silo planning is often very much lacking.
Al: The theory of growth approach is particularly useful for marketing. People are always questioning: What are we getting for our marketing investment?
Riham: Right. We don’t do marketing for the sake of marketing. We have specific performance goals, and those goals are tied to the theory of growth.
Q: We’ve been talking about B2B ... Does theory of growth apply to B2C too?
Riham: Yes, I think it doesn’t make a difference if you are B2B, B2C or B2B2C. Marketers need to understand how their organization wants to grow. I do think that B2C organizations, at least from what I’ve experienced, are ahead of B2Bs at applying it, although B2Bs actually might need it more.
Q: How so?
Al: The value of marketing can be difficult to pin down in B2B. Sales are more complex and take longer. B2B firms tend to be less sophisticated about marketing attribution. There’s a tendency to undervalue or misunderstand marketing.
Riham: On a related note, the theory of growth also helps you deal with organizational “blockers.” It helps change the perception of marketing from a cost center to a growth center. Because it shows how the marketing investment connects to the growth strategy.
Q: Is theory of growth another way of saying “vision”?
Riham: Not really. Vision can encompass many things about why a company exists and what it wants to accomplish. Theory of growth is simply: What are we doing that will contribute to our organizational growth – revenue growth, customer growth and so on.
Al: Vision is aspiration. When a healthcare company says, “We’re going to end cancer,” that’s a vision, not a theory of growth.
Riham: Here’s an example you know well: Freddie Mac. Freddie’s vision is to promote a stable housing market and opportunities for homeownership. But Freddie’s theory of growth is to provide a superior underwriting experience for loan originators, who will want to bring Freddie more loans.
Q: One last question: Do we know whether this theory of growth stuff works?
Riham: Yes! It’s completely accountable. Having a theory of growth makes measurement very straightforward: Here’s our theory of growth. Here’s what, say, marketing accomplished. Now: How effectively did marketing move the ball towards the growth goal?