Growth for its own sake is dangerous

JINOY JOSE P | Updated on August 03, 2014 Published on August 03, 2014

SANJAY KHOSLAFormer president,Kraft Foods, Developing Markets

Focus on the virtuous cycle of growth, rather than going in for mindless expansion, says the Kraft Foods veteran

Jinoy Jose P

What Sanjay Khosla has achieved in his more than three decade long career is fodder for management texts today. Sample this: as president of Kraft Foods’ developing market wing, Khosla helped the company grow its revenues from $5 billion to $16 billion in just six years. How did he make that happen? Khosla says he followed a simple seven-step strategy — Focus7. In Fewer, Bigger, Bolder: From Mindless Expansion to Focussed Growth, which he co-authored with academic Mohanbir Sawhney, Khosla, currently senior fellow at Kellogg School of Management, unspools his pack of business wisdom. In an interview with BusinessLine, he talks about the book and businesses. Excerpts.

Why this book? What makes it different from similar works on business growth and strategy?

The Focus7 model the book talks about is something I have been practising intuitively for over a decade when I was running businesses in different parts of the world. Even though the learning process started many years ago, it was only after I started associating with Northwest University in Chicago, I thought of translating these lessons into a book.

The first of the three things that makes our book different is its focus on practice. Focus7 works in practice because the strategy has had proven marketplace results. For instance, when I was running Krafts in developing markets, we moved the business from $5 billion to $16 billion in six years and improved profitability by 50 per cent. Even before that when I was running Fontera brands worldwide, this helped me turn around that business as well. The same happened when I was coordinating Lipton Worldwide.

The second reason is, the book and the ideas presented are backed by enormous research and data. We have done a lot of research on companies and products and used all the data to back up this simple model. The third reason is its simplicity and focus on how to make quality growth really happen. Yes, there are a lot of books on business strategy, growth and so on, but this book, though it touches upon strategy, leadership, etc, focuses more on practicality. And it gets into some of the pitfalls we have observed in our research. To be fair, several books cover parts of this concept, but this one brings them all together and offers a step-by-step guide.

That’s why you’re calling it a GPS, rather than a map.

Exactly. Each of these seven steps illustrates that point. Also, Focus7 builds on the ‘positive’. Take for instance, the first step of the seven — ‘Discovery, search for growth’; when we conduct workshops, we spend more time on the positive aspects of the issue. Among other things, the book breaks many of the leadership myths. For one, it demolishes the argument that the boss has all the answers and senior people have superior knowledge.

How crucial is the role of leadership?

In the book, we discuss three principles of leadership, which I have used all through my career as well. The first principle is, unleash the potential of people by trusting them. And a simple mechanism to do this is to give them what we call a ‘blank cheque’. The second principle is setting up a collaborative network worldwide. That basically means setting up virtual teams that are fully in power and connected virtually. This redefines the concept of a head office and similar entities. The third principle is to give people a sense of purpose. Of course, we pay them well; we take care of them too; but do we give our employees a sense of purpose? People want to do something for the community.

At Krafts China, we asked them to device something by themselves and they came up with the idea of Hope Kitchens. (‘Kraft Hope Kitchen’ is a charity project jointly initiated by Kraft Foods China and the China Youth Development Foundation. It aims to improve the nutrition and diet of school children in Chinese villages.) Hope Kitchen was not just about donating money to under-privileged parts in China, the idea was to get employees working with people and that sense of purpose — of doing good while doing well for themselves — we found was an important part of leadership. Such an approach will help you bring in quality growth.

The book says quality growth is more important than quantity. But several companies tend to think any growth is good; and any money is good money.

When I joined Kraft Foods, one of the countries where Kraft had been struggling for years was China. And the intention there was to just go for growth. The reason was that many companies go to China seduced by its billion-plus market. And these companies want growth for growth’s sake. But what I found out was and what we say in the book is this approach is something one should avoid.

What we found out in China was while Krafts China was growing, slowly, it wasn’t making money. More importantly, the problem was it had no hope of making money. Focus7 was applied there and we decided to focus on fewer things, stop a lot of things which had no hope of making money. And we even reduced distribution of certain things to establish a sustainable, profitable business model. This is counter-intuitive. You actually reduce the business, but keep your gross margin and model right before you invest in growth. That’s exactly what happened in Kraft China. As a result, from 2007 to 2012, the China business of Kraft grew from $200 million to a $1 billion. Again, more importantly, it was a sustainable business model with a healthy gross margin. That’s why we argue in the book that mindless expansion and growth for the sake of growth is actually very dangerous. Quality growth matters. We call it a virtuous cycle of growth which is sustainable.

In the book, you talk about companies going glocal — finding the balance between a company’s global resources and local expertise. How does one do that?

Many companies either go hopelessly local or mindlessly global. What we are saying is that must balance right. But the question is how? It is very simple. You decide on where you have a competitive advantage. You focus on where you can win. For example, in the case of Oreo (Kraft’s biscuit brand), we understood that manufacturing, research and development, and procurement could be done globally. With respect to that we had expertise. But a lot of products such as green tea Oreo in China were developed locally. Once you are clear on what could be done globally and locally, then you have complete freedom to operate through a blank cheque, but connect through a global, collaborative network by using the best of global networks.

In the chapter on ‘metrics’, you talk of communicating progress through storytelling. This idea sounds unique. Not many companies actually do that.

A smart leader uses storytelling as a key mechanism to lead. Many in business are more comfortable with numbers than anecdotes. This should change. Our research found that companies spend a lot of time on ‘internal focus’, which I call looking at the mirror.

This includes comparing against one’s own past, trends, etc. It’s fine, but you should look out through the window, into the world outside and see how things are done there.

‘Fewer, Bigger, Bolder’ is published by Penguin Portfolio

Published on August 03, 2014
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