The Growth Imperative
I recently had a chat with a few friends about how life passes us by at a rate which is tremendous. And the older we get, the faster time passes us by. The factor that shows this the best, is the growth of our children. My eldest is 22. It feels like yesterday that I was unable to tell my family over the phone that mother and daughter were well as I had this tremendous lump in my throat.
Growing is therefore a natural phenomenon for humans and even animals, all things being equal. Somehow, however, we made it a big issue for our companies. Investors require companies to grow so that they can increase their returns. They reward companies that do provide them with their returns with a higher share price, and the management of the company is rewarded with high remuneration and incentive packages.
Due to this, companies have a vested interest in ensuring that they grow their top-line. At the same time they need to ensure that they are profitable as well. Frequently these 2 objectives are mutually excluding. According to some recent research by Peter Lorange from IMD, it is only about 40% of companies that succeed in growing and being profitable.
Interesting enough, from a value-based perspective, there are 3 financial drivers of value associated with growth:
- Growth duration. This refers to the period over which you have as high a cumulative annual growth rate as possible. It is management’s job to ensure that they adopt projects that will bring about this result. In the absence of this phenomenon, eventually the best the company will be able to hope for will be a growth rate at maximum the economic growth rate of the country in which the company finds itself. The management of companies that find themselves in this position, run the danger of being fired when their company is taken over by competitors.
- Turnover growth. This factor appears to be quite simple. After all, sales is about increasing volume at a given price, or growing both the volume and the price. It is far from simple though, as it requires so many intangible factors to be in place. Here we refer to the optimal customer segments, with the optimal customer value proposition, using the optimal distribution channels with the optimal marketing message and tying the customer to you in a way that brings about competitor lockout and customer lock in.
- Profit growth. Profit is about the difference between price and costs. Both variable and fixed costs. And volume does play a role in the case of fixed costs, on a per capita basis. The greater the volume, the smaller the per capita fixed cost, and the higher the per unit profit. The link between price and cost is driven by efficiencies, by how lean and mean your operating model is, by how productive and competent your employees are.
It is also very interesting that companies can grow too fast. Their investment needs can be outstripped by their cash flow needs due to a working capital requirement and fixed asset investment requirement. Companies should do well to remember this in pursuing the growth imperative!
Having said this, the common denominator of all the above kinds of growth, is the people of the organization. You need to have engaged people who are committed to the organization’s vision, mission, purpose, and strategy, who are productive and hard working. You need people who are trained and developed, and that have an employee value proposition that is as appealing to the employee as the customer value proposition is to the customer. Without this kind of people, there will be no high growth duration period, no turnover growth, and no profit growth.
Growth also requires the growth of the leaders of the organization. Strong and visionary leadership is a prerequisite for the implementation of strategy. And this requires the growth of the individual in meaningful ways, growing them in emotionally and spiritually meaningful ways.
I recently had the good fortune of accompanying a group of MBA students of the University of Stellenbosch Business School on a study tour to France and Belgium. As part of the tour, we visited the European Commission’s office in Brussels. There I saw the following emphasis on growth:
- Smart Growth: Investing in knowledge and Innovation. This is the kind of growth referred to in the above paragraphs. We need to become more knowledgeable and creative than we currently are. And this is a continuous truth. We never get to the point that we can relax as far as this is concerned! As companies and teams, we need, however, also to be aware and concerned about Albrecht’s Law. Karl Albrecht stated that “intelligent people, when grouped together, tend towards collective stupidity!” To avoid this, we need emotionally and spiritually intelligent people that are able to create synergy, where the whole is more than the sum of the parts.
- Sustainable Growth: Promoting a greener economy. We need to be aware that we cannot grow at the cost of our planet. Sustainability, however, also requires that our business models and strategies are good enough to ensure the survival of the company in a competitive environment. Granted, we too frequently emphasize the “sustainable” growth of our business models and strategies and ignore the needs and requirements of the planet. We do this at our own peril – hence the focus of the EC on a greener economy!
- Inclusive Growth: Fostering a high-employment economy. Technology has become an advantage and curse, depending on how you look at it. We use technology to solve a large number of problems, but frequently we create more problems in the process. Increasing productivity by using technology is great. This does, however, frequently create job-less growth, which in developing companies can have a devastating effect. So in order to be socially responsible, we need to grow our companies and economies bearing in mind the caveat of fostering a high-employment economy.
So far we have spoken about the company. This does not mean that the individuals can sit back and expect others to look after them. He or she equally has a responsibility of ensuring that they grow as people, that they grow their competencies, and that they are employable and remain so, irrespective of the direction of the economy. Again, they need to understand that this personal growth journey is a never-ending journey. Should they not do so, growth will happen to them, and not necessarily for them and frequently (mostly?) not to their benefit!
The reality is that the absence of growth is not stasis – it is regression and eventually death. Relative to others who do grow, you do not stand still if you do not grow. You fall behind. This is the case whether you are an individual or a company.
So growing seems to be essential. But it does seem to be like thinking – which Henry Ford said is so difficult that very few people actually engage in it. Individuals struggle to grow, which probably is why so few companies grow in an optimal and appropriate manner!