To grow or not to grow

ESPAÑOL

The Shakespearean dilemma in the title is frequently included in the boards of directors’ and management committees’ agendas. Business leaders, faced with this quandary, tend to opt naturally – almost instinctively – for growth, the greater and the sooner the better. That leads organizations to embark on ambitious growth projects leaning on their existing structures. Without calling into question the convenience of thinking about continued growth, it is always worth considering what is the best way for businesses to grow or keep growing.

Photo Ngai Man Yan

A successful company necessarily grows in the markets in which it operates, offering products and services with certain features and quality and with a certain way of doing that determine their position in the market, through their market share.

There comes a time when growing in the market in which we operate becomes difficult: we have reached a very high share in a mature market, which can hardly grow, or the cost of capturing additional share far exceeds the benefits, either by excess of competition, emergence of new technologies or other reasons.

At that moment, many companies consider either their geographical expansion, or addressing new market segments -with the same products adapted to different consumers- or, frequently, the introduction of new products and services more or less related to the current portfolio, through a diversification process.

The two strategic decisions of growth

The proper management of the strategy and risk – responsibility of any Board of Directors or Management Committee – includes the evaluation and selection of the growth strategy and, equally important, the best way to implement it. It is convenient to separate these two analyses and decisions to avoid the risk of giving up the most appropriate strategy due to the complexity of its implementation in the organization.

Once the ideal growth strategy is selected, it is wise to evaluate some items having an impact on the best way to implement it. We should answer the questions:

  • Have we fulfilled the Company’s Mission? What is the chosen growth strategy contribution to it? Indeed, the mission must be a compass that guides all the company’s efforts. By answering this question, we will know if the Mission is alive, is real, of if it is just a nice phrase decorating the wall of the Board room. If our Mission does not help us to make decisions of this strategic calibre, it is probably time to revisit it.
  • Have we reached the optimum organizational size from which the marginal value created can only drop? The cost efficiency provided by economies of scale does not always help maintain the level and quality of the value we bring to the market. It is necessary to identify that size that should not be exceeded.
  • Are the current structure, organization, resources and equipment suitable for carrying out the chosen growth plan? Are we not risking to unbalance the organization, burn our teams and damage our current business by demanding something for which they are not prepared? What risk are we willing to take in our existing business to achieve new growth?

If, when answering this kind of questions, we conclude that the growth we propose cannot be achieved without great risk to our current organization or within the framework of our Mission, we must think of alternatives so as not to give up our growth strategy. An immediate option is the acquisition of an existing business that will directly place us in the chosen growth direction. This solution, which seldom fits perfectly with what is sought, deserves independent reflection. Therefore, I will focus here on other internal solutions, tailored to our company and controllable from within.

Decentralized growth

Jack Welch advocated the growth and innovation of the gigantic General Electric through autonomous and free action of independent and agile teams. The North American conglomerate – a paradigm of diversification – selectively gave up centralization for the sake of its growth model.

Indeed, our organization could benefit from the creation of autonomous units -backed by a common support infrastructure- that explore different options that would make the new business viable, as if they were small and agile start-ups, before or instead of embarking the company in a change of scale that would make it lose its optimal size and her focus on what already works well.

This is about going beyond the business units or divisions: creating truly autonomous entrepreneurship units, with their own decision-making capacity and framework – within a budget limit marking the limits of the accepted risk – and free of the burden and limitations of the central structure.

The decentralized growth model offers multiple advantages both to maximize the chances of success of growth projects and to boost organizational change and facilitate the management of financial risk. It is as well a powerful talent management tool.

It is definitely an option to be seriously considered by companies that face one of the most important decisions: growing and how to do it.

Author’s profile: José Miguel Noriega

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