Grow or die has long been the accepted strategy for business. But look at the problems plaguing AIG or Toyota for instance, and one is left wondering why.
In a new book, Smart Growth: Building an Enduring Business by Managing the Risks of Growth, business professor Ed Hess argues those well-known corporation are prime examples of having pursued the wrong kind of growth for the wrong reasons. It’s a lesson agents should reflect on before pursuing their own growth plans.
Hess has culled some data showing that above-average, long-term growth (five years or more) is an exception — occurring in less than 10 percent of the companies studied. “For the vast majority of companies, growth is often pursued in a way that brings with it as many risks of failure as chances of success,” Hess said. The reason: The wrong kind of growth creates new business risks and requires investments in staff, equipment and other items that can exhaust cash reserves.
Growth can also force a business into the big leagues before it is ready to handle the competition, can strain a firm’s operations and pose challenges for management capacities — all resulting in quality problems and diminished brand, Hess said.
Hess’s solution is a concept he calls Smart Growth, a strategy based on following the “4 Ps of growth,” namely:
Plan for growth before kicking the strategy into gear. Consider how growth will change what you need to do and any new processes and people will be needed.
Prioritize the changes needed to accommodate growth. This is a way to make the essential investments first, so as not to deplete cash reserves.
Processes must be put in place to ensure there are adequate financial, operational, personnel and quality controls for a bigger business.
Pace growth so as not to overwhelm yourself, your people and your processes. Don’t underestimate the need for change management.
Hess said business leaders should remember that the goal is not necessarily growth. Rather, the goal is continuously making your organization better. “When you achieve that, growth will happen naturally in due course. That’s the way to achieve smart growth,” he said.
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