Up for the challenge of growth?
According to a recent survey made by Bain & Company, the number one challenge for most business leaders of today is generating growth, next in line are increasing profitability and cutting cost – see chart below, straight from the source.
From a practical perspective, growth is normally the best way for a company to reach profitability as long as it is done with cost awareness. Growth however doesn’t just happen. There is almost always a large amount of market understanding, experience, dedication, risk taking and hard work behind – and a bit of luck. Knowing that, many companies still fail to reach their growth targets and get stuck in a negative circle of cost cutting. Year after year. Also, they miss identifying their future sources of growth and placing their bets right. Why?
Many strategists and scholars argue that the high failure rate connected to the pursuit of new sources of growth is connected to poor processes and skills – and limited risk taking. Hence, popular advice is to improve processes, take more risks, test copying some of the approaches used in the venture capital industry and to build up a pipeline of new businesses in parallel to the current one – and to become more entrepreneurial. There is however also research suggesting that a different approach could be more successful.
Most successes are the results of careful strategic choice
Most successes, according to this line of research, appear to be the result of careful strategic choice, rather than extreme risk taking and multiple experiments or portfolios of initiatives. In a world with very little patience this may however be hard to accept.
Earlier studies from Ashridge have however shown that companies are successful in new growth areas only when the critical success factors in the new business fit their existing mindsets and business setups – and that failure often is a result of trying to do things that do not fit to the existing mindset and business setup. In other words, a company’s mindset is normally well tuned to the needs of the existing businesses, but often get in the way when the company tries to enter new areas. Multiple experiments and portfolio experiments too far away from the core business are hence not likely to succeed.
Be selective in your growth ambitions
One suggestion is simply to be more selective about your growth ambitions. Another is to have more patience and focus on a few business related projects rather than too many initiatives too far away from your current business. When it comes to patience research actually suggest that it may take 5-10 or even more years for a particular company to develop a significant new growth opportunity. Managers who face up to the reality of selecting only a few significant opportunities that fit well with the current business are however better armed to help their companies succeed than those who believe that more risk taking is the answer. In fact, investing unwisely in new businesses can be an effective form of corporate suicide.
Food for thought…