Automatic growth

I had ealier posted an article wherein I had discussed the penchant of company executives to be the number one in their market. Maybe they have become convinced of the idea that the only way to make money is become number one in one’s market from Jack Welsh of GE or maybe they have read the book on PIMS database which suggests that high profitability is linked with high market share in the served markets. In another article, I have also made comments of executive’s obsession to grow fast by whatever means so that they can either become number one or become large enough to reap economies of scale.

In short, everybody wants to grow fast. However, we have seen that most companies which have grown fast land up into trouble for some reason or the other. Let us consider some examples. The best example in India is that of ICICI Bank. I remember that whenever I conducted a seminar on customer satisfaction and retention, I always used the example of my horrible experience with ICICI Bank. Invariably, I used to be asked the question that if ICICI was so bad then why was it growing so fast and why was is it so profitable? I really didn’t have the guts at that time to go against what seemed like a stellar performance. Difficult to believe but at a point of time, ICICI was even valued higher than State Bank of India (SBI). Though, I used to give a logical reply, this was something that always bothered me as it didn’t fit very well with what I was preaching.

However, now everything has come in the open. All of a sudden, one reads that ICICI is one of the worst performing banks on practically all the parameters that one can think of. They are paying for their aggressive marketing strategy in the retail sector by their high level of non-performing assets (NPAs), a fancy name for bad debts. In addition, I am sure that their ill-treatment of customers must be hurting them. Np wonder they are always in news for violating the law by sending thugs to recover the money.

Enron is another example. It was a darling stock of everybody. The company grew at a fast pace consistently, year after year. Similarly Krispy Kreme, a well-known US doughnut manufacturer, had a unbelievable growth ride before it came tumbling down. I think the same is true of Sahara Group in India. There was a time when you heard about them everyday in the business papers with respect to some big project that they were venturing into but today you hear about them for all the wrong reasons.

I am reminded of a country music song that says that “if it doesn’t come easy, just let it go.” Of course, here the singer is talking about love. It implies that you cannot push somebody to love you. Similarly, you just cannot become no. 1, 2, or 3 just by a aggresive approach. The reason is that when you turn aggressive, do you think that others will just keep quiet?

I think yesterday I saw a quote of Rai Bahadur of Oberoi in an advertisement which read “Don’t chase money. Just do the right things.” I have said this in a number of my posts. If the actions taken are the right actions, the results will be the best. In fact, I have gone as far as to say that performance should be evaluated based on actions taken rather than target achievement.

Recently, I was heartened to read an article in Mint which starts with the sentence, “The desire for growth is at the root of all evil doing.” This article is an excerpt from Jack Trout’s forthcoming book titled Insearch of the obvious. The article continues to say that the desire for growth is at the heart of what can go wrong for many companies. Growth is the by-product of doing things right. But in itself it is not a worthy goal.

So just growing fast is not a sensible objective. Growth will be automatic when you take the right actions. To support this, I would like to give an example. In 1978, I was posted in Patna by Escorts to look after tractor sales. We were number 3 or 4. For nine months, me and my boss took a number of actions to to streamline and expand our dealer network. I have always been an action oriented rather than target oriented person. As such, I didn’t really bother about the numbers. Also, since Bihar contributed just 10-15 tractors a month, the management was not worried about Bihar. As such, I was not under any kind of sales pressure.

Any way, after 9 months when my boss came for his monthly visit/tour of Bihar, I met him at the airport. However, he didn’t even wish me and the first thing he asked me was what is happening to achievement of targets. I was quite sure that our VP must have called him early morning. However, I found this to be a fair question. While travelling we reviewed the various actions that we had taken to see if we had done anything wrong. In fact, our review suggested that we had taken very effective actions.

Now I was worried. I knew that I could lose my job because my performance would be assessed on target achievement and I was nowhere close to it.

Anyway, as coincidence would have it, on the 30th of the same month I received frantic messages asking me to call my boss Mr. Chopra. I thought I was in deep trouble. Anyway, I called my boss and to my surprise found him very excited. He told me that we had sold 49 tractors that month and that he wanted to touch 50. We touched 50 and never looked back. We became the leaders in Bihar automatically by just taking the right actions. This experience has been a great learning experience for me. Till date, I always focus on taking the right actions rather than numbers and growth targets.

So is “growth” or “fast growth” bad for business? Should companies not look for growth? I believe that growth that is achieved by taking the right actions will bear fruit in the future. Any growth that is pushed through forcefully will always have adverse consequences in the future.

Avinash Narula

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Comments

Hi!

Everyday, we are reading about the doubt that people have of its financial strength / stability. This was the fastest growing bank and this is the only bank today which is having problems in the current financial turmoil. The connection between the two is quite obvious.

Another example which proves the correlation between fast growth and financial trouble is retailer Subhiksha. It continues to have problems. Mint continues to track the story of financial troublle of Subhiksha. I think this kind of story would help to people understand the operations of the company. On the other hand, I think such repoting also helps the companies as they will become more careful before they make ambitious plans.

avinash narula

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