Our obsession – Achieving high growth rate

Businesses all over the world are obsessed with achieving market leadership, building scale to achieve economies of scale and last but not the least, consistently clocking high growth rate. However, the obsession of businesses with the above objectives invariably lands them in trouble. Why? Primarily because they have not only misunderstood the concepts behind these objectives but they have also misunderstood as to how these objectives should be achieved. As such, I feel that there is a strong need to clarify what our obsessions mean so that we can avoid the pitfalls and run our businesses successfully. Today, I will discuss the last of our obsession, that is, achieving high growth rate.

The problem is that we not only want to grow and build up scale but we also want to do it fast, almost overnight. Companies are obsessed with growing at a fast pace 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 tried to grow fast have landed in trouble for some reason or the other. Let us consider some examples. One good example 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 had such poor service then why was it growing so fast and why was it so profitable? Even though, I knew that such growth will lead to trouble but I really didn’t have the guts at that time to go against what seemed like a stellar performance. Even if I did, nobody would have believed me. Difficult to believe but at one point of time, ICICI was even valued higher than State Bank of India (SBI).
However, now everything has come out 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 also hurting them.

Enron is another example. It was a darling stock of everybody. The company grew at a fast pace consistently, year after year and finally went bankrupt. Similarly Krispy Kreme, a well-known doughnut manufacturer in the U.S., had an 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 hardly hear about them.

I am reminded of the lyrics of a country music song by Tanya Tucker, “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 in a market or build up scale fast or achieve high growth rate just by adopting aggressive approach. One, adopting an aggressive approach is costly as it involves additional costs. Two, you can expect your competitors to react to protect their turf which further increases your cost.

Recently, I was heartened to read an article in Mint newspaper which starts with the sentence, “The desire for growth is at the root of all evil doing.” This article was an excerpt from Jack Trout’s forthcoming book titled In Search 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. 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.

Ratan Tata has also admitted that his companies “might have gone too far too fast.” Where was the need to buy Corus, a company which was much larger than Tata Steel? Of course, size matters. Any one could tell you that but people forget about how size needs to be built. Sound strategies for building size are: (a) Organically, and (b) Combining organic growth with smaller than yourself acquisitions. The ideal strategy is to grow organically based on sound business decisions. You can expedite the growth rate a little bit through smaller than yourself acquisitions as they would be easy to integrate with your existing organization. When you build size organically you are building it on a solid foundation of sound business decisions and not just trying to achieve growth for growth sake. Growth purely by acquisitions is growth for growth sake and it is not only expensive but usually lands companies in trouble.

There was no strategic fit between JLR and Tata. The luxury car maker in Europe joining hands with the manufacturer of low-end cars which are mostly run as taxi’s in India was a venture bound to get into trouble.

We have seen that our obsession of building scale and growing at a fast speed are all good objectives to have. However, problem only arises when we try to achieve these objectives through artificial means rather than through prudent management practices and decisions.

As I have mentioned before, we need to stop worrying about achieving high growth rate. All we need to take is right decisions to develop our business at a steady pace.

Sometime back I saw a quote of Rai Bahadur MS Oberoi of the Oberoi Hotels in an advertisement which read “Don’t chase money. Just do the right things.” He is right on the money and so am I.

Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.

Comments

No comments yet.

Leave a comment

(required)

(required)