The Size and Growth Impulse
post # 259 — December 12, 2006 — a Strategy post
In most companies and firms, it is taken as a matter of unexamined faith that the organization must grow. A related article of faith is that size matters — in marketing, in recruiting, in profitability.
The â€œgrowth and sizeâ€ school of thought has some eminent supporters. Jack Welch of GE famously believed that to be a viable competitor an organization had to be number one or number two (measured by market share) in its industry. Many contortions of analysis have subsequently taken place by companies (or divisions within companies) trying to redefine their market so that they could claim to be the first or second biggest in that market.
Wall Street analysts seem to care about little else but growth when valuing share prices, and CEOs respond to this strong signal. Even if they canâ€™t grow â€œorganicallyâ€ (or maybe especially if they cannot grow organically) CEOs eagerly seek out â€œdealsâ€ to expand their empire.
To this day, academic institutions teach the decades-old â€œBermuda Triangleâ€ theory of industry structure, which says that you can only survive by being either the biggest overall in your industry or be small and dominate a focused specialty. (The Bermuda triangle is the space between small and large where most firms disappear, apparently.)
I do understand the need for growth that derives from the fact that employees seek promotion opportunities, and that to hold on to good people the organization must grow in aggregate size (unless it is prepared to get rid of its senior people with enough frequency to make way for the juniors!)
In spite of all this, I have my reservations.
I worry that all these good reasons for seeking growth get turned into a mania for *ANY* growth, where the measure of success becomes growth at all costs, not **wise** growth. I donâ€™t believe all growth is good.
For example, if two average quality firms of average size merge, is the bigger entity really more competitive? Do customers and clients REALLY re-allocate their business based on whoâ€™s the biggest firm?
And if you think growth is needed to provide opportunities for employees to advance their careers, what good does it do to grow by bringing in large numbers of senior lateral hires who then occupy the very positions that the juniors were aiming for? Or, how does it help to create opportunities for junior people by launching totally businesses involving totally new disciplines in totally different geographic areas? The given reason for growth (provide opportunity) is often a faÃ§ade for other reasons (empire building, the belief that being big helps attract customers.)
My biggest concern is that most strategic plans place a greater emphasis on growth and size than they do on quality.
I have seen as many (perhaps more) companies get in to trouble by trying to grow too fast than by growing too slow. â€œToo-fast growthâ€ can lead to a lack of discrimination in chasing business, unwieldy and unmanageable structures and a poor, low-quality â€œif it moves, shoot itâ€ culture.
Thereâ€™s a paradox that some really great firms understand: – If you really operate day-to-day by having the primary goal of â€œbeing the bestâ€ , then growth and size may indeed result since the marketplace will notice and reward your extra value. Quality LEADS to growth and size, but only if growth and size are secondary.
Itâ€™s pretty clear that firms (and individuals) that put growth and size AHEAD of quality (that would be most businesses) will end up with weaker reputations and will, in the long run, be likely to get **less** volume and growth. Putting volume and growth first may be self-defeating. Yet it is how most firms are actually run.
Letâ€™s play fair here. It happens to us as individuals, too. Itâ€™s easier to measure our success on volume (did I get more work) as opposed to how fast we are building new skills. How many of us can honestly say we put getting better ahead of getting more?
What do you think of these questions:
(a) Do most companies place size and growth ahead of quality and getting better?
(b) Is this, ultimately, bad for them?
(c) What, if anything, can be done about that (or is it inevitable and irresistible)?