Focus on Growth

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Focus on Growth “Mode” Rather Than Growth “Rate”

Changing Focus After a Recession

As the first deep recession of the 21st century laboriously proceeds towards recovery (hopefully), senior management is universally encouraged to shift their focus from survival to growth. Unfortunately, after board-level discussion agrees with this suggestion, growth mode often immediately switches to growth rate as the solitary measurement vehicle.

Setting growth rate benchmarks, targets, dates, and potential strategies occupies valuable senior executive hours. Yet, often lost in this focus shift is the fact that a striking change of direction is a major challenge to all but the leanest entrepreneurial companies just as it is to larger, more complex moving objects. (Does the name “Titanic” evoke any useful mental pictures?)

The Mysterious Process of Shifting Focus to Growth

Whitman School of Management (Syracuse University) professors, Alexander McKelvie, PhD, and Johan Wiklund, PhD, ask a tantalizing question for C-level executives: “Shouldn’t you focus on the ‘how’ before the ‘how much’?” These learned professors pose a seemingly logical query. How can an organization benchmark or measure a result before the action plan to achieve the result exists?

Famous New York Yankee catcher and philosopher, Yogi Berra, eloquently (in his own style of communicating) put forth a similar theorem in statement form: “We’re totally lost, but we’re making good time.”

The inherent problem is evident from both of these perspectives. How can an organization measure the result of actions or goals that have yet to be defined? Professors McKelvie and Wiklund offer interesting reasons for this often confusing process. They believe the impatience and lack of thoroughness of many growth researchers and expert observers has bypassed the more cumbersome “how” in lieu of the easier to state “how much” component.

Meaningful Research on “Mode” Versus “Rate” Is Woefully Lacking

A curious circumstance seems to reinforce this theory. The most popular useful publication addressing the growth mode is Edith Tilton Penrose’s “The Theory of the Growth of the Firm," published in 1959! The real apparent problem is creating a consistent theory that could serve as a foundation to help senior management create a working plan for their company. The reality: Companies with different corporate cultures, in different markets, competing in different industries, and in different lifecycles can adopt different, but equally successful, growth modes.

The complexity (or impossibility) of establishing one or two proven growth mode strategies has produced few dependable working models of action plans. Even Edith Tilton Penrose’s 1959 classic paper is a combination of economics and management theory that is not truly a “how-to” manual.

Looking at Growth Research and Growth Modes

McKelvie and Wiklund attempt to clarify this cloudy subject by identifying the research to help senior executives understand and adopt a successful growth mode.

• Growth as an outcome: Some researchers and practitioners treat growth as a variable and use other independent variables to predict and/or measure growth. Along with looking at growth after the fact, which is only marginally helpful to mode development, the choice of variables can easily impact the results and assumptions that might be made. There is also a striking question, interjecting other variables and strategies: Is the growth mode and rate dependent on “internal” growth or growth by acquisition? These methods are diametrically different and use vastly differing action plans.
• The outcome of growth: This approach views growth as a given. The recent deep recession offers numerous potential flaws in this foundation for a theory and strategy. Other components of this focus, however, are more valuable. Another basis of this approach, that growth leads to inevitable organization changes and decisions, is more useful. Accepting this assumption should encourage senior executives to consider potential organizational structure and decision-making options for different outcomes. Another critical assumption to growth mode creation involves an organization’s “willingness” to grow. A simple example is to compare a small entrepreneurial (‘mom and pop”) company to a newer high tech firm with some cutting edge products. One entity may be blatantly unwilling to grow and jeopardize their current customer base, while the other is not only willing, but completely committed to massive and timely growth. The outcomes of both action plans will be vastly different, but both may be successful for their respective organizations.
• The growth process: The most potentially useful approach is to analyze, predict, and address growth as a process. You can then focus on the best growth mode for your company and evaluate the results (rate) as a different function. Certainly, the process is infinitely more difficult to quantify than are the results. However, it leads to selecting the appropriate process and adopting the best growth mode to deliver the results you want and/or expect. This approach treats growth as neither a dependent nor an independent variable, but an actual, living process.

C-level management that focuses on growth mode first and growth rate second may enjoy greater success in both the short- and long-term. Carefully studying the “how” options provides the knowledge base and develops better assumptions on which to structure a growth strategy. Growth rate desires may be tempered, increased, or decreased as a result of strategizing the growth process to achieve acceptable goals.