Good growth

Is ‘growth’ always a good thing?

I’ve been in ‘growth’ my entire working life. It’s been the goal of (just about) every organisation I’ve worked at or advised. They’ve all wanted to grow: grab more market share; break into a new category; drive up margins; scale new propositions; hire more staff; have a bigger footprint etc.

When I first arrived at VW the brand had been on a 7 or 8 year run of growth in a rising market (which came to a shuddering halt pretty much the same day I started). ‘Growth’ was expected. Every forecast, every plan, every budget was predicated on the idea that growth would continue.

So when it didn’t, a lot of things went wrong very quickly. The experience of ‘not growing’ was shattering to an organisation that knew only growth. That combined with a rapidly shrinking market caused a world of pain – a whole industry producing too many cars chasing too few customers, but unable to countenance the idea of shutting factories.

cars 6

The next 3 years was spent on a quest to recapture the magic growth formula – to get back to that (much more comforting) position of continuous growth. The business, and everyone leading it, was programmed to seek and expect growth.

(I once got into a heap of trouble for suggesting that a particularly unloved product had reached its ‘natural’ level of sales and that expecting it to find more customers would be counterproductive. That kind of chatter is heresy in an organisation wired for continuous growth – I was put on triple rations of kool-aid until I’d recovered my senses).

Since VW I’ve been struck by how deeply the pursuit of growth pervades every business. I’ve only ever had one client that was seeking to become smaller – and that was because they’d been compelled to by regulators and the state after a gigantic screw up that we’re all still paying for. It absolutely was not what they wanted. They found the whole process of shrinking deeply humiliating.

Another client had set themselves the target of being the biggest in their category worldwide – the biggest by revenues, by market share, by margins, by staff, by every metric you can imagine. And they got there – they ticked every box, they climbed all those mountains. But there was no jubilation – being the biggest, even though they’d longed for it for so long, was curiously unfulfilling. It just brought a whole set of new anxieties about staying the biggest and a sense that somehow they had missed the point.

Burns up natural capital

Conventional growth causes untold damage

In a world of finite resources growth models that deplete those resources extract a cost that will be felt for generations to come. Nowadays business is getting better at recycling but the waste is still pretty appalling. Taiwan manages to recycle 77% of industrial waste – the US only 44% (household waste is even worse in the US at a mere 26%).

That’s a lot of waste being generated by business. Not to mention the waste generated from a use-and-dispose consumption model that assumes obsolescence in products. Cars, computers, phones, fridges, TVs – all these items are expected to wear out, are designed to be worth less every day.

The business models of selling something means you only earn from selling more of that thing. You want people to need a new one (and by implication dispose of the old one). The traditional car industry earns not a lot from older cars as they seep out of the franchise service network. In fact car makers capture only a fraction of the lifetime value of a car. Which is why mobility and -as-a-service business models are exciting, as they realign incentives away from flogging new stuff to keeping existing products going.

Burns up human capital

But it’s not just environmental damage that raises questions over growth. Over recent times I’ve come to question whether size – being big – is in itself a good thing.

Now there is no question that big organisations can be a powerful force for good. In a world where many challenges are transnational, big business has an advantage in mobilising across borders. When a global business is clear on its purpose it can – if it really wants to – do amazing and positive things. There are numerous examples of this from unexpected quarters – some of the work GSK did in Africa with rural pharmacies, PwC’s work to strengthen tax systems in emerging markets, L&G’s investments in housing solutions for the future.

rwanda-8081

But so few do. It’s hard. And the need for the big machine to be kept going almost always blows these good intentions out of the water.

I’m convinced of two things. Firstly that small, radical, agile businesses can have enormous beneficial impact on the world, that being big is not a prerequisite for impact. Secondly that the process of scaling, the process of growth, is in itself a problem. Something happens during the scaling/growth process that comes at a considerable cost – to impact, to returns, to purpose, but most of all to humans. I’ve lost count of the big organisations I’ve worked with whose “big purpose” intentions got sidelined by short term pressures.

Some of this is down to baked in expectations around investment – all the discussion is around how big you can get and how fast, not how much growth is right. Investment models encourage unbridled growth – but recently I’ve met more and more investors that question the consequences.

Some will express regret that the thing they loved in the pitch – the ethos, the culture, the belief, the principles – somehow got diluted during the growth process. Brand practitioners have long tried to counteract this dilution of ethos/values by codifying in some way the ‘culture’ – creating various tools to help attract the right kind of people in the first place, and then to ‘align’ them to the organisation’s values. It rarely works – the culture of a business inevitably changes as it grows. That “we can change the world” pioneering spirit is hard to preserve as you move out of the attic and up into some swanky offices in glass and metal land.

Many years ago I went to Silicon Valley just after the dot-com bubble burst with Leaders Quest. Some of the most forward thinking people there – who had time and reason to get philosophical about this stuff – were coming to the conclusion that there was a limit to the size at which an organisation could continue to act in a human way, that beyond around 30 people it became industrialised, codified, process-driven. More machine-like than biological.

This mechanisation doesn’t just make it harder for organisations to retain their human characteristics but also can create real harm by industrialising processes that would be better off staying at human scale.

Take food for instance – we’ve seen some tragic consequences of complex food chains recently. The horsemeat scandal, and most recently the death of a Pret customer near here in Bath. The latest Pret death is entirely down to stupidly long and complicated food chains – the sandwich contained a supposedly dairy free yogurt which wasn’t. The yogurt was labelled dairy free. The yogurt supplier blames someone further down the chain – etc. Getting at the truth of what’s actually in your sandwich is nigh on impossible given the multiple links in the food chain. The tragedy for the Pret brand is that they are supposedly prepping their food on site – in other words the distance between consumer and the people making the food is short – but their underlying supply chain leaves them just as vulnerable to this kind of contamination as any other food chain.

But there may just be a better growth model

Over the next 18 months or so we will be developing a “good growth” model, for real, with a handful of small businesses with great potential, combining investment, brand development, organisation design and supply chain development.

We believe that it is possible to design a business that does good things for people and the environment, that is good for all stakeholders including investors, and which grows in a way that preserves the human scale.

So the three principles thus far are:

  • social and environmental benefits hard-wired into the business model
  • multiple stakeholder value (staff, investors, customers, society, environment, supply chain) also hard-wired into organisation design
  • growth achieved through replication not scaling – human sized units that share some common resources

It will evolve, and we will learn. When we have some new insights they will appear here. More later.

Advertisements

2 thoughts on “Good growth

  1. Great article Nick…and very much of its time, given the current focus on climate change. What particularly resonates with me is the contrast between the flexibility / responsiveness of small versus large…disruption of many industries is perhaps the clearest indicator of that change. Hope all well, Ben

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s