Strategic Planning

Growth And Size

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Growth And Size

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"Size is no guarantee of future success."
What is strategically important is strength not size. Speed is more important than physical mass and flexibility is more important than volume. The strategy must focus on becoming better. Everything else results in incorrect and bad management. What constitutes correct and good management?

Size should never be a strategic aim in itself. A company does not have to be big, but it has to be strong.

After "Profit" the second most common term used in management is "Growth". This is a dangerous concept if you don't differentiate between right and wrong growth and between healthy and unhealthy growth.

There's no getting away from the fact that most corporate strategies followed during the Nineties boom were fundamentally wrong. Many of the early empires were destined to fail. The bold strategies presented by consultants and managers led to disastrous consequences: retreat on all fronts, downsizing, redundancies, falsifying balance sheets, fraud and excessive personal gain at the expense of companies and shareholders, and in many cases the threat of insolvency and bankruptcy.

Even though the debacle is there for everyone to see, many managers still haven't changed the way they think, including those who as the successors to those who previously failed are confronted every day with the enormous fall-out from those earlier mistakes. They continue to work according to the same wrong criteria. If you ask them what the most important strategic aims are, their automatic response is: profit and growth.

Even though growth is undoubtedly an important corporate factor it is wrong and dangerous to make it a strategic requirement. It inevitably leads a company down the path of failure. Growth should not be the input for strategy but the output. It should not be set as an initial requirement but should be the result of thinking through the business and its internal laws in a fundamental way. Unless this is firmly anchored in the minds of the senior managers and supervisory organs, the company will only see temporary improvements and will make the same mistakes over and over again.

The advanced school of strategic planning only becomes clear with the distinction between unhealthy and healthy growth. If a twelve-year old child grows a couple of centimetres every year he is healthy; if the same happens with a fifteen-year old child, he is unhealthy.

There is no conceivable model in which the size of a company is strategically important. Anyone who bases strategy on size is under an optical illusion and in figurative terms is unable to tell the difference between muscle and fat. People are misled by the fact that the correct strategies almost always lead to growth and lastly size, whereas the reverse is not true. The size of a company can also be the result of pursuing the wrong strategies.

Size is measured according to sales and - rarely today - according to the number of employees. Sales can be increased relatively quickly and easily - as has been shown in the recent past - if you allow it to happen in the wrong way: by simple geographical expansion, expanding the product range, through wrong acquisitions and mergers. The results are, without exception, increasing complexity and loss of earnings power. The absolute figures increase and because these are visible, they are taken as proof of success. On the other hand, the underlying relationships get worse, but because these are invisible or are concealed, they are not taken into account.

There are only two criteria for distinguishing between healthy and unhealthy growth. The first factor is the market position: size and growth are only healthy if they result from an improvement in the market position. On the other hand, size and growth do not in themselves lead to a strengthening of the market position.

The second, much more important indicator is productivity. Only the best companies have a well-developed strategy for this. Productivity continues to be neglected, wrongly defined and wrongly measured. Defined as Total Factor Productivity, it is the only reliable indicator for assessing growth.

Only if overall productivity increases in line with sales growth, is it healthy growth, which, in medical terms, leads to muscular power and strength. If the overall productivity of a growing company stagnates, however, then it is well on the way to obesity. It is possible to live with that to a certain extent but if the overall productivity falls as the company continues to grow then the company has cancer. Tumours grow faster than everything else - until the patient dies. It is possible to reverse this growth in some cases, but only if it is caught at a very early stage.
This Article is authored / contributed by ▸ Albert Einstein who travels from Ulm, Germany. Albert is available for Professional Training Work both Virtually and In-Person. ▸ Enquire Now.

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