4.2.3 Growth
Elements of Enterneering®/Organisation/Growth
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Most companies strive for growth. Which entrepreneur would not want to take their company to the top, grow successfully or, even better, scale it? And that is particularly important and right. Businesses that do not develop and grow have a limited lifespan. Most entrepreneurs possess promising ideas, innovative products and ambitious growth targets. Sales coaches emphasise this to their target groups on social media and during their events: anyone can be successful and make their company big when they are energetic enough in their product development and have mastered sales and marketing.
But the discussion on qualifying growth ambitions is usually less energetic and media-effective. What kind of growth is meant in this context? How is the success of growth measured? What conditions, beyond product, customer, marketing and sales, must be met for the entire company – and not just the sales of certain products – to grow successfully? What is the difference between growth and scaling, or is this question to be assessed as a purely academic exercise of the mind?
Some entrepreneurs perceive these kinds of questions as annoying, a distraction from the actual goal, or temporary obstructive considerations that can be addressed later. At this point, a decoupling of turnover and company growth begins in thinking and action. Those who believe that growth and scaling refer to the same thing are very likely to lay a shaky foundation for their growth plans with this approach.
Enterneering® focusses on successful business growth, rather than on just turnover growth. If you want to help your company achieve sustainable growth and success, you must work intensively on creating the necessary conditions for this and on empowering the company organisation.
HEALTHY GROWTH
How can business growth be unhealthy? So much in advance, growth can be very unhealthy for companies! Unfortunately, there are far too many examples in business practice that show very clearly how companies encounter difficulties or even crash despite, or because of, rapidly increasing turnover figures. Unfortunately, there are some examples where business organisations with the best intentions, high personal commitment of the employees and burning passion were brought to the brink of collapse.
Healthy growth can be quantitatively described as profitable growth. In simple terms, this means that the total return on investment remains at least the same, and ideally increases, as the volume or turnover increases. Frequently encountered examples of unprofitable growth involve actions where market shares are bought at the expense of returns. In addition to the quantitative characteristics, there is also a qualitative component. This aspect can usually only be measured indirectly. It is reflected in factors such as product quality, service orientation and customer experience. The expectation here is that the quality standards can at least be kept constant as the volume grows. This means that customer satisfaction does not decrease, or the complaint rate does not increase, with increasing turnover. Finally, there is an extension of the qualitative component in the form of sustainability. This means that growth does not lead to future threats. Threats of this kind include declining employee motivation or so-called technical debt, i.e. the accumulation of technical or structural deficits with relevant influence.
In summary, healthy growth is when a company
- grows profitably,
- meets its customers' expectations, and
- maintains its future performance and capabilities.
HOW?
DEFINE AND ALIGN STRATEGIC GOALS
At the beginning of corporate growth are the strategic goals. These must be attractive in terms of the market, customers and products. Furthermore, they should be ambitious yet realistically achievable by the company. To ensure successful corporate growth, the strategic goals must, above all, be accepted and equally prioritised. This means that there must be unanimity in the management. This may sound logical, but it is a recurring deficit.
Corporate growth is characterised by processes, structures and systems evolving or changing. In this context, the tasks and roles of the individuals acting in the company change. This means goals affect individuals and their areas of responsibility differently, and each person has their preferences, strengths and weaknesses. Successful growth requires strong alignment and commitment at the top of the organisation.
ENSURE MEASURABILITY
How to develop and implement a successful strategy is a separate detailed chapter. The right strategy is an essential basis for growth, which entrepreneurs must be able to master. An integral component of an effective strategy is the ability to derive clear metrics for assessing the desired growth or its success: what results or conditions are to be achieved, how much effort is to be put into it and how worthwhile is the intended growth.
KNOW THE CONDITIONS AND REQUIREMENTS
Consciously controlled corporate growth requires that the material, personnel, financial or organisational conditions that must be established within the company to guarantee success are worked out within the framework of the strategy. Within the framework of the strategy, these contents typically represent the components of a roadmap to be derived. The decisive thing here is to map all essential needs and measures in a central document, irrespective of the departments they come from and how close they are to the final product. The better the individual internal divisions of the company know and are involved in the strategy and the associated growth targets, the better they can adapt to it and define necessary requirements or create conditions.
IMPLEMENT CHANGE MANAGEMENT
There is no relevant corporate growth without change. This realisation must inevitably lead to addressing how change management can be effectively integrated. The most important requirement at this point is the realisation that change management must be implemented as soon as the strategy is decided, rather than waiting until the first changes have been achieved or have occurred. The Enterneering® element of change is inextricably linked to growth and should be considered with equal attention and in direct relation to it.
MARK CRITICAL ELEMENTS
Each growth phase has certain elements essential to its success or failure, or that may expose the company to increased risks. These elements should be highlighted and tracked as part of strategic planning and management:
- financial risks,
- quality and image risks,
- culture and people-related risks.
RECOGNISE GROWING PAINS
Unfortunately, many entrepreneurs do not recognise growing pains but ignore or even glorify them. The potential damage that can be caused by them is sometimes misjudged or simply not recognised. Experts estimate that operational weaknesses cost the survival of about one-fourth of start-ups. It is important to recognise when the gap between sales growth and production on the one hand and service capabilities on the other becomes too large. Typical examples of clear symptoms of growing pains are:
| ➟ | Service teams that only chase sales figures or promises to customers and increasingly spend time complaining. |
| ➟ | A controlling team that has difficulty interpreting the numbers or, in the worst case, the absence of a controlling team. |
| ➟ | The IT team that no longer has any understanding of customer orientation or internal business processes. |
| ➟ | The human resources department that consistently works at its capacity limits or faces a rise in staff turnover. |
| ➟ | Managers who often conspicuously debate the meaningfulness of measures or argue about priorities. |
ENCOURAGE DISRUPTION AND INNOVATION
Corporate growth requires new processes, changed approaches and sometimes, even radical changes. In addition to the necessary portion of self-confidence and courage in realising such changes, it is especially the existing talent and available capacity that matter. Companies that cannot or do not want to afford the necessary freedom or the talent to work in it are inevitably inhibited or limited in their growth. They should take this into account appropriately in their planning. Significant leaps in growth usually require changed structures, new processes or additional systems. This quickly creates a recipe for extensive organisational changes, which are often linked to a change in culture.
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The time invested in intra-company operational orientation is now particularly important, and the need for change in entrenched processes is increasing rapidly. It is the responsibility of the management to ensure that sufficient time and talent are available to sharpen the axe and that the organisation is embedded in an innovation-friendly environment in which the workforce can and does embrace such developments and changes.
AVOID GROWTH TRAPS
They exist, the typical growth traps. Although we live in the digital age of knowledge, and such knowledge and examples are available in all languages of the world, many entrepreneurs and executives repeatedly fall into these traps. This can be attributed to human nature and the similar patterns found in certain business scenarios. Typical growth traps are:
| ✗ | Losing the grip on reality: This frequently observed phenomenon usually goes hand in hand with increasing growth and success. Here, past success causes a kind of overestimation of self and a lack of reality in the management. In this context, decisions are often made that are not considered important or useful by a large part of the workforce because they do not serve the growth-related requirements or current bottlenecks within the organisation. Examples of this include companies that make acquisitions, establish subsidiaries or set up distribution companies due to positive market response and initial growth, though the core of the company is calling for other measures that are not strategically planned activities. During these phases, it is important to take one's philosophy and strategy seriously, to stay connected with the foundation and to maintain focus. |
| ✗ | Unrealistic ambitions set the pace: Even if many entrepreneurs would like to think otherwise, it is a clear sign of unhealthy growth when all managers and top performers constantly operate at maximum capacity. When the individuals within the company only feel driven or hounded, hardly anyone considers the proclaimed schedule to be realistic. Experience shows that individuals in such organisations either exhaust themselves and fall ill, or they seek their own ways and means to change the situation. Not all of them will leave the organisation. Instead, a large number will draw inner consequences and adjust their personal attitudes and behaviour so that they themselves remain healthy. In addition to the reduction in performance, this development eventually leads to emotional and cultural damage in the company, which can have lasting effects beyond the period in which it occurred. |
| ✗ | One-sided success parameters distort the view: It is important for the management to maintain a balance of assessment criteria for its growth strategy. It is not enough, for example, to look only at quantitative key figures. Entrepreneurs can pat themselves on the back and celebrate when turnover and returns are increasing as desired. They do not realise, however, that customer and employee satisfaction are decreasing. |
| ✗ | No macro-management in sight: A classic among the growth traps is the lack of ability in entrepreneurs to let go and work on the company in a targeted way. |
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Several points come into play in this growth trap. On the one hand, successful and consistent delegation must be learnt. On the other hand, the talents and inclinations of the people involved must align with their delegated responsibilities. It is often at this point that the talent (however much or little) of a person and their willingness to develop the company and lead it becomes apparent. No matter how this assessment turns out, it is crucial to derive insight and appropriate measures from it.
GROWTH VERSUS SCALING
In the digital age, growth is often synonymous with scaling. This is mainly because many digital business models offer better opportunities for scaling or are often worthwhile only when scaling significantly. A closer look at the term 'scaling' shows that, at its core, it is about the ability to achieve step- or block-like growth in size using current resources. The emphasis here is on sudden changes in size while working with given resources.
Growth, on the other hand, refers to an incremental development in which the utilisation of resources is increased in a targeted manner to achieve higher turnover and earnings. Accordingly, two important prerequisites for successful scaling are: 1) the existing potential for stepwise or gradual volume increases within the business model and 2) the possibilities to realise the volume increases through more efficient utilisation of the available resources.
In addition to the requirements and capabilities for the successful business growth described here, several specific points are also relevant for successful scaling. To scale particularly well, the company's business should ideally have the following characteristics:
| ➟ | Low or few additional fixed assets. |
| ➟ | No limitation by assets, production facilities or suppliers. |
| ➟ | No limiting resources or dependence on individual persons. |
| ➟ | Sufficient available capital. |
| ➟ | Low fixed costs and a high proportion of variable costs. |
| ➟ | High potential for digitalisation or automation of processes. |
| ➟ | Good opportunities for expansion into other markets. |
| ➟ | High sales impact through targeted marketing and sales measures. |
| ➟ | High transaction rate with customers. |
Scaling is possible in many business models. It requires a dedicated understanding of the specifics and requirements. However, the same benchmarks apply here as for successful growth.
It does not matter whether growth or scaling is on the strategic agenda. Entrepreneurs need to ensure that the businesses capable of growth are integrated into an organisation that is adequately empowered and motivated enough to realise the intended development, while remaining competitive in future.
☝ Read the Field Trips 'Keeping growth from becoming a threat' and 'Technical Debt: Effective handling in executive management' linked below.
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