Why is it important for businesses to grow? How frequently have you found yourself in a strategy discussion where the fundamental premise is "how should we grow" or "how can we get bigger"? Regardless of the type of organisation - third sector, international NGO, social business, or a business - the underlying assumption in the strategic dialogue is that the organisation must be larger, have more staff and complete more sales to be successful. Does this need to be the case?
I've certainly been subject to the temptation of growth, linking success to managing and supervising more people, having a larger staff. However, the more I think about it, the less certain I am that this goal makes sense.
At a global level, the climate emergency should prompt us to reconsider whether the linear growth model still fits our planet today. It is this view that Kate Raworth, among many others, has been expressing to the world since her book Doughnut Economics. The book's central premise is that global society has to date seen growth as the primary goal and the best way to find solutions. Yet, as we learn more about the climate emergency and the impact of growth on our world and society, Doughnut Economics argues that we need to reconsider the importance of growth as the central operating principle of our economy.
The growth objective drives firms to set strategies and targets centre on the idea of constant expansion. Bo Burlingham makes this point in his book Small Giants where he observes that the concept of enhancing shareholder value or "going to the next level" in a company is nearly always present. And, as he points out, "it always has something to do with a major increase in sales - surely no one believes that "the next level" entails having fewer sales..." Professionally, I've seen businesses struggle with the "expansion" problem, and I've yet to see a company choose to remain "small."
Moreover, this relentless drive on growth does not appear to have a positive track record for organisations. The pursuit of development as an ultimate aim frequently leads to organisations overstretching themselves, degrading the quality of their service and decreasing the value they bring to the world. Consider that the Harvard Business Review estimates that 70% to 90% of mergers fail. Or consider GE's demise as an example of a firm that overreached in its drive of growth.
Looking ahead, our focus on growth does not appear to be waning. The growth narrative remains ubiquitous in conversations about the Fourth Industrial Revolution (4IR), with phrases like audacious growth or growth with a purpose frequently used to describe future objectives. However, given what we know about the climate emergency, it makes more sense to focus on how our businesses can help construct a sustainable future and promote a regenerative economy. McKinsey has even discovered that organisations that include key ESG goals into their operations are more likely to succeed.
Does this emphasis on growth matter? I would contend that it does. The focus on expansion obscures the critical questions that make a business more robust and sustainable. Most crucially, the growth obsession confines businesses to a short-term narrative, preventing them from preparing for the 4IR and climate adaptation that is required. Fortunately, I believe there are some questions that all business executives can ask themselves to help them rethink their company's priorities.
These are the questions listed below. They start by flipping the strategy process on its head, focusing first on what the company does rather than the outcome it wants to achieve. By changing the perspective, the planning process emphasises understanding the external context, similar to how Doughnut Economics views the embedded economy as the primary goal rather than GDP growth.
Question 1: What is the purpose of the business? In a nutshell, why is the company in existence, and what is it attempting to accomplish? I'd argue that very few successful companies exist to generate as much money as possible, and if that's your business, I'm guessing you're not reading this site. Simon Sinek talks about the power of "why," and I'd argue that the first and most crucial step is to be clear on the firm's aim. Bo Burlingham discovered a similar phenomenon with his "little giants." He saw that many businesses prioritised passion or quality over revenues. This meant that employees were enthusiastic about their employment, and we were committed to achieving great things.
Question 2: What distinguishes you in how you carry out your purpose? Some businesses may be extremely efficient at producing widgets at a low cost. They are in the volume business and will need to scale to succeed (see question three). Understand and communicate what makes you special and what this means for your growth. You can only grow as fast as you can onboard new employees while maintaining your culture. Being clear about what differentiates your company from the competition and how you see that is a far more important strategy choice than growing.
Question 3: What kind of organisation do you need to be to reach your goal? Type refers to the decisions you make regarding how the firm works. Are you aiming for maximum growth or profitability? Do you wish to distribute revenues to your employees? What decisions will you make regarding investing your cash flow and profit? All of these questions must be relevant to your goal. You can't be a company that prioritises making an impact and producing outstanding technical work while also aiming to double in size in three years. It is not sustainable and is unlikely to be in line with its mission. This concept is covered in Small Giants as how small businesses are managed. Companies manage better when choosing a rate of change that they can handle, but they also retain control over their products. Often, quick expansion necessitates the acquisition of investors, which requires the transfer of shares and hence control.
I don't believe these questions will solve the growth question immediately, but they will change how businesses think about strategy. Answering them is hard work, but by doing so, organisations can shift their attention away from growth and onto what and how they best contribute and offer their core value to their stakeholders.