Obsessions with growth
I've been doing some research on General Electric lately, and I believe I can safely say, with no damage to confidentiality, that the company would like to grow. No big surprise, huh?
In fact, a July 31 Financial Times article ("GE Plays it Straight to a Tough Audience") explained "how a conglomerate with more than Dollars 150bn in sales can meet its yearly target of adding 10 per cent to profits and growing turnover twice as fast as the world economy." There was also a recent feature in the Harvard Business Review detailing CEO Jeffrey Immelt's recent focus on "growth as a process" - a way of leveraging the company's productivity skills to make growth itself more efficient. In fact, the much-lauded Ecomagination campaign is really just one part of the overall "growth as a process" initiative.
All this is unsurprising, in a way - that small companies want to become large, and that large companies want to become larger. But what we don't perhaps ask often enough is: why? Why would a company want to grow faster than the world economy? Not everyone can do this, by the law of averages, but the vast majority of individual companies want to try. Even if profits are good - return on assets, return on investment, profits as a percentage of sales - it's not enough to run a constant-sized business really really well. Instead, everyone strives to convert success into growth.
Does our economy operate better with large companies dominating the landscape? There are economies of scale to be gained up to a certain point that would vary from industry to industry, but it seems we pursue growth more than efficient scaling would require - especially in the case of a conglomerate like GE. And there's the issue that many people don't like big companies - don't particularly enjoy working for them, living near them, or being forced to shop at them for lack of other options. Many anti-corporate activist are really anti- "big business." So who actually wants this unending pursuit of growth?
There are really two groups who benefit from unlimited corporate growth. The first is investors - who, if they get in on the ground floor of a growing company, turn out to have bought x% of something huge rather than x% of something tiny, and that can create vast amounts of wealth. The second group is managers, who would prefer to manage more peoople and more money rather than less - both for the pure prestige and salary and because this is seen as a mark of their success in helping the company meet its growth targets. In fact, some economic studies have shown that managers tend to pursue revenue growth more than really makes sense (as opposed to profit growth) because of the personal advantages that can have.
A few months ago, I bought Bo Burlingham's book Small Giants because I was intrigued by his premise that companies can be great without trying to be big. Unfortunately, I haven't found the book itself to be very compelling - and that's a shame, because I think this ideas deserves more attention. Think of all the attributes of big business that are annoying - long calls to automated phone lines, retail workers who don't care enough to help you, resumes that disappear into a black hole, big-box stores that dominate the landscape.
I predict that in a few years, we'll suddenly discover that bigger not only isn't better, but it's also not necessarily more efficient. People will increasingly realize that they are willing to pay a premium to shop at small businesses, and willing to work at small companies for less. At the same time, we'll discover that a behemoth isn't the most efficient producer because (for example) its processes become bureacratic, managment loses touch with other layers, strategies aren't implemented consistently, employees are less committed and less productive, and employee turnover is high. Someday in the next decade, I think we'll find that "growth as a process" is outdated, and that sustainable sizing is becoming more widely and openly accepted.
In fact, a July 31 Financial Times article ("GE Plays it Straight to a Tough Audience") explained "how a conglomerate with more than Dollars 150bn in sales can meet its yearly target of adding 10 per cent to profits and growing turnover twice as fast as the world economy." There was also a recent feature in the Harvard Business Review detailing CEO Jeffrey Immelt's recent focus on "growth as a process" - a way of leveraging the company's productivity skills to make growth itself more efficient. In fact, the much-lauded Ecomagination campaign is really just one part of the overall "growth as a process" initiative.
All this is unsurprising, in a way - that small companies want to become large, and that large companies want to become larger. But what we don't perhaps ask often enough is: why? Why would a company want to grow faster than the world economy? Not everyone can do this, by the law of averages, but the vast majority of individual companies want to try. Even if profits are good - return on assets, return on investment, profits as a percentage of sales - it's not enough to run a constant-sized business really really well. Instead, everyone strives to convert success into growth.
Does our economy operate better with large companies dominating the landscape? There are economies of scale to be gained up to a certain point that would vary from industry to industry, but it seems we pursue growth more than efficient scaling would require - especially in the case of a conglomerate like GE. And there's the issue that many people don't like big companies - don't particularly enjoy working for them, living near them, or being forced to shop at them for lack of other options. Many anti-corporate activist are really anti- "big business." So who actually wants this unending pursuit of growth?
There are really two groups who benefit from unlimited corporate growth. The first is investors - who, if they get in on the ground floor of a growing company, turn out to have bought x% of something huge rather than x% of something tiny, and that can create vast amounts of wealth. The second group is managers, who would prefer to manage more peoople and more money rather than less - both for the pure prestige and salary and because this is seen as a mark of their success in helping the company meet its growth targets. In fact, some economic studies have shown that managers tend to pursue revenue growth more than really makes sense (as opposed to profit growth) because of the personal advantages that can have.
A few months ago, I bought Bo Burlingham's book Small Giants because I was intrigued by his premise that companies can be great without trying to be big. Unfortunately, I haven't found the book itself to be very compelling - and that's a shame, because I think this ideas deserves more attention. Think of all the attributes of big business that are annoying - long calls to automated phone lines, retail workers who don't care enough to help you, resumes that disappear into a black hole, big-box stores that dominate the landscape.
I predict that in a few years, we'll suddenly discover that bigger not only isn't better, but it's also not necessarily more efficient. People will increasingly realize that they are willing to pay a premium to shop at small businesses, and willing to work at small companies for less. At the same time, we'll discover that a behemoth isn't the most efficient producer because (for example) its processes become bureacratic, managment loses touch with other layers, strategies aren't implemented consistently, employees are less committed and less productive, and employee turnover is high. Someday in the next decade, I think we'll find that "growth as a process" is outdated, and that sustainable sizing is becoming more widely and openly accepted.
posted by Melissa Paschall at 8/21/2006 09:52:00 AM
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