Whenever companies embark on their annual strategic process, the discussion invariably turns to growth. It’s often an unchallenged assumption that each year you should grow revenues, profits, market share—all of it. And why not?
Here’s why not:
Imagine being the CEO of a company for seven years. During that time, revenues shrink by 14%, unit sales by 8%, and market share by 9%. No growth story there. Yet at the same time, you turn an annual loss of $12.6B into a profit of $7.2B. That’s exactly what Alan Mulally did when he was CEO of Ford. His goal was to create a much more profitable Ford, which meant cutting product lines, closing production facilities and becoming a smaller company.
For many years, Amazon wasn’t profitable. Yet profitability wasn’t the objective. The objective was to capture market share and dominate online, retail sales. Accomplishing that was costly. It required access to an almost limitless range of products, reliable and timely distribution, and hard-to-match pricing. Yet once the objective was achieved, and once Amazon launched Amazon Prime memberships, profitability skyrocketed.
Sometimes it makes strategic sense to grow profits, not revenues, not market share. Other times it makes strategic sense to grow market share, not profits. In each case, strategy provides the why that drives the decision about what to grow.
Research shows that one of the main reasons successful companies fail is they get caught up in the undisciplined pursuit of more¹. It’s what happens when growth becomes the purpose of a business, instead of the outcome of a purposeful and well-designed business.
So, should you grow each year? Yes, but be strategic about what to grow and why. Engage in the disciplined pursuit of more.
Make it happen.
Michael
¹ “How the Mighty Fall”, by Jim Collins
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