Business owners and managers often have numerous obsessions regarding their companies, from reorganization and growth to the use of consultants. Let’s cover two of these to see what they are and why they could hurt your business.
Reorganizing has an economic rationale. Markets are Darwinian instruments in the social realm, and to match changes in the market, companies should reorganize at times. It’s an adaptive response.
Until it’s not. The ritual reorg typically starts with slide 136 from the consultants. In that slide, a new organizational chart is presented as far better matching “the new competitive reality,” which can be just about anything. “Disruption” is mentioned subtly 325 times. Management immediately buys into the idea since the job of management is to do something, and the excitement of “the new competitive reality” and the fear of “disruption” are effective action-triggers.
Management often buys into ideas that come from consultants. If the idea works, management can take credit for its quick action. If the idea bombs, explaining that the idea was proposed by one of the leading consultancies in the world is a built-in shield. Any necessary explanation can also deflect both blame and attention by saying, “The reorg achieved significant synergies and cost savings.”
Reorganizing has its own peculiar logic that reverses itself every X years. (“X” is not a large number.) Scientists are still looking into the mechanism behind the regular about-face, but we already know some principles of the process.
Here’s a typical reorganization cycle based on the advice from whoever’s the reigning consultant at the time:
- Based on a thorough study by the consultants, the company reorganizes itself by regions based on the rising sales in whatever countries it does business in.
- When that doesn’t work, the company follows the consultants’ new chart reorganizing along strategic accounts, not sales regions. These are large customers who often require teams to work on their accounts. Then, when a new company comes in with a new product, the customer runs to it with glee.
- The company then hires a new consulting firm that recommends reorganizing by regions (again) or by product line or business area, which, again, doesn’t work.
- The company then goes back to step 2, but this is completely different and not a repetitive compulsive ritual because the organizational chart uses four colors for the accounts’ profitability, not just three as in the former consultants’ obsolete chart.
You think we are exaggerating for effect, right? It can’t be that absurd, can it?
We’re actually toning down the real havoc. According to a survey by the consulting firm The Clemmer Group, 50 to 70 percent of “reorgs” fail. Business school may have taught you that decisions at that level and with such expense are rational, carefully considered, and based on data. We’re telling you how it’s truly done.
Why do companies obsess about growth? There are several good reasons and one bad one.
Here are the good reasons: Growth is motivating. It means more market power. It means higher profits. It means Wall Street will welcome the CFO and CEO on conference calls and label them quick and agile. It means investors will buy the shares and push the stock price up.
In short: Companies obsess about growth because growth makes money.
Here’s the bad reason. If you’re a short-term investor in a public company, you buy shares not to hold but to sell. You want the share price to rise as quickly as possible so you can sell it before it falls to a sucker who thinks it will keep rising. But when markets change, sometimes the best strategy is to lower growth targets, not to raise them. It’s at the core of competing as a skill, which requires honesty and clarity. But what’s good for the goose (the business) is not always good for some of the ganders (short-term shareholders).
In short: Companies obsess about growth because the sky falls when growth slows. And growth always slows, sooner or later.
The pathology of growth targets
Growth is good. Obsessive growth targets are not. Why do executives keep pushing relentless, unrealistic, utterly delusional growth targets even if, at the end, it comes to bite them in a soft place?
Underlying growth targets is the belief — unexplained, deeply rooted and unsupported by any evidence — that “if you stand still, you will die.” It’s a Darwinian survival instinct dating back to the times our ancient ancestors ran away from charging saber-toothed tigers. Then, if you stood still, you indeed died.
These days, however, it’s important to ask yourself: Who says that growth is so necessary? What’s wrong with stability? What’s wrong with being satisfied with where you are and making sure you keep up that performance (which requires competing, not delusions)?
A company’s obsessive growth targets reflect a real fear of the prospect of merely stable earning. And the idea that the only winning strategy is to dive into high-growth markets is the bread and butter of Wall Street. MBA programs don’t often teach about dull industries that make money year after year, even without apps. How boring.
But boring industries are still out there making money and differentiating themselves without bleeding their competitors with price wars, rampant imitation, or casting the widest possible net (mass markets!). In fact, the smart players make money by segmenting the market. Competing in a boring industry isn’t just a tightening game as some analysts would have us believe. It’s a positioning game.
But when we try to tell/sell it to “Corporate,” the response is swift: We’re opening a new plant in China! If every Chinese person buys just one product from us, we’ll be rich! It’s in the spirit of the kid selling lemonade for $10,000 a glass (“I just have to sell one”) and it’s not much better.
Original source: Entreprenreur