Saturday, February 21, 2004
*
G is for:
Growth
Growth isn’t the solution. It’s part of the problem.
Lured by the prospect of increased status and remuneration, and egged on by investors and investment bankers, chief executives everywhere base their strategies on endless expansion.
Board meetings commonly devote as much time to discussion of strategic growth opportunities as they do to updating remuneration and incentive packages. Few people question whether growth is necessary, desirable or even possible.
Sustainable, profitable growth is a worthy ambition. [1] But too often, growth strategies are nothing of the kind.
The aggressive pursuit of growth usually consists of little more than an extravagant shopping spree, buying customers through saturation marketing, loss-leader pricing or outright acquisition of other businesses.
It’s an easy life, while it lasts.
The primary strategic objective of increasing customer numbers gives a nice clear target that is always achievable (at a price). The thorny question of how to convert these customers to profitability can be put off to another day.
Sadly, that day of reckoning will come, and often sooner than expected. Such strategies work like a Ponzi scheme fraud in reverse, with each new customer increasing the promoter’s financial strain.
When the bank calls a halt to further financing (or, rarely, the board decides it’s time to move on to the fondly-imagined second phase of the strategy), the illusion behind your strategic achievements is exposed.
Even if you have a plan for recouping your investment in customer acquisition, you find that the customers themselves are unwilling to play along. They disappear, seduced by the next generous corporate donor, and you are left with nothing but your debts.
The best advice on effective growth strategies comes from an unlikely business guru, gardener Alan Titchmarsh. Understand the soil type in which you plan to grow. Water and fertilise, but not to excess. [2] Focus your energies not on trying to accelerate growth unnaturally, but on pruning dead wood and misshapen growth.
And recognise that your roots only go so deep: excessive growth, no matter how attractive, will always come tumbling down in the first storm. [3]
[1] And an elusive one, too. So, in a downturn, CEOs like to start talking about profit growth, as if that means anything much when sales are dropping like a stone. Any fool can create earnings growth for a few quarters – you just have to sack people and close things down faster than your sales are falling. But this is growth that leaves the company smaller, and that should ring warning bells for anyone not cocooned from reality in the executive suite.
[2] Avoid the common mistake of thinking that an abundance of manure will compensate for insufficient watering, or sustain a fundamentally unhealthy plant in a hostile environment.
[3] Many of the world’s larger companies are reminiscent of the giant corpse flower in Kew Gardens. For most of its life it grows steadily, to become a large, rather dull, plant. Just occasionally, it flowers spectacularly, with huge crimson petals bursting from a giant phallic stem to produce the largest bloom in the natural world. But even as visitors queue to see this amazing display, they are holding their noses at the stench of decay that emanates from it. A few days later, both flower and visitors are gone.
G is for:
Growth
Growth isn’t the solution. It’s part of the problem.
Lured by the prospect of increased status and remuneration, and egged on by investors and investment bankers, chief executives everywhere base their strategies on endless expansion.
Board meetings commonly devote as much time to discussion of strategic growth opportunities as they do to updating remuneration and incentive packages. Few people question whether growth is necessary, desirable or even possible.
Sustainable, profitable growth is a worthy ambition. [1] But too often, growth strategies are nothing of the kind.
The aggressive pursuit of growth usually consists of little more than an extravagant shopping spree, buying customers through saturation marketing, loss-leader pricing or outright acquisition of other businesses.
It’s an easy life, while it lasts.
The primary strategic objective of increasing customer numbers gives a nice clear target that is always achievable (at a price). The thorny question of how to convert these customers to profitability can be put off to another day.
Sadly, that day of reckoning will come, and often sooner than expected. Such strategies work like a Ponzi scheme fraud in reverse, with each new customer increasing the promoter’s financial strain.
When the bank calls a halt to further financing (or, rarely, the board decides it’s time to move on to the fondly-imagined second phase of the strategy), the illusion behind your strategic achievements is exposed.
Even if you have a plan for recouping your investment in customer acquisition, you find that the customers themselves are unwilling to play along. They disappear, seduced by the next generous corporate donor, and you are left with nothing but your debts.
The best advice on effective growth strategies comes from an unlikely business guru, gardener Alan Titchmarsh. Understand the soil type in which you plan to grow. Water and fertilise, but not to excess. [2] Focus your energies not on trying to accelerate growth unnaturally, but on pruning dead wood and misshapen growth.
And recognise that your roots only go so deep: excessive growth, no matter how attractive, will always come tumbling down in the first storm. [3]
[1] And an elusive one, too. So, in a downturn, CEOs like to start talking about profit growth, as if that means anything much when sales are dropping like a stone. Any fool can create earnings growth for a few quarters – you just have to sack people and close things down faster than your sales are falling. But this is growth that leaves the company smaller, and that should ring warning bells for anyone not cocooned from reality in the executive suite.
[2] Avoid the common mistake of thinking that an abundance of manure will compensate for insufficient watering, or sustain a fundamentally unhealthy plant in a hostile environment.
[3] Many of the world’s larger companies are reminiscent of the giant corpse flower in Kew Gardens. For most of its life it grows steadily, to become a large, rather dull, plant. Just occasionally, it flowers spectacularly, with huge crimson petals bursting from a giant phallic stem to produce the largest bloom in the natural world. But even as visitors queue to see this amazing display, they are holding their noses at the stench of decay that emanates from it. A few days later, both flower and visitors are gone.
Friday, February 06, 2004
*
G is for:
Goal-setting
Without goals, employees lack direction and motivation. They waste time on unimportant activities, fail to contribute to the company’s strategic objectives, and generally underperform.
So you give your employees goals. And they waste time on unimportant activities, fail to contribute to the company’s strategic objectives, and generally underperform.
Everyone agrees goal-setting is essential.
And everyone agrees that it seems to go wrong.
1. With too many – and sometimes conflicting – goals, employees are confused. They can always find an excuse for any goals they fail to achieve.
2. Focus on a handful of selected goals, and you soon find that essential parts of the job go by the board. Sales people focus on revenue targets, and ignore customer service. IT specialists are so busy making sure the new Web site is ready on the agreed launch date [1] that they no longer have time to troubleshoot practical system problems.
3. Give your employees a free hand, and they will do the wrong thing. Tell them exactly what to do, and they will lose initiative.
4. If you can’t measure performance, you can’t manage it. But once a measure is in place, achieving the numbers becomes more important than the underlying objective. Employees find the most unconstructive way to work the system. [2]
5. Low targets create complacency. High targets create stress and disbelief. And attempts to refine targets towards the correct level create indignation.
Goal-setting can work, but only if used with care: updating goals, operating in both short and medium-term timeframes, and continually checking on progress, problems and motivation.
And if you’re going to put that much work into managing your employees’ objectives, you might just as well do the work yourself.
[1] Actually, they spend about 50% of their time on this, and the other 50% preparing complex explanations of why the launch date was never achievable in the first place.
[2] Monthly sales targets are a classic example. Once the month’s target is achieved, sales are held back to be put towards the next month’s target. More subtly, indirect indicators – such as number of new sales leads – are achieved by focusing on easy, but ultimately low value, targets, at the expense of the prospects you really want to focus on.
G is for:
Goal-setting
Without goals, employees lack direction and motivation. They waste time on unimportant activities, fail to contribute to the company’s strategic objectives, and generally underperform.
So you give your employees goals. And they waste time on unimportant activities, fail to contribute to the company’s strategic objectives, and generally underperform.
Everyone agrees goal-setting is essential.
And everyone agrees that it seems to go wrong.
1. With too many – and sometimes conflicting – goals, employees are confused. They can always find an excuse for any goals they fail to achieve.
2. Focus on a handful of selected goals, and you soon find that essential parts of the job go by the board. Sales people focus on revenue targets, and ignore customer service. IT specialists are so busy making sure the new Web site is ready on the agreed launch date [1] that they no longer have time to troubleshoot practical system problems.
3. Give your employees a free hand, and they will do the wrong thing. Tell them exactly what to do, and they will lose initiative.
4. If you can’t measure performance, you can’t manage it. But once a measure is in place, achieving the numbers becomes more important than the underlying objective. Employees find the most unconstructive way to work the system. [2]
5. Low targets create complacency. High targets create stress and disbelief. And attempts to refine targets towards the correct level create indignation.
Goal-setting can work, but only if used with care: updating goals, operating in both short and medium-term timeframes, and continually checking on progress, problems and motivation.
And if you’re going to put that much work into managing your employees’ objectives, you might just as well do the work yourself.
[1] Actually, they spend about 50% of their time on this, and the other 50% preparing complex explanations of why the launch date was never achievable in the first place.
[2] Monthly sales targets are a classic example. Once the month’s target is achieved, sales are held back to be put towards the next month’s target. More subtly, indirect indicators – such as number of new sales leads – are achieved by focusing on easy, but ultimately low value, targets, at the expense of the prospects you really want to focus on.
