Companies that forget how to do organic growth

I’ve heard the following a few times recently: “Our growth plan for years was to buy businesses, consolidate, and take the costs out. So, we have developed great deal-makers and acquisition support staff, and excellent, committed operational managers who faithfully delivered the efficiency gains. But now, that formula has reached a limit. There are far fewer attractive target companies out there, and acquisition finance is harder to come by. We need to focus on organic growth and frankly, we haven’t had much practice. What are we to do?”

The easier part of changing this is to make suggestions to help managers who have had their focus on operations and are now needing to lift their eyes to the horizon. These will be about what to do, what skills to learn, how to break it down into bite-size chunks. The harder part is dealing with subtle organizational blocks might stop them doing anything new.

A couple of action suggestions first, then I’ll say something about the blocks.

1)    First it’s helpful to break organic growth down into discrete options which can be considered separately. Logically, you are going to need to do some combination of the following:

  • sell more of your existing products and services to your existing customers.
  • sell your existing products and services to new customers (it’s sensible to start with similar customers – perhaps in different geographies –  and go from there).
  • sell new – or at least modified – things to existing or similar customers (based, ideally, on your deep insights into their needs, and perhaps on a distinctive technology or expertise). Doing this well is harder than 1 or 2, but can be much more rewarding and may be vital longer term.
  • sell new things to new customers (if you like this option, lie down until the feeling goes away. If it remains despite this, then be very careful how you proceed: details fall outside the scope of this blog-post).

You can’t do all these at once: the decision on which to do is a strategic issue. For more on choosing and sequencing such options, see Chapters 5, 8 & 9 of my book The Performance Papers)

2)    Secondly, get people to go out and talk to customers and learn from them. It’s easy for operationally tight ships to be so inward looking that they completely lose touch with new customer needs and frustrations. Customer contact is often so limited, remote and impersonal these days, not only because of the endless fascination of tinkering with internal processes, but because of the insulation of email and the call centres. The good news is customers and prospects probably aren’t seeing your competitors much these days either, and for the same reason. The bad news is it’s just as easy for competitors to go and chat to them as it is for you to, so this should be a priority.

Hopefully you agree that these are sensible and probably quite obvious things – you may also concede that they don’t happen as much as they should.  One thing is certain: for a business not used to them, simply decreeing them won’t work.

Why? Because incentives, given what you have been expecting people to do historically, will reward predictability, efficiency and maximum profitability quarter by quarter. None of these are conducive to, or even compatible with, innovation. So:

  • Don’t expect managers to maintain the same level of focus on their operations while you simply add ‘organic growth’ to their list of annual objectives. Most people just won’t manage it – an insurance company I worked with found that they never really got their organic growth off the ground until they created and filled specific new business roles rather than expecting their existing managers to do it as a ‘extra’. In fact, you may need to create separate, dedicated growth teams (and even locate them away from the operational parts of the business).
  • Look at the incentives – both formal and informal – for people you are asking to pursue organic growth. One distribution business found it hard to staff their new initiatives because its managers considered it preferable to pursue their numbers in the ‘devil you know’ operation, rather than in the uncertain world of new growth. This is an area where you have two options:
    1. convince people that ‘good ideas that fail’ are necessary, and that developing and pursuing them properly will be recognised as valuable.
    2.  make some new hires of a more entrepreneurial and less risk averse outlook (which is indeed what the MD of the distribution company did).

Running a tight operation is noble work, and buying and integrating businesses certainly can be, but both have their limits, because both are about stewarding and exploiting existing assets. But ultimately, new wealth assets are created through innovating and selling new products and services.

And that means the need to increase tolerance of uncertainty, and the acceptance of failure.  To create organic growth, and the new wealth that comes with it, some failure is more than an option; in fact it’s a necessity.