Growth vs RiskThu Aug 30 2018. 3 min read
by Rakesh K. Sondhi All companies strive for growth. All companies are ambitious, but their growth aspirations can sometimes be very demotivating. 5-10% growth demands the company continues what it has been doing, but maybe a little better. This provides little motivation for the staff to develop and grow. Perhaps if the corporate ambitions were considerably larger the staff would be compelled to “learn” and “grow”. One of the main reasons for the lack of drive to achieve ambitious growth is the risk associated with new paths of corporate success. All companies need to consider how much of their business should be represented by totally new areas of activity, such as new, innovative products or new global markets. Companies such as 3M demand that 20% of revenue is driven by products less than one year old. The objective forces staff and policy to focus on the growth of individuals and on innovation of new products and business. Risk is associated with growth due to movement into the unknown. The risk that has to be managed is linked to people, commitment to resources and a move away from the focus needed for the business. People will resist any form of change and any drive towards new directions. This resistance has to be managed by the leader in a way which excites the workforce. Resources are always limited and strong leadership is required to gamble on something that has been seen to be successful (though it may not be in the future!), and divert these resources to something new. Leadership always look to analysis to help in the justification of the new projects and innovation, but sometimes there is too much reliance placed on the analysis. Leaders have to be comfortable putting their heads on the block and going with instinct, after all this is what they are paid for!! Focus is another excuse for not taking risk, which is understandable, but what defines focus? Is it the product? Is it the market or is it the competency? There are many ways to interpret focus and these all have to be explored. Risk is caused by incorrect timing of the decision, and incorrect assumption of resources and an incorrect assumption of market take up. This suggests that the leaders need to have a fairly comprehensive picture of the environment and the opportunity. Perhaps! Maybe strong leadership is needed to ensure that decisions to change a direction which previously seemed appropriate are taken at the right time. One of the assumptions companies make when setting targets to grow is that they aim and design actions to hit the target. In fact, experience has shown that they should look to exceed the target. Generally, you find that the revenue target should comprise at least 20% of new business. This will allow for lost business, which some companies fail to take account of. More projects and actions are needed to ensure that the target is exceeded. More time is needed on looking at the “what if” scenarios and calculating the worst case. Leaders also need to become more comfortable with managing probabilities, rather than looking for certainty. Probabilities are managed by understanding the markets better, researching trends and spending more time looking at success and failures of innovation. The probabilities are also managed by ensuring that a balanced portfolio of growth is targeted. Sufficient attention should be given to existing businesses with growth potential, existing businesses that are on the decline stage of the life cycle and new businesses with growth potential. Probabilities also suggest that leaders might look at how comfortable they are not actually having a specific answer for taking decisions. Entrepreneurs appear to be far more comfortable taking a risk than professional managers. Is this due to an added belief in the new business or just self confidence? Key criteria for success of growth need to be clearly identified. These could be asking questions like: Does this idea increase the market potential of our customer base? What assumptions does this innovation make about the customer and her behaviour? Will the customer be prepared to pay for the benefits that the innovation delivers? New business should generate lots of questions to which there are no answers. There are just possibilities. To these possibilities we need attach probabilities as to how correct our assumptions are. This ensures we have explored all possibilities. The table shows how this may be handled. This does not eliminate risk, but it does help manage the risk. Professor Rakesh Sondhi is the Managing Director of BMC Global Services- an award winning business growth & creative agency.