Is an obsession with growth bad for business?

Is it possible to be too focused on growth? The answer is "yes", according to Julian Birkinshaw, professor of strategy at London Business School, writing in this month's Marketing. He suggests that an obsession with growth can lead companies astray, causing them to neglect their core business.

The growth obsession

Growing is of course more exciting and rewarding than the alternative of declining. Beyond the obvious financial benefits, it creates opportunities for people to grow by developing skills and taking on new challenges. However, Julian suggests that executives can become too focused on growth. Several factors can cause an obsession with growth. First, there is the need to deliver quarterly results to keep analysts and investors happy. I call this "the tyranny of growth". Second, incentives may be linked to driving aggressive top-line growth. Another less talked about reason is ego and executives wanting to demonstrate their personal power. "Double digit" growth is a badge of honour that many managers desire to wear.

Screen Shot 2014-01-08 at 15.36.58
The risk of trying to grow too fast

Julian goes on to highlight the risk of trying to grow significantly faster than the market: moving away from the core business into new market areas. He illustrates this risk using McDonald's as an example. In the late 90's and early 00's the company tried to grow by acquiring businesses in adjacent areas: Chipotle, Donotas Pizza, Boston Market and Pret a Manger. These new businesses didn't really work out. As Julian says, "A lot of money and executive attention had been wasted in the process of experimenting." Success came from refocusing and revitalising the core burger business, with the non-core businesses gradually sold off.

Re-focusing on the core

Julian recommends a better approach is "to be honest about what you are good at, and keep doing it better than anyone", very much in line with the philosophy of our Grow the Core book. In the case of McDonalds, this worked well during the 00's, as I posted on here. He goes on to say, "This isn't as sexy as trying out new stuff, but its actually a much smarter long-term bet". He also suggests that shareholders may in many cases be happy with steady and predictable growth in line with the market, and not want companies to take excessive risks by diversifying away from the core.

Screen Shot 2014-01-08 at 15.47.21
In conclusion, being too focused on growth can be bad for your business, causing you to neglect your core and go chasing after high risk opportunities in other markets. A final thought is that in the best companies growth is an output from doing great things, rather than being the focus. As Collins and Porass said in their book Built to Last, 'Profit is like oxygen, food, water and blood for the body; they are not the point of life, but without them, there is no life.'