Is your business a growth generator, or is it risk paranoid?
Growth, is the great challenge facing many senior managers and boards today, particularly since the GFC. Although, I do suspect without the supporting data that many businesses leverage the outcome of the GFC and perhaps justifiably in the US and parts of Europe as the key reason for their risk aversion. But is this really a justified position?
Perhaps a great place to start is the role of business and its responsibility to shareholders. Investors have never made decisions to acquire shares that have little to no growth. It is the responsibility of boards to optimise their returns to shareholders and to ensure that ongoing growth goals are achieved and sustained, obviously with the minimum of risk. However, never at the expense of growth, for to do so will lead to organisational decay on multiple fronts.
Low growth organisations with intense focus on risk generally destroy leadership culture, lack innovation, have limited focus on M&A (Mergers and Acquisition), attract low risk management, drive bureaucracy, reduce market competitiveness, negatively impact brand perception. The outcome being low levels of R.O.E.
So what has happened to balance risk?
The best example of balanced risk is Apple. Here is a company that drives growth through innovation, has the capacity to sustain high levels of risk on the basis that its core product is on a continuous development path, while delivering effective returns to shareholders. Thereby enabling significant risks to be taken, for example, the move to I-pad.
Unfortunately, many business do not have this luxury. Why?
Nokia on the other hand could be perceived as being very risk adverse, and are paying the price with share holder value sliding in the last 12 months. This has resulted from negative growth, inducing declining market share, down 9.5% (Gartner Research, last quarter 2010) moving from 36.6% to 27.1%. In June 2007 at the time of the iPhone launch, Nokia had a market share of 50.8%, it has since lost more than 60% of its market value during the same period (reference Bloomberg).
Nokia’s new management team have now embarked on a major risk strategy aligning with Windows 7 Mobile to regain market share. In other words, the procrastination and lack of clear business risk taking, has required the organisation to embark on a high risk strategy to compensate for previous risk aversion. Amplifying the cost to shareholders, and the vulnerability of brand equity.
Paranoid aversion to risk is the adversary of all shareholders, and an area many boards require greater sensitivity and vigilance to ensure better and more productive use of shareholder funds.
In a recent review conducted by Growth insights ‘REDISCOVERING THE LOST ART OF ORGANIC GROWTH’ ’CEO based insights on the Australian landscape for growth and innovation’. They have drawn three conclusions from the data:
- The GFC has changed the landscape for growth in Australia
- Organic growth can no longer be considered optional
- Companies are ill prepared for the growth challenge
In the same study 70% saw organic growth having increased relevance in the next 12 months.
This then raises a very basic question? Why does it take a crisis to increase focus on growth? Should this be a fundamental business-as-usual practise? Is this the main reason why many organisations provide very poor returns to shareholders.
Furthermore, when these same organisations reviewed their capabilities they rated organic growth capabilities as 6 out of 10 and M&A capabilities as 3 out of 10. Perhaps this goes part way to answering the above points.
A winning business attitude to long term imbedded growth practise is ‘culture’. It makes sense to expect organisations who impart growth as part of their cultural behaviour and capability requirement to grow, versus those who drive the hard slog because of a sudden need, or sudden realisation of declining performance.
What approach does your business take? Is there a need to review and realign your focus on growth and risk?
At Mind Fusion we are passionate about assisting organisations deliver innovation and growth as a core element of their business culture, and as such we have devised processes to support your business move forward. Don’t give your competitors the lead opportunity. Contact us now to explore in greater detail.