Your adaptability must keep pace with growth

Computing reader Stuart Penny has won our competition for a place on an MBA course at Ashridge, one of the world?s leading business schools.

Offered in conjunction with our sister paper, Accountancy Age, the prize, worth £35,000, covers a place on the Ashridge Executive MBA course two-year programme.

'An MBA is most effective when it includes practical business experience,' says Ashridge chief executive Kai Peters. 'On Ashridge MBA programmes, we seek not only to help develop individuals' capacity to manage traditional organisational functions, but also to develop them as leaders who are capable of the abstraction and analysis needed to cope with the complexities of business life.'

Stuart is managing director of Swindon-based IT services firm Miracle Services Ltd. His winning essay, Survival to Growth: personal and organisational strategie, is published here for the first time.

Companies will go through many battles for their survival and may grow and contract many times. However, their fight is in vain, as all will succumb eventually.

In his book, The Living Company: Habits for Survival in Turbulent Times, Arie de Geus presents the findings of an investigation into the longevity of companies by Royal Dutch Shell. The findings are startling, indicating that the average lifespan of a multi-national organisation - Fortune 500 or equivalent - is no more than 40-50 years. One third of the companies listed in the Fortune 500 in 1970 for example, had disappeared by 1983 - acquired, merged or broken to pieces.

So what causes companies to enter these battles for survival? Change. However you look at it, change triggers the survival battle. It is change within the company, how it operates, what it does, who runs it, what culture it adopts, the products it produces, and so on. Otherwise, the company remains constant and the world around it changes. Customer needs change, markets change, attitudes change, governments change, economies change, and so on. If companies do not change to adapt to the changing world they get into trouble.

Ironically to grow, companies must also change. Standing still, remaining constant, is not an option. Companies must change to instigate growth. This is why growth in itself can be a threat to a company as it involves change. We often say a company gets into trouble because it grew too fast. I would say that it got into trouble because its rate of change did not keep pace with its growth.

So if battles for survival are triggered by change, growth necessitates change and if you don't grow and change then the world around you will change, battles for survival are inevitable. The law of averages also means that not all battles will have a successful conclusion.

This all sounds very doom and gloom and begs the question: why should we bother creating companies in the first place? Over their 40-50 year lifespan companies will go through many survival battles and will overcome them and grow strong again. These companies will provide for their employees, contribute to the state, provide for shareholders, enhance the economy and contribute to the social fabric of society.

Although survival battles are inevitable some can be avoided. As with many things in life, prevention is often better than cure. de Geus draws some conclusions from his corporate longevity study. By looking at the exceptional companies that have lasted much longer than the average 40-50 years, he and his team were able to spot some common characteristics of long-lived companies. Companies like the Swedish Stora company that has its origins more than 700 years ago as a copper mine and the Sumitomo Group whose origins reach back to the year 1590, DuPont, the Hudson Bay Company and Kodak.

There were four key characteristics of long-lived companies that were identified:

• They were sensitive to their environment
• They had a strong sense of identity
• They are decentralised or tolerant to fringe activities
• They were conservative in financing

From these findings, de Geus goes on to develop his theory of the Living Company and organisational learning. One of the arguments that I strongly agree with is that of corporate foresight. If change is a trigger for organisational growth and decline, then having the ability or foresight to identify change early must be good for avoiding problems and capitalising upon growth opportunities.

Corporate foresight however, may sound simple but is hugely complex and requires the management team to be both looking inward on the company and outward at the changing world. A myriad of change occurs continuously 24x7x365 and identifying changes that are important to the company is an enormously challenging proposition but a critical one.

The management team must be continuously observing change and playing out scenarios that examine the effects of the change upon the company. This is called planning in most organisations but we must go beyond creating a plan and sticking religiously to it for a three to five year period. Numerous plans need to be examined before setting a course of action into effect. Also a plan that is put into action must be monitored and be dynamic enough to change in relation to further foresight from the management team. Having external views with regard to change can be critical. A company can become very insular focusing upon itself or 'the normal way we do things.' For corporate foresight to be effective, the management team must seek alternate views from outside the company. A multitude of things must be considered including current social pressures, economics, culture, the environment, competition, suppliers, and so on.

All the foresight and planning in the world is not enough on its own to prevent the survival to growth battle. To do that there is one more ingredient - taking decisions. The management team must act upon the foresight and planning and actually make some decisions to action their plans.

However, as already stated the survival battle is bound to happen at some point for all companies. Having not had the foresight to avoid the problem or simply having made the wrong decision, what practical things can be done to save the company?

Before actually considering practical strategies for survival I believe there is one very important aspect to company survival - the manager or management team must act rather than react.

After 11 September 2001, helped by the media and other industry commentators, I had the foresight to see that there could be a downturn and decided to sell my IT business. This was a positive, thought-out and planned action. When the sale fell apart and my concerns regarding the downturn were shown to be true, I had not planned for the sale to fail and was forced to react to the situation more than act. I was forced to make redundancies and ultimately merge the company. Could I have had more foresight, thought through the different scenarios and taken different action? Difficult to say, but I had planned for the sale to succeed and had not planned for it to fail. Had I looked at the possibility of failure earlier, the action may have been different.

Shortly after the failed sale of my business and the subsequent redundancies and merger, I attended a seminar at which Sir John Harvey Jones gave a talk to a room full of leaders of small businesses. He pointed out that small businesses represented the most significant proportion of the economy in the UK. He went on to say that you (small business owner managers, entrepreneurs) must do everything you can to ensure the survival of your companies. Faced with problems you must act, that action must be big and be taken quickly.

Most survival crises in companies manifest themselves in the form of a lack of cash in the company. This usually triggers the inevitable cost cutting exercise. However, as our economy becomes more and more service and knowledge oriented it becomes increasingly difficult to cut costs to save a company. This is because the largest cost to many organisations today is the cost of people. So you have to make redundancies, that's a fact of business life, hard but true. The problem really arises when you reach the position of having made so many redundancies you no longer have enough people to deliver the service properly. There are now probably two main options:

• Downsize the company drastically, cherry picking the best contracts and creating a company of fewer people delivering key contracts
• Grow.

These options are not mutually exclusive, in reality there is likely to be an element of both options in any survival strategy.

Having made it through the battle for survival, what strategies are there for growth? I believe there are five key strategies:

• Sell more of the same to existing or new customers
• Find new markets for your product or service
• Innovate - produce new products or services
• Merge or acquire
• Post modernist approach to innovation

The most common growth strategy is simply to sell more. The easiest sale is one to an existing customer, you already have a relationship, they trust you, so selling to them is easier. It is important to hold onto existing customers and sell more to them, however, this cannot sustain growth forever and new customers will be required. Gaining new customers involves a lot of hard work and tried and trusted methods, including advertising, direct marketing, telemarketing, exhibitions, seminars, and so on, and it can take a long time dependent upon your product or service.

Finding new markets may mean exploring other countries or identifying other people or organisations that can use your product or service. This requires considerable research and testing because a wrong decision could be very costly and have dire ramifications for the business.

Innovation is essentially bringing a new product or service into existence to sell in existing or new markets. Innovation carries its own very real risks, a lot of research and development expenditure will be required. However, being innovative can bring huge benefits and lead to massive growth. After all, Dyson built a whole business out of one innovation in a market that you would think was saturated.

In their analysis of the growth of major companies in numerous industries Slywotzky and Wise (Harvard Business Review on Leading in Turbulent Times, The Growth Crisis - and How to Escape It, Adrian J. Slywotzky and Richard Wise, July 2002) discovered that core business growth was surprisingly low and in some cases was negative. Core business growth was defined as the growth after removing influencers such as international growth, that is, new markets, acquisition and price increases. Between 1995 and 2000 the top 11 companies all had core growth of less than eight per cent.

Organic growth in companies often seems to slow as the company grows, the market matures or new products and services come to market. The only avenues open for growth are new markets and innovation or mergers and acquisition. Merging with or acquiring another company gives opportunities to increase market share, increase capacity and share costs. Mergers and acquisitions of course involve considerable change and therefore bring with them the potential for failure and the possibility of being back in the fight for survival.

The final strategy is what I call the post-modernist approach to innovation. This involves taking the product, service or skills of the organisation and repackaging them in a different way. For example, in my IT services business I had a team of support people highly skilled in all the technologies used in most office environments. The company generally utilised these skills to provide support services. However, we were able to take these skills and repackage them to provide a disaster recovery risk assessment service. It required all the same skills but they were used in a different manner to create a new service that would open up a new market for the company and also feed the existing business model.

I have explored the fact that companies will fail, why they get into trouble, how they can avoid trouble, how they survive and strategies for organisational growth. Everything has been focused on the company or organisation but what about the personal aspect? What about strategies for personal survival and growth? What about the individual?

Running a company or being part of a management team running a company and going through the constant survival-to-growth battle is challenging, rewarding, exciting and fun. However, it can also be very draining, destructive, lonely and painful. I'm sure everyone has their own strategies for dealing with the challenges. Some of the current fashionable approaches involve mentoring or executive coaching. However, I think it is all about learning. We learn through the experience of being involved and we seek to learn from others. So that the next time we encounter a set of circumstances along the continuum from survival to growth we take actions based upon our accumulated learning and experience.

Survival to growth is a continuous learning experience.