Growth: The vicious circle

What could be better, delicious over-priced coffee in massive cups? Well judging by recent figures the public seem to agree. Shares are up 52% this year and sales are due to pass $11bn (Observer 12/10/10).  These figures however should be seen in context. This represents a significant turnaround for a company that was performing poorly for two years and looked in danger of fading fast.  The recovery is being led by Howard Shultz who has been brought back to the company that he led to success in the '90s.  What has he done? Well not much more than revamp the stores, introduce instant coffee and... close down over 1000 stores! Here lies the problem:  Starbucks grew too big and too fast - stores ended up in direct competition with each other and the company and the market could not manage the growth.  If growth becomes the all important part of the plan then things like quality and innovation can become overlooked.

Exactly the same thing happened at McDonald's about 10 years ago when it expanded very aggressively and forgot to take care of what it did well (or badly!!). This made it vulnerable to other Burger and fast food outlets as well as newer competitors like Subway.

You will also remember the recent experiences of Toyota who had to recall thousands of vehicles due to quality faults (sticking accelerators, poorly functioning brakes etc.).  The chairman and CEO blamed Toyota's rapid and significant growth which caused them to ignore quality issues (I have another theory about this but you will have to wait!).
So this all sounds rather familiar and we might be justified in asking - why bother?
The Vicious Circle
The goal of growth is almost inevitable. If you were an investor would you want the company to stand still?  The structure of capitalist markets is to demand shareholder value and this is often driven by institutional investors who want short-term and significant share growth. Rapid expansion seems to be a very alluring way to capture market share and provide this financial growth.  Growth looks great - it has been an enticing concept through history: The Roman Empire; the British Empire; Napolean; Hitler - all just pursuing expansion and growth (ok, at least one was nuts, but you get the point!). Companies are no different and they are being pushed to do it by shareholders, business analysts, the stock markets and the egos of their Management. And yet so often we see growth causing problems which result in...getting rid of parts of the business.  The CEO who does this is hailed as a hero.
The other major problem here is that if you don't grow then you become a target for takeover. So, as the song says 'what is a boy to do?'. It seems that a company is damned if it does and damned if it doesn't.  Clearly the trick is to grow and to manage it properly by continuing to focus on quality and innovation and customer needs and staff coordination and marketing across products and countries and the share price and long term strategies and ... get the point?
In my view the problem is a different one than the management of growth and is actually a fundamental flaw in the US/Anglo Saxon model of markets. Growth is imperative and yet is fraught with problems but realistically for public companies there is little alternative. Perhaps the rest of the world has a lot to teach us about this (actually, not 'perhaps').  The question is will we listen?
Footnote:
Starbuck's somewhat predictable solution to having to close stores is to aim to open 1500 stores in China. Should be easy - rapid growth in a country where few people traditionally drink coffee. Growth and a cultural barrier - Good Luck!

Strategy as Scarcity

Lots of books and article make strategy sound feindishly difficult, which it isn't or rather it is. It is difficult because identifying the right things to do and even more so to do them well is very hard. On the other hand it is easy because all you have to do is focus on one thing - Scarcity.  It's basic economics really - scarcity creates demand and the opportuinity to profit from that demand and if you control that scarcity then you have advantage. So what sort of scarcity and control am I talking about?  Imagine that you own an antiquarian bookshop (yes they still exist) specialising in rare books about traction engines - you become the 'go to' place for people who are interested in that subject (there must be some).  It is of course a niche but you have placed yourself in that niche and control it.  The suppliers will go to you as will the buyers - bingo you have advantage. Of course the scarcer the resource and the harder it is to imitate then the greater and longer the advantage.
So what are we looking at here? Well clearly there are physical resources that might be scarce; technologies; knowledge; skills; location; networks etc.etc. The trick is to make them yours and to keep them or at least make them hard to copy. This doesn't overcome the need to identify the right market or many of the other basics but it does make it very hard for companies to overcome your advantage.  In the end everything is eroded but the real trick to scarcity is innovation - the constant identification of what is scarce and desired. If you can do that then you have got it made.
This applies to the strategy of getting jobs as well as to business.  As I say to my students - 'make yourself scarce!!'