Smart Growth

Smart Growth: Building an Enduring Business by Managing the Risks of Growth

Edward D. Hess
Copyright Date: 2010
Pages: 248
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  • Book Info
    Smart Growth
    Book Description:

    Wall Street believes that all public companies should grow smoothly and continuously, as evidenced by ever-increasing quarterly earnings, and that all companies either "grow or die." Introducing a research-based growth model called "Smart Growth," Edward D. Hess challenges this ethos and its dangerous mentality, which often deters real growth and pressures businesses to create, manufacture, and purchase noncore earnings just to appease Wall Street.

    Smart Growth accounts for the complexity of growth from the perspective of organization, process, change, leadership, cognition, risk management, employee engagement, and human dynamics. Authentic growth is much more than a strategy or a desired result. It is a process characterized by complex change, entrepreneurial action, experimental learning, and the management of risk. Hess draws on extensive public and private company research, incorporating case studies of Best Buy, Sysco, UPS, Costco, Starbucks, McDonalds, Coca Cola, Room & Board, Home Depot, Tiffany & Company, P&G, and Jet Blue. With conceptual innovations such as an Authentic Earnings and Growth System framework, a seven-step growth funnel pipeline, a Growth Decision Template, and a Growth Risks Audit, Hess provides a blueprint for an enduring business that strives to be better, rather than simply bigger.

    eISBN: 978-0-231-52175-8
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-x)
  3. Acknowledgments
    (pp. xi-xiv)
    (pp. 1-10)

    One only has to look at the recent financial crisis in the United States to see that good companies can self-destruct or self-inflict serious wounds by pursuing poor quality growth or by failing to manage the risks of growth. Examples are Merrill Lynch, Citicorp, AIG, Washington Mutual, and Lehman Brothers. Outside the financial services industry, one can also find good companies that have created serious problems for the same reasons.

    In this book, I challenge some commonly held business beliefs about growth. First, I challenge the commonly held business beliefs (“Growth Mental Model”) that

    1. businesses must continuously grow or they...

  5. CHAPTER 1 Defining the Growth Mental Model
    (pp. 11-30)

    A mental model consists of beliefs or assumptions that are firmly held even without regard to whether those beliefs are true.¹ These beliefs drive behaviors and become part of a person’s cognitive makeup. If believed by enough members of a community, those beliefs can become a group’s mental model, an industry’s mental model, or even a society’s mental model.² Everyone creates and uses mental models. How we define ourselves or the goals of business provides the contours of how we process information. Information challenging our mental models, which are not easily subject to dislodgment, is often rejected.³ One of my...

  6. CHAPTER 2 Smooth and Continuous Company Growth: THE EXCEPTION NOT THE RULE
    (pp. 31-52)

    If you own, lead, or manage a private company, it is likely you have heard that you must grow the business or it will die. If you control, lead, or manage a public company it is likely you also have been told to make your quarterly numbers and that they need to be better than last year’s same quarters results and/or even the last quarter’s results.

    In this chapter, I challenge the validity and practicality of the Growth Mental Model by reviewing six research studies involving public companies and showing that smooth and continuous growth is the exception not the...

    (pp. 53-72)

    In this chapter, I explore the field of economics, looking for empirical evidence supporting or questioning the validity of the Growth Mental Model.

    Much of economics involves the creation of algebraic macro-production theories that mathematically model inputs and outputs to achieve system equilibrium.¹ Growth means growth of output, and the model theoretically shows the relationship of how much input is needed to produce a specific output. This mathematical formula can be used to create as much or as little growth as desired. So, theoretically, an economist can create a formula that results in smooth and continuous growth. My question is...

  8. CHAPTER 4 Organizational Design and Strategy: THEORIES OF GROWTH
    (pp. 73-96)

    This chapter focuses on research in organizational design and corporate strategy in a search for evidence that supports or challenges the validity of the Growth Mental Model. This research looks at corporate half-truths, strategic sustainable competitive advantage, hypercompetition, how growth progresses or occurs in good growth companies, and company life cycles. Although none of the research deals directly with the Growth Mental Model, this research calls into question the underlying assumption that business growth should be smooth and continuous over long periods of time and challenges the axiom of “grow or die.”

    Management consulting firms, some academics, and the business...

    (pp. 97-122)

    Unlike economics, the science of biology is not concerned with understanding and modeling economic systems or activity. Nonetheless, it is interesting to look at theories of growth, growth rates, the relationship between animal growth and predators, and the theory of finite energy allocation in living organisms. Will we be making leaps in applying this to business growth? Yes, of course, but interestingly, several theories in biology raise questions for business growth that are worth considering.

    Biology does not directly deal with the Growth Mental Model. Biology as a science is different in fundamental ways from economics. Most economic theory assumes...

    (pp. 123-136)

    I have found no empirical support for the axiom “grow or die” or for the Growth Mental Model. My research and the predominant views in various fields support an alternative way to think about growth, which I call Smart Growth.

    Smart Growth rejects the assumptions that every business must grow, that all growth is good, and that bigger is always better. It also rejects the Growth Mental Model tenet that growth should be continuous and smooth. These assumptions are neither true nor based on science or business reality. Smart Growth rejects the Earnings Game and believes that business health should...

  11. CHAPTER 7 Managing the Risks of Growth: PUBLIC COMPANIES
    (pp. 137-162)

    I wrote this book to challenge how business leaders, managers, and investors think about growth. Most, having trained and worked in environments where the Growth Mental Model reigns supreme, fail to think about growth critically. For most business leaders, investment analysts, investors, and even MBA students, “grow or die” is the Holy Grail of business. Given that view, growth is assumed and it is thought to be always good.

    Smart Growth rejects those views and seeks to subject growth decisions to three tools developed through my executive education and consulting projects: (1) a rigorous analytical Growth Decision Process; (2) a...

  12. CHAPTER 8 Managing the Risks of Growth: PRIVATE COMPANIES
    (pp. 163-180)

    Private companies, unless they have institutional investors, generally do not have as many external pressures to grow as do public companies, because the Wall Street Rules and SEC filing requirements do not apply to them. Nonetheless, private companies in many ways face even more risks in undertaking growth because they often have more limited resources. Limited resources include capital, people, managerial depth, managerial experience, processes, controls, information systems, and time. In many cases, private companies, unlike big public companies, do not have the capacity to absorb or withstand a growth mistake. Their resiliency to bounce back from a failed growth...

  13. CHAPTER 9 It Is Time for Smart Growth
    (pp. 181-198)

    There are many good reasons for businesses to choose to expand into new markets, to open more outlets, to diversify their product lines—that is, to grow. However, some business leaders push growth agendas under the mistaken belief that the alternative to growth is an inevitable decline. Every business does not have to grow—but it does have to improve to stay competitive.

    The major thesis of this book is that businesses, Wall Street, the SEC, investors, and all stakeholders in business should adopt a more realistic, balanced, and nuanced view of how, when, and under what circumstances businesses should...

  14. Appendix
    (pp. 199-200)
  15. Bibliography
    (pp. 201-220)
  16. Index
    (pp. 221-234)