Can firms grow too fast?

Notwithstanding our volatile and depressed equity markets...

One of the good things about working in growing economies like India is the sort of interesting things you get to hear about managing growth - things unspoken in mature markets. Instead of grappling with growth challenges, here one gets to ask questions such as in the title line.

But this is an interesting question: Can a firm grow 'too' fast for its own good? Over the past few months, I've been fortunate to be exposed to industries and firms which are witnessing explosive growth; and I've heard people talk terms such as 'sustainable growth' and 'manageable growth'- terms which you'd typically hear only in the context of national economics.

But after all, firms resemble nation states, in a sense. Just as countries can overheat if fiscal and monetary economics are not managed to suit growth (these days, they can overheat otherwise as well, as we've learnt to our chagrin) firms too can overheat their operating models when faced with huge unprecedented growth.

Ultimately, a firm's operating and financial structures are designed for a certain range of volumes. And if these structures are not modified in time to support a much higher range, it is likely that they'll strain; just as short-term mismatches can drive up national inflation, such strains can drive up internal cost to serve, destroying firm value.

Another issue with growth is the change in the nature of the firm in relation to its size. A small firm is quite different from a medium-sized firm, which is quite different from a large sized firm: in its operating structures, in its human capital and policies, in its customer relationships, in its ambitions. As firms rapidly make the transition from one-stage to another, the sheer nature of the firm changes. People used to the informality and flexibility of the startup suddenly get saddled with policies and formal mechanisms. Internal divisions suddenly grow into the size of small firms ...

Of course, nobody wants to give up on growth (I doubt if any nation state would either) - after all, who knows how long it would last. But is it sometimes detrimental to grow too fast? Economies like China and India have been caught at the raw end these days from unmanageable growth. Statements have been made on sacrificing growth to rein in overheating. Should growing firms also 'manage' their pace of growth? Of course, firms dread being left behind in the marketplace, but would slowing down sometimes make you a 'better' firm?

The below is from the Ram Charan chronicles :

"We were driving to the airport in Charleston, W.Va., and he said to me, 'Why are you trying to grow this thing so fast?' I was sort of shocked by the question. Three weeks later my financial guy came to me and said, 'We don't have money to meet payroll.' Charan realized we were growing too fast, that's why he asked me that question."

On the future of media - What's the wheat? What's the chaff?

Knowledge@Wharton presents its perspectives on the emerging media landscape: the tussle between user-generated content and 'professional' content in The Experts vs. the Amateurs: A Tug of War over the Future of Media

Whitehouse distinguishes professional content on the basis of its editorial process. "Carefully checked sources and consistent editorial guidelines are key differences between most professional and amateur content," he suggests, while noting that, "Both bring value. The latter brings quickness and a personal viewpoint and the former provides analysis and consistent quality. The world I want to live in includes healthy doses of both categories."

"Where the distinction between amateur and professional content matters is in business models," says Werbach. "For certain kinds of quality content, no blog can match The New York Times, but producing the Times is far more expensive than a blog. If users aren't willing to pay to support the kind of professional journalism the Times provides, something significant will be lost. And that's increasingly happening, because traditional business models for newspapers and TV rely on unrelated advertising revenues to fund quality content. The Internet is disintermediating those dollars."

What is an 'emerging market'?

Not many question commonly used terms in our lexicon. When one does, it does present some useful perspectives. Knowledge@Wharton examines the use of the term 'emerging markets' in When Are Emerging Markets No Longer 'Emerging'?

Antoine W. van Agtmael was deputy director of the capital markets department of the World Bank's International Finance Corp. (IFC) when he coined the phrase "emerging markets" during an investor conference in Thailand in 1981.

Initially, the phrase applied to fast-growing economies in Asia and was used in Eastern Europe after the fall of the Berlin Wall. As global interest in market-driven economies grew, investors began to look toward Latin America for emerging markets and eventually at countries such as Indonesia, Thailand, China, India and Russia

Emerging economies, he adds, are in places that are changing from a system based on informal relationships to a more formal system with rules that are transparent and apply equally to all participants in the market.

At the same time, some countries seem to have gotten solidly stuck in the emerging markets category. Guillen points to South Korea...

As Shakespeare wrote, "What's in a name?..."

How elephants dance

From the Jan 2008 HBR article by Rosabeth Moss Kanter: "Transforming Giants":

What I have seen in recent years is a model different from what has prevailed in the past. In the most influential corporations today, a foundation of values and standards provides a well-understood, widely communicated guidance system that ensures effective operations while enabling people to make decisions appropriate to local situations. This, rather than any traditional control system, is what enables IBM or CEMEX to operate as one enterprise in projects that span many countries and to share a culture that makes people inside and external partners connect as an extended family.

When large groups of people are subject to management by values, aspirations, and open boundaries instead of management by traditional controls, their energies and passions are engaged...If these vanguard companies lead others to adopt their way of working, then we will see a new, and I think more promising, kind of capitalism. And if it flourishes, not only will that be good for business, it will also be good for the world.