Recently, in a discussion with a college professor, the question was posed to me: “Is growth and expansion always good thing? Should all companies strive for growth?” I have a lot of opinions on this subject, but my answer went something like this:
I do not believe growth is always good. In fact, I’m willing to go as far and say too much growth is almost always bad. Growth can result in some of the following:
- Brand dilution
- A cumbersome business structure
- Redundancy and inefficiency
Sometimes a company wants to expand for the sake of expanding, but if the expansion has no direction then you can end up with some very odd results.
Companies spend a lot of time and money developing their brands, and additionally, they spend a lot of money defending it, but sometimes they need to be protected from themselves.
Some examples of this could be:
Bic, the pen company:
Bic, the friendly company that probably has their logo stamped into one of the pens in front of you, did have a run in with this particular problem. When you think of pens, you probably don’t think of pantyhose, but for some reason, Bic embarked on this business idea, and it failed.
Levis, the jeans company:
Levi’s is a household name, and with that they felt they could expand into the professional suit market. This failed also. There’s something about having a professional suit made by a company that makes construction workers pants that seemed to be a turn off to business professionals.
Eckerd’s, the pharmacy:
Eckerd’s didn’t exactly make this decision, but at a time when they were owned by JC Penney, you could order JC Penney merchandise and pick it up at your local Eckerd’s.
All of these business propositions failed because the companies tried to grow into areas that they didn’t belong. Luckily the damage didn’t last long, but you can severely damage your brand when you try to scale it into things that just don’t really make sense.
This is especially applicable to technological companies. If you’ve ever contacted a company that has tons of different types of products and a large technical support desk, then you’ve probably been stuck in a transfer loop where all of the support agents seem to have the need of “getting you to the correct department.” Call a small company that manufactures one product and see how long it takes to get to the right support desk.
Redundancy and Inefficiency
Growth also leads a company down the dangerous road of redundancy. This is especially prevalent in employee structures. An example would be a manager, who has a manager, who also has a manager. At what point do you stop and say: “I don’t think this tier of managers needs a manager.”
This kind of redundancy negatively impacts shareholders as the salary being paid to these unnecessary managers could have been returned to the shareholders as dividends, or used as retained earnings for investment in the company.
Growth, if scaled to the template that you’re currently using, can be a good thing. What must be ensured is that overlaps, redundancy, inefficiency, cumbersome structures, and brand dilution are not byproducts of your growth or you will snuff out any potential benefit.