Who is growing in this economy?

Is flat growth really the new up? Can a business really expect to grow in this economy? Despite the recession in 2008 and the slow recovery since then, what should businesses expect in terms of their growth, and what is it about growth companies that help them excel? Harvard Business Review published an article by Rita McGrath (“How the Growth Outliers Do It” Jan-Feb. 90:110-116) that helps explain why some companies are growing and what it is about them that enables growth despite a tough economy. Her analysis of 2,347 companies over the past decade (ending in 2009) showed only five companies consistently grew their net income by at least 5 percent annually. The firm’s size, the geographic market, and the industry in which it operated, simply didn’t matter.

These growth outliers had a culture of trial and diversification. We’ve seen in our own industry the detrimental effects of having only a few customers or having customers with greater than 20 percent of a company’s revenue. If the company lost that client, there is virtually no way for that business to survive. Similarly, companies that have a relatively narrow product mix, lacking in product diversification, can hit financial trouble all too quickly. What made these growth companies grow was their realization that change is coming and that having some possible “fixes” as scenarios for growth could help them anticipate a number of possible future alternatives. This is scenario or options planning. These companies had invested in diverse markets and product so that no one collapse, removal, elimination, or disaster would put them out of business. It is like spreading chips on the gambling table. If one bet goes bad, it won’t break the bank.

Along with their diversity, they build innovation into systems and processes, as well as products. New cultivars could be tested as well as new pest management strategies, temperature controls and containers. Building their first-hand experiences gives them the information to craft those different scenarios or options. Without first-hand experimentation, the results or experiences of others would be the only concrete information on which to build scenarios or make decisions. While these firms may not be the first to adopt the new container or new system, they do value the experience in understanding how that new item may fit into their existing system.

These growth companies also have systems and processes that support speed and flexibility. Here is where investment upfront may cost them time and money, especially as one of the first to move up a steep learning curve, but the speed and flexibility gained by modernizing their systems will pay dividends rather quickly. On a recent visit to Australia, one production nursery told us about the time spent collecting orders to load on the trucks for shipping each day. They studied a bar-coded and computerized system which did cost them considerable time and money, but which they returned early in the second year of use. Now, loaders make one pass through the nursery and the time to collect an order is one-third of the pre-computerized system. With labor as the largest line-item expense and a better understanding of inventory (real time), this nursery made a wise choice to improve this system.

Perhaps the most telling change of any growth company is its ability to change with the market. Markets are comprised of people, and people, despite their best efforts, do change over time. Their incomes, needs, preferences, interests and abilities influence the products, services and experiences they want to buy. A company’s ability to change with many of its core markets, and adapt its product mix to appeal to those core markets, lies at the center of all other business changes. New innovations don’t appeal to everyone, but keeping a close watch on and contact with customers who are innovators best prepares growth companies to move into and out of product lines. It can be difficult to give up a product line, but plotting those product life cycles which show sales over time can be a company’s best friend. Trialing new products and asking core customers, especially innovators, for feedback and concerns about potential changes is another form of information needed for a company to make a successful move ahead. Changing with customers provides a more reliable customer base, because some (not all) will see the value in staying with a vendor who is interested in growing and changing with them.

But change for the sake of change isn’t what these growth outliers are all about. Stability is important, but only for their people. Growth companies had “significant investments in creating an appropriate corporate culture, in employee training and in executive development.” They promote from within and hold onto key people. Tough economic times may direct attention to training programs as nice but unnecessary. Companies with a culture of training know that good people need to continue to learn and everyone is capable of contributing to training. No one person has all of the knowledge for one aspect of the company, but that information is shared among key personnel. Because of the breadth of knowledge key personnel have, they are better prepared to adjust when the company, economy, or market changes and one of their former roles is no longer needed. The culture of safety also permeates this growth business, because they understand more careful workplaces cost less than more careless workplaces. Stability at the leader level is where the steadfastness of these growth firms occurred. Leadership, committed to a common vision and mission with their workers, steered them more to success than any other factor. Steady leadership enables essential cultural elements, like values and strategies, to remain consistent. So the paradox of stable leadership and culture permitting experimentation and change is what helped these growth outliers to achieve their success.

Flat or unchanged sales don’t need to be the new “up.” Companies that are flexible in products, willing to invest in some trials, gather information crucial to scenario planning, but keep a consistent leadership will likely be among those to not merely survive but thrive.

Bridget Behe is a professor in the department of horticulture at Michigan State University. Have a Question? You can contact Bridget Behe at behe@msu.edu.