Three Strategies for Managing Fast Growth

Many companies approach growth management with no strategy other than to do what they did when they were new. New companies begin with a flourish. They have certain capabilities and knowledge. As they get caught up in short-term survival, they may cling to the same capabilities and knowledge. Or they may acquire the wrong kind of new knowledge and fail to grow the right capabilities. In the end, they may pour on new capabilities and knowledge — when it’s too late.

The key to a long, healthy corporate life is steady growth. According to a 1998 survey, of the companies that enjoyed greater than 10% sales growth per year, about 78% were still around six years after starting. Of the companies with flat or decreasing sales, only 27.5% survived for six years.1

Growing Strategically

To grow steadily and avoid stagnation, a company must learn how to scale up and extend its business, lengthen its expansion phase, and accumulate and apply new knowledge to new products and markets faster than competitors.

Managers can’t leave growth to chance. They must choose a plan that renders consistent sales growth for years, not just in short bursts. A good growth plan captures the vision for expanding the company. It addresses the product and market combinations the company intends to pursue, the size it hopes to achieve in a particular time frame, and most important, the know-how and organizational structures that will support expansion or diversification.

Such planning has an internal focus — rather than a focus on what competitors might do or what type of technological change might transform an industry. It is designed to help a company exert more control over its fate as it tackles outside challenges.2 Implementation is easier for startup companies but possible for established enterprises, too. Company size should not drive the growth plan. Companies of all sizes need systems for creating, acquiring and sharing knowledge. Consider Netigy, a San-Jose-based e-commerce service provider. Netigy has only 650 employees, but it already has invested in a chief knowledge officer and a knowledge-management system for 20,000 people. Netigy is prepared to handle its vision for growth.3

What does drive the growth plan is the company’s set of capabilities. Managers must choose a plan that fits with the knowledge, learning skills and assets that the organization possesses or plans to develop.

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References

1. J. Timmons, “New Venture Creation” (Burr Ridge, Illinois: Irwin, 1998), 14.

2. We concur with S.L. Brown and K.M. Eisenhardt’s notion in “Competing on the Edge: Strategy as Structured Chaos” (Boston: Harvard Business School Press, 1998) that growth should be organically driven by the internal pace of the company rather than external factors.

3. Chuck Salter, “Built To Scale,” Fast Company, July 2000, 348–354.

4. J.R. Baum, E.A. Locke and S.A. Kirkpatrick, “A Longitudinal Study of the Relation of Vision and Vision Communication to Venture Growth in Entrepreneurial Firms,” Journal of Applied Psychology 83, no. 1 (1998): 43–54.

5. M. Cusumano and D. Yoffie, “Competing on Internet Time: Lessons From Netscape and Its Battle With Microsoft” (New York: Free Press, 1998).

6. J. Clark, “Netscape Time: The Making of the Billion-Dollar Start-Up That Took on Microsoft” (New York: St. Martin’s Press, 1999), 60.

7. Marc Andreessen often jumped from one topic to another during conversations but showed a remarkable ability to connect seemingly diverse ideas. As chief legal counsel of Netscape, Roberta Katz, commented, “The browser is a map of his brain.” Cusumano and Yoffie, “Competing on Internet Time,” 18.

8.Clark, “Netscape Time.”

9. S.G. Winter and G. Szulanski, “Replication as Strategy,” working paper 98.10, Wharton School, Philadelphia, Pennsylvania, 1999.

10. G. von Krogh, K. Ichijo and I. Nonaka, “Enabling Knowledge Creation: How To Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation” (New York: Oxford University Press, 2000); and M. Boisot, “Knowledge Assets: Securing Competitive Advantage in the Information Economy” (New York: Oxford University Press, 1998).

11. “IKEA: Furnishing the World,” The Economist (Nov. 19, 1994): 79–80; and also see C.A. Bartlett and A. Nada, “Inguardkamprad and IKEA,” Harvard Business School case 390–132 (Boston: Harvard Business School Publishing Corp., 1990).

12. www.ikea.com/about_ikea/timeline/fullstory.asp.

13. J. Rieker, “Die drei von der Baustelle,” Manager Magazin, April 1998, 114–126.

14. R.N. Yeaple, “Why Are Small Research and Development Organizations More Productive?” IEEE Transactions on Engineering Management 39, no. 4 (1992): 332–346.

15. “Die Regeln der SAP,” Manager Magazin, May 1998, 238.

16. M.W.H. Weenig, “Communication Networks in the Diffusion of an Innovation in an Organization,” Journal of Applied Social Psychology 25, no. 5 (1999): 1072–1092.

17. Another is Thermo Electron, whose growth is described in C.Y. Baldwin and J. Forsyth, “Thermo Electron,” Harvard Business School case no. 9-292-104 (Boston: Harvard Business School Publishing Corp., 1992). Unlike Johnson & Johnson, Thermo Electron generally sold public stock in its subsidiaries to take advantage of the capital markets — an important tactic for raising money.

18. “Dusting the Opposition,” The Economist, April 29, 1995, 71–72; and www.jnj.com/annual/99_annual/jj_99_ar.pdf.

19. www.sap.com/service/asap_rm.htm; and A. Seufert, “SAP: The German Software Giant” (presentation at the MIT Sloan School of Management, Cambridge, Massachusetts, Nov. 5, 1999).

ADDITIONAL RESOURCES

Many companies have deep corporate knowledge but are not sure how to use it to competitive advantage. “Working Knowledge: How Organizations Manage What They Know,” by Thomas Davenport and Laurence Prusak (Cambridge, Massachusetts: Harvard Business School Press, 1997), and “Enabling Knowledge Creation: How To Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation,” by Georg von Krogh, Kazuo Ichijo and Ikujiro Nonaka (New York: Oxford University Press, 2000), provide ample guidelines. The KnowledgeSource Web site (www.knowledgesource.org) offers additional links and information.

Reading about lessons learned from successful companies is a good way to avoid pitfalls and duplicate what works. “Competing on Internet Time: Lessons From Netscape and Its Battle With Microsoft,” by Michael Cusumano and David Yoffie (New York: Free Press, 1998), and “Microsoft Secrets: How the World’s Most Powerful Software Company Creates Technology, Shapes Markets and Manages People,” by Michael Cusumano and Richard Selby (New York: Free Press/Simon & Schuster, 1995), capture lessons from rapidly growing companies. Robert Spector tells Amazon.com’s story in “Amazon.com — Get Big Fast: Inside the Revolutionary Business Model That Changed the World” (New York: Harper Business, 2000).

John Nesheim’s “High Tech Start Up: The Complete Handbook for Creating Successful New High Tech Companies” (New York: Free Press, 2000) gives good pointers, particularly on how to deal with risk.

Acknowledgments

For their helpful comments, we wish to thank three anonymous reviewers; also Simon Grand, Peter Gomez, Yvonne Wicki and Mark Macus of the University of St. Gallen, and Harbir Singh of the University of Pennsylvania’s Wharton School. In addition, we thank participants at the Conference on Knowledge and Innovation (Helsinki School of Economics and Business Administration, Helsinki, Finland, May 26-27, 2000), including James G. March, Ikujiro Nonaka, Patrick Reinmoeller and Giovanni Dosi. Andreas Seufert at the University of St. Gallen assisted in the research on SAP.