Why do some businesses really grow compared to others that don’t?
It is a question I have sat and pondered over time. I do accept that there will be many other variables that can and will have an effect such as timing, marketing, customer demand etc. However I think the one critical difference between businesses that ‘stand still’ to those that really grow is down to one word, alignment.
Alignment to me means having everyone in the business focused and working towards the same objective.
This sounds pretty straightforward right. But it’s not.
From day one there are multiple operations that are needed in order for a business to function.
Typically you have a sales and marketing function, some form of purchasing or production process dependent upon whether you are buying products or making them. Lastly you will have an accounts function to handle and manage the finances of the business.
As a business scales, these functions or sub divisions become significant operations in their own right at this point, and this is where problems start to occur when it comes to alignment.
Key performance indicator failure
As divisions grow, they often implement their own methods of working or KPI’s to measure performance of some metrics that are important to them.
Where this falls over is when the KPI’s don’t align to the growth objectives of the business.
Here are some examples…
The purchase department introduce a KPI that measures stock valuation with a view to keeping no more than 5% over last years year end figure.
At face value it sounds quite a sensible KPI, but not if the business has set a growth objective of 20%!
To reduce inventory amd to try and maximise ‘just in time’ production the factory introduces a no stock holding rule.
Again a logical decision to reduce inventory and to work using a just in time methodology but made in isolation of assessing stock turn figures will impact sales.
To help improve cashflow amd reduce aged debt the credit control staff are given a bonus that rewards the controller for achieving a outstanding debt balance of less that x%.
Every business has to manage cash-flow, but the danger is that credit control staff become a sales prevention team by the way they deal with those customers who don’t pay on time.
The divisions implement these methods of working or KPI’s because they believe them to be best for the business. They are often created by managers who are trying to manage up, rather than manage down. What this means is that the manager is more concerned with trying to impress his superiors and ‘manage’ him.
This happens because divisions become removed from understanding the objective the business is trying to achieve. It becomes so focused on its core task that those within start to believe that they are the business.
Successful business models
If you stop and think about it, a business should be self sustaining. It offers a product or service, a customer buys that service and if the customer likes it they tell their friends who also become customers. If the pricing model is viable then the business makes money.
Therefore every division’s focus, all their rules and procedures as well as KPI’s should be concentrated on one thing, the customer. This is where alignment becomes incredibly relevant.
That is in my opinion the difference between why a business grows in line with inflation, as against one that smashes it.
Inflationary growth v true growth
In the main businesses get some part of the model right, and in part that drives the customer to want to buy the product or service offered. However when alignment is missing the business is more likely to maintain an inflationary growth. It’s not going to fail, but it isn’t going to smash it.
True growth comes from a focus on alignment that ensures that every rule, procedure and KPI is aligned with the goal of the business.
What do I mean by this?
Facebook have famously talked about move fast and break things. An example of how how this works in practical terms is that Facebook’s engineers are focused on making the Facebook platform retain the users attention for longer periods of time.
This is done through making a change to the platform that is limited to small controlled group. Changes might be made to the algorithm that controls what appears in the news feed or to the colours that are used etc.
The user data from the control group is then analysed to see if the changes improved user interaction. If the user data is positive then the changes are then cascaded to other users.
The focus is completely about how they can improve the platform for the customer.
The focus or alignment is all about the user, or customer. This focus is aligned to their commercial model of selling advertising as the longer the customer stays on the platform the more adverts they will see. This grows Facebook’s business and satisfies their customers.
Where businesses don’t have alignment, the leadership team will end up spending time fire-fighting, correcting the gaps that appear.
Some will undertake a root cause analyse to find out what’s wrong, but of course the damage will have often already been done. Sometimes even a root cause analysis won’t get to the problem because the rules that have been put in place have become institutional.
The other factor that have to remember is that this lack of alignment won’t stop growth, it will just restrict it, or slow it down and that can make it very hard to find.
What other factors restrict significant growth? Please share your experiences in the comments.
Thanks for reading!