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The two Enterprise Obsessions You Should Ignore

April
23, 2019

6 min read

The opinions expressed by the entrepreneur's contributors are their own.

The following excerpt is from Benjamin Gilad and Mark Chussil's book The New Employee Manual: An Unconstrained Look at Corporate Life. Buy it now on Amazon | Barnes & Noble | Apple books | IndieBound or click here to buy it direct from us and SAVE 60% in this book if you use code CAREER2021 by 04/17/21.

Entrepreneurs and managers are often obsessed with their businesses, from restructuring and growing to using consultants. Let's cover two of these to see what they are and why they could harm your business.

reorganization

Reorganization has an economic justification. Markets are Darwinian instruments in the social field, and in order to cope with changes in the market, companies should reorganize themselves from time to time. It's an adaptive answer.

Until it is not so. The ritual rearrangement usually begins with slide 136 of the advisors. On this slide, a new organizational chart is shown that fits the “new competitive reality” far better, which can be just about anything. "Disturbance" is subtly mentioned 325 times. Management falls back on the idea immediately, since it is management's job to do something, and the excitement of the “new competitive reality” and fear of “disruption” are effective triggers.

Management often buys ideas that come from consultants. If the idea works, management can appreciate your quick action. If the idea is bombed, the explanation is that the idea was proposed by one of the leading consulting firms in the world, a built-in shield. Any necessary explanation can also divert both guilt and attention by saying, "The reorganization has generated significant synergies and cost savings."

The reorganization has its own logic, which is reversed every X years. (“X” is not a large number.) Scientists are still studying the mechanism behind the regular U-turn, but we already know some principles of the process.

Here is a typical reorganization cycle based on advice from the current advisor:

Based on a thorough study by the consultants, the company is reorganizing by region based on increasing sales in the countries where it does business. If that doesn't work, the company will follow the new consultant chart, reorganizing itself along strategic accounts rather than sales regions. These are large customers who often have teams working on their accounts. Then when a new company comes in with a new product, the customer runs to them with glee. The company then hires a new consultancy that recommends reorganizing by region (again) or by product line or division, which again it doesn't.The company then returns to step 2, but this is completely different and not a repetitive compulsive ritual because the org chart uses four colors for the profitability of the accounts, not just three as in the former consultants' obsolete chart.

You think we're exaggerating for effect, right? It can't be that absurd, can it?

We are actually reducing the real chaos. According to a survey by the consulting firm The Clemmer Group, 50 to 70 percent of the "Reorgs" fail. Business school may have taught you that decisions at this level and at such cost are rational, carefully considered, and based on data. We'll tell you how it's really done.

growth

Why are companies obsessed with growth? There are several good reasons and one bad reason.

Here are the good reasons: Growth motivates. It means more market power. It means higher profits. This means Wall Street will greet the CFO and CEO on conference calls and tag them quickly and agile. This means that investors buy the stocks and push the stock price up.

In short, companies are obsessed with growth because growth makes money.

Here's the bad reason. If you are a short term investor in a public company, you are buying stocks not to hold, but to sell. You want the stock price to go up as fast as possible so you can sell it before it falls to some sucker who thinks it will keep going up. When the markets change, sometimes the best strategy is to lower the growth targets, not to increase them. It is at the core of competition as a skill that requires honesty and clarity. But what's good for the goose (the business) isn't always good for some of the gander (short-term shareholders).

In short, businesses are obsessed with growth because the sky falls when growth slows down. And sooner or later, growth always slows down.

The pathology of growth goals

The growth is good. There are no obsessive growth goals. Why do executives keep pushing for relentless, unrealistic, extremely delusional growth goals, even when in the end it comes down to biting them in a soft place?

The underlying belief – unexplained, ingrained, and without evidence – that "if you stand still, you will die" underlies the growth goals. It's a Darwinian survival instinct from when our ancient ancestors ran away to attack saber-toothed tigers. Then if you stood still, you actually died.

However, today it is important to ask yourself: Who says growth is so necessary? What's wrong with stability? What's wrong with being happy with your location and making sure you keep up that performance (which requires competition rather than delusion)?

A company's obsessive growth goals reflect real fear of the prospect of just stable income. And the idea that the only winning strategy is to dive into high-growth markets is the bread and butter of Wall Street. MBA programs don't often teach about boring industries that make money year after year, even without apps. How boring.

But boring industries still make money and differentiate themselves without bleeding their competitors with price wars, rampant imitation or the broadest possible network (mass markets!). In fact, the smart players make money by segmenting the market. Competing in a boring industry isn't just a tight game as some analysts would lead you to believe. It's a positioning game.

But if we try to sell it to "corporate", the answer is quick: we are opening a new plant in China! If every Chinese person only buys one product from us, we will be rich! It's in the child's mind to sell lemonade for $ 10,000 a glass ("I just have to sell one") and it's not much better.

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