CSC Smart Business UK Edition June - Growth and austerity?
Growth and austerity?
Can growth and austerity be fused in your organization? An LEF self-assessment.
As Greece and possibly even the euro totter, the debate over the need for either growth or austerity policies has become increasingly polarized – especially in Europe. Calls for more public spending are clearly gaining public support, but the idea of resolving a debt crisis by creating even more debt makes many people wonder where such a path might lead.
Not surprisingly, politicians on all sides prefer to talk about pursuing growth and austerity. But the shared language masks two very different economic strategies. Those who want more public spending and loans are essentially calling for growth now and austerity later. Others believe that austerity today is needed to enable sustainable growth tomorrow.
Our growth and austerity research
The possible fusion of the growth and austerity agendas has been a topic of LEF interest for some time. Information technology has an unusual ability to do things better, cheaper, faster and on a larger scale than businesses are used to, and there is now growing evidence that the traditional trade-offs between growth and efficiency are shrinking in many industries. Amazon is the most obvious example of a company where IT-based growth and austerity continually drive one another.
But while there is much that can be learned from today's Web 2.0 leaders, they are in many ways special cases, not easily imitated by more traditional firms. Recently, we have been trying to understand the extent to which mainstream companies can also use IT to fuse their growth and austerity agendas. We have been particularly pleased to work with Professor Edward Hess of the Darden Business School, whose books The Road to Organic Growth and Smart Growth identify successful growth strategies across a wide range of well-known firms. Our joint efforts have led to the preliminary framework below.
In this commentary, we will mostly focus on the top half of the figure, though clearly there are many companies that are primarily in either the steady state or efficiency quadrants, and such positioning can make perfect sense for an individual firm. Not every business should try to be highly innovative, and not every firm has to grow. It's a myth that businesses must either grow or die.
The top half of the figure needs deeper analysis. Here, we are making a distinction between two very different types of growth. As shown at the upper left, free-spending companies can grow by creating or dominating a growing category (as Apple has), or through significant mergers and acquisitions. However, there are two main challenges with this approach: 1) most firms compete in well-established markets that are not easily dominated by any one company; and 2) large mergers and acquisitions often fail to deliver on their initial promise.
In contrast, in the upper right-hand quadrant, growth is achieved through improved competitiveness. Typically, this stems from a mix of incremental innovation, constant improvement, execution, and enough austerity to remain price competitive, with an occasional boost from small, strategic acquisitions. Unlike the upper left quadrant, this is a growth formula that most firms can easily adopt. As a firm seeks lower costs and more innovation, its strategy, culture and technology must be tightly fused across the organization. This is where the capabilities of today's IT can be so powerful.
Our self-assessment tool
To gauge the current state of our clients' growth strategies, we have developed the following self-assessment at http://www.lef.csc.com/leads/growth-assessment. We encourage you to spend the 10 minutes or so needed to answer these simple questions both to get a better sense of what is happening in your firm, and to help us build an overall profile of the growth strategies in large businesses today. Upon completion, all respondents will receive a comparison of their total Smart Growth score with those of the other respondents.
Assess the health for your organisation's growth strategy and culture, take the LEF's self-assessment at http://www.lef.csc.com/leads/growth-assessment.