Growth ambitions?Here are important risk factors for profitability

– Updated 06.08.2020 – Estimatet readtime: 3 min

Does your business have ambitious goals for profitable growth? To achieve this, strategic activities based on insight is required – which results in targeted initiatives summarized in strategic action plans.

If the strategic plans do not include the right initiatives to develop the organization, there is a great risk that the planned profitability will not come. The impact of the long-term growth strategy is obvious.

Here are important risk factors – and input to your understanding of what should be done to increase the likelihood of success.

Risk factors of profitability

An enterprise with ambitious plans for profitable growth should have two main categories of goals and initiatives: External business development and internal business development. The former includes initiatives to increase sales through new products, new markets, new partnerships and acquisitions (of businesses).
Decisions on such initiatives are often made following in-depth external analyzes that include SWOT assessments, trend analysis and market analyzes. Many companies, on the other hand, underestimate the importance of internal analyzes. These are analyzes that conclude with the specification of the need for internal business development to “sustain” the planned growth. The needs are the basis for defining “internal” initiatives that balance the “external” initiatives.

Ideally, internal business development should take place at the forefront of growth so that the organization is able to meet the demands of profitability and customer satisfaction when growth comes.

Ambitious growth without associated thoughtful development of the organization will certainly result in the business growing out of its processes. The symptoms can be many.

Download checkst - 5 symptoms of poor performance

 

For example, the integration of new partners and acquired businesses can take significantly more time and require significantly more resources than planned. The budgeted synergies are not coming.

Another symptom may be that sales growth is stressing the delivery apparatus and leading to a negative development in the delivery precision. The organizational stress can also lead to reduced quality, significantly more reactive work and delay in the development of new products and services. The latter because central development resources must contribute to the processes of others and prioritize unplanned problem solving activities over planned product development.

In such a scenario, the company risks entering a chronic state characterized by unplanned problem solving activities, increasing customer dissatisfaction and ever-increasing pressure from owners and the board to increase profitability.

In such a situation, there is a danger that management will implement rapid measures and reorganizations without having the full picture of the underlying root causes of poor operational performance. Such measures can quickly lead to even worse performance and increased employee dissatisfaction.

Targeted development of the organization

The question one should ask is then, how to get out of this undesirable state or, even better, how to avoid getting into it at all? Jim Collins has for more than 25 years studied what great companies do that comparable companies do not.

The research includes both companies that achieve profitable growth from the start and companies that manage to achieve excellent status after being in a position of average or worse.

The research has resulted in four international best-selling books on the subject and many of Jim Collins’ findings are relevant to addressing the undesirable situation described above. Collins and his co-authors have found, among other things, that outstanding companies have established specific structures that ensure that management takes over and deals with the brutal reality in which they are located.

Collins research also shows that outstanding companies have also installed mechanisms that help develop the organization. Specific, targeted structures for improvement are included.

In summary, the first structure provides identification of existing and future threats to the company’s ambitions. The second type of structure provides the necessary improvements and adjustments based on the conclusions of the first.

Both structures are part of the company’s Business Improvement System. That is, the unified system that ensures identification and closure of the company’s improvement needs. Lean and Six Sigma are important components of this system.

You have now read about the risk factors associated with a growth strategy. Do you have a feeling that your business should take steps to improve or secure future profitability? Download our checklist that addresses five common symptoms that your business might have:

5 symptoms of poor operational performance