Managing Growth

One of the most prevalent subject matters on the minds of our clients and our consultants these days is growth strategy.

On a macro level, the one thing that most can agree on is that this recovery won’t pattern those of the past. The economic rebound is anticipated to be something that’s more gradual, more volatile and will depend more on geography and sector than that of its predecessors. Coming off the weakest recovery in postwar history (2003-2007), this so far has proved to be the longest and deepest recession ever. Arguably, the greatest current concern for a full recovery lies around the ability of the economy to restore jobs. With 70% of the nation’s economy related to consumer activity, the need to create jobs is essential to recovery. While the first part of 2010 brought job growth, the last four months (June 2010 – Sept 2010) have shown no growth whatsoever. Additionally, temporary worker starts are down as well which indicates that employers are less optimistic about their ability to transition these vacancies into full-time employment.

For its part, organizations are still operating in an environment of passivity. The emphasis on revenue retention and liquidity preservation has been influenced by ambiguity in the economy and the impact of a dysfunctional credit market. This general sense of uncertainty has hampered growth and has contributed to widespread retrenchment amongst private sector business. Free cash flow generated by these entities has been channeled into meeting the basic funding requirements of overhead – not into funding mission critical initiatives to support growth and sustainability. These initiatives have also been damaged by the shortsightedness of management teams and as a result, have stunted organic and inorganic growth.

So with all that said about our economy, what should organizations be doing today to ensure a relevant and sustainable tomorrow? Internally, we suggest starting with an honest internal assessment of the organization should be conducted by management. Candor should be used in facilitating difficult conversations around the effectiveness of the current organizational focus as well as an assessment around what is working and what isn’t. Perhaps the most important internal review should be of the leadership that is in place today – is this the team that will position the organization for its next phase of growth?

With the internal appraisal complete, the natural progression should be to transition into initiatives that emphasize strategy that focuses on investments that will show returns soon into the recovery. There is a strong need to transition into these initiatives of growth and sustainability. Tactical measures such as managing cost and making good decisions on hiring are still fundamentally sound and it’s important to add risk management to that list. Managing risk and controlling outcomes to the extent that organizations can is extremely important in this era of healthcare and financial reform for example. No one is clear on what exactly these things will mean, but it’s important to give due diligence to their potential to negatively impact ongoing growth and sustainability.

Traditional channels of growth lend themselves to scrutiny as well. Growing the existing portfolio becomes more difficult when the economy isn’t growing. Market share growth is very difficult even in the best of times. Mergers and acquisitions are especially complex. Despite the rise in deal sizes and volume, these transactions have been hampered by the challenges in unstable credit markets.

Why are we as a firm so interested in the topic of growth? It’s because we truly believe that the role of the Chief Financial Officer is imperative in growth strategies. Being a catalyst for change, the CFO should be able to transition from the role of gatekeeper to someone who can take the foot off the break, set a path for recovery and bring visibility into forward looking opportunity.