Tuesday, June 13, 2006

S-curves, growth, and discerning your position

I've written about growth before, and you've no doubt read about S-curves. In business and in life, the challenge is discerning the difference.

Now I don't really believe that unlimited exponential growth exists in any physical sense; there always seem to be limits. There are cases in which the growth seems to persist for what we perceive as a long time (think of Moore's Law, for example). (An aside: 1/f noise in electronics provides the only case I know where things seem to grow without limit as far as people seem to be able to measure, but that's a vastly different subject.)

A problem occurs when organizations don't recognize they are pushing the limits of their current growth curve past its natural limits, and then they eventually get caught up in some sort of overshoot and decline (or even overshoot and collapse).

If my premise is right, how do you tell where you are? Is your organization experiencing great growth for good reasons? Is the time right to emphasize that growth and do all you can do to strengthen it? Or are you approaching the end of the growth phase for this cycle? Would you be best served by letting this phase come to a natural end and finding a new platform on which to make a contribution?

I'm still fond of Pümpin and Prange's Management der Unternehmensentwicklung: Phasengerechte Führung und der Umgang mit Krisen (St. Galler Management-Konzept). They observe that companies go through four phases:

  1. Pioneer, in which they develop a new idea and bring it to market
  2. Growth, in which the market responds and growth is great
  3. Maturity, in which they reach the limits to the growth of that idea
  4. Transition, in which things begin to fall apart.

The ideal is to cycle through the first three phases, perhaps touching the fourth ever so slightly before returning to the first. Each phase requires a different management approach, as has also been observed in other books.

A company in phase 1 is small. By the time it gets to 3 or 4, it's much bigger. When it returns to phase 1, there's no one business that can support all its infrastructure (people, capital, processes), and so it typically finds several related fields of interest for the next cycle.

These new small business units get to phase 4 at different times due to natural variations in the lifecycle of products, services, and ideas. Thus the next cycle starts at different times for different business units. After a few cycles, the company finds itself with business units in each of the four phases. As each phase requires a different approach to management, the company has to learn how to be good at managing in very diverse ways. That's often the rub for more established companies, and their very good approach to managing in one phase may damage other parts of the company for which that approach is deadly.

My challenge to you (and to me, in areas where I have influence), comes in three questions:

  1. Is it good for your organization if your product or business unit is growing right now? (If you're at the end of a growth phase and about to hit maturity and then stagnation, your organization may be better off if you are preparing for the next cycle rather than trying to fend off the inevitable.)
  2. Is it good for society if your organization is growing? (Arguably we don't need more low-mileage automobiles at this stage in the world's development, even if there's a market.)
  3. Should you consider a stable production model rather than a growth model for your product? (Perhaps the market you serve needs x liters a day or a month of a good product delivered reliably, but it may not be served as well if you succeed in pushing consumption to 2x liters a day or a month by inventing new categories of products when there are other pressing needs.)

Perhaps you have developed a better mousetrap for a real problem and it's very good that your organization is growing now. In that case, go for it!

Incidentally, Pümpin and Prange describe the crises that befall companies in each of the phases and give their recommendations for dealing with those crises. If you can find a copy of the book and enjoy reading German, I recommend it to you.


Blogger Gmann said...

The "phases" of growth cited by Bill remind me of the ideas in
"Breakpoint and Beyond" by George Land and Beth Jarman. In it they suggest that humanity is at another "breakpoint." The last one was when we (humanity) shifted from "hunting and gathering" to "civilization." They suggest that we are now at another breakpoint in which we need to shift from a "what is the world like" orientation to a "what is it becoming" orientation. And, I suggest that we go beyond that to a "what do we want it to become" orientation in which we develop a clear, shared vision of our desired future and then do what it takes to move in that direction.

21 September, 2006 03:50  
Blogger Bill Harris said...

Thanks for your interesting comment! You might also be interested in Strauss and Howe's The Fourth Turning. They claim that US (and, to a degree, Anglo-Saxon) history seems to gave created approximately 80-year cycles, and we're about at the start of the fourth "turning" (or 20-year phase of the cycle). That turning, in their minds, is often a dark, challenging one that curbs certain excesses built up in previous turnings and prepares us for a new "birth" in a new first turning.

I think Strauss and Howe would agree with your assessment that we have the opportunity and responsibility to guide ourselves thoughtfully and intentionally through this phase shift so that we end up where we want ourselves and our descendants to be.

Thanks again!

28 September, 2006 08:40  

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