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1 We know how…

BUSINESS GROWTH INSIGHTS

Baker Tilly Armenia CJSC by Haykuhi M. Aleksanyan

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Annotation This synopsis represents adapted insights from the research workings, case studies and video lectures of Edward D. Hess, a professor at the University Of Virginia Darden School Of Business, and an Executive-in-Residence at Darden's Batten Institute for Entrepreneurship and Innovation. http://www.darden.virginia.edu/web/Faculty-Research/Directory/Full-time/Edward-D-Hess/

We know how…

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TABLE OF CONTENT

CEO quotes on growth .......................................................................................................... 4

What is growth? .................................................................................................................... 5

Fictive growth beliefs ........................................................................................................... 6

Biology and business growth ................................................................................................ 7

How to achieve growth ......................................................................................................... 8

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CEO QUOTES ON GROWTH

“Begin with the end in mind.” “Set up as if you were a larger company from the start.” “Give yourself an afternoon weekly to think about five critical

things going on in your business and make sure you are focused on big opportunities or big problems.”

“Building a company is like building a house. Be sure you go ahead and pre-wire the electrical and stub in the plumbing for rooms you may need in the future.”

“Do not pay your employees to get everything done everyday. Pay them to get the most important things done.”

“The most difficult part in business is figuring out what not to do.”

“Focus on one thing you can do better than anyone else and then focus on finding a way to make it appealing to a big market.”

“That which is not audited will always get worse, never better, and will create surprises.”

“The management challenge is when to let up on the (growth) gas pedal and let people and processes catch up to the growth.”

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WHAT IS GROWTH?

Growth is the dynamic confluence of strategy, entrepreneurship, and values. It is the process of continuous value creation through the combination of culture, leadership and internal processes.

Supportive internal environment is critical for reaching growth, because growth is not a one-time act; it is a process of continuous experiments, iterative entrepreneurial learning, risk assessment and decision making, where failures and mistakes are accepted and passed over. Most businesses try to reach automation, standardization and consistency. But growth is rarely linear and predictable in nature; it is irregular and capricious, requiring constant improvement and strategic focus.

Strategy formation is a more dynamic process where traditional top-down chain of command is no longer valid. Rather, it involves a regular communication and feedback loops between customers and employees.

With regard to entrepreneurship, high-growth companies are more innovative, they are continuously exploring and experimenting new things; they are employee-centric, empowering employees to be innovative and take ownership of their jobs; get engaged and see the whole picture outside their responsibility; be quick and take action without being afraid of punishment for failures and mistakes. This mentality creates higher employee engagement, loyalty and productivity.

What relates to values, it is important to acknowledge that the ultimate goal of an organization is not the creation of shareholder value. Customers, employees and society are equal stakeholders who in turn fuel the growth of a business.

Growth is more than a strategy; it is a system of structure, culture, leadership model, human resources, as well as compensation and rewards policies to trigger growth not limited to financial metrics.

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FICTIVE GROWTH BELIEFS

Most business leaders believe that:

Growing bigger is always good, as all growth is good; Businesses should either grow or die; Public companies grow in linear and continuous manner.

As Edward Hess presents in his workings, there is no economic or finance theory supporting the aforementioned beliefs. He states the following observations made in the result of economic and finance research:

Growth is not always good; not all growth is good; Businesses do not have to grow to stay alive; Continuous linear growth is an exception; Companies do not usually experience systematic, predictable growth

during their lifecycle; Growth rates and profits have weak correlation; Earnings and dividends are largely unpredictable; Growth usually occurs in spurts.

Professor Hess also did a study on twenty-two high growth companies in order to find out their growth secret. He began the study with the following initial hypothesis about the characteristics of those above-average companies:

Unique products and/or services; Best talent; Visionary, charismatic leaders; Superior innovation; Cost superiority obtained due to outsourcing or off-shoring; Diversified strategies.

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Apparently, his research showed that the aforementioned characteristics were not critical for achieving high performance; because most of the high-growth companies that he studies:

Did not sell unique products and/or services; Did not have the best talent but got exceptional performance from the

personnel; Did not have visionary, charismatic leaders; Were not most innovative; Did not off-shore or outsource; and Did not have diversified strategies.

BIOLOGY AND BUSINESS GROWTH

Professor Hess compares biological growth with business growth. Biology and economics are very different from each other in fundamental ways: economics assumes predictability, automation, linearity in the long run, while biology reflects change, evolution, adaptation, and unpredictability. Below are presented a few comparisons through which Edward Hess rejects the fictive growth beliefs.

Many species do not grow to their maximum to increase their chance of survival. Conclusion – Improve or die instead of grow or die.

When growing bigger, the risk of species being eaten by predators becomes bigger, as species are getting slow to move and respond. Conclusion – Being bigger is not always better.

Many organisms have limited energy and have to allocate it to a number of functions. Conclusion – At any given time companies have a limited amount of energy available for growth.

For some species, growth requires trade-offs, resulting in periods of growth and period of no growth. Conclusion – Growth is not linear and continuous in nature.

There are two types of plants: growth-dominated plants that invest their energy in growth processes, and non growth-dominated plants that invest in processes to differentiate themselves. Conclusion – Businesses can be either high volume or niche players.

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HOW TO ACHIEVE GROWTH

According to Professor Edward Hess, in order to achieve above average growth over a long period of time, companies should create the right mixture of strategy, entrepreneurial mindset and values, as well as internal processes based on those values. He calls the basic characteristics of value creation in well performing companies as growth DNA. Below are presented characteristics that differentiate those above-average companies:

Simple and focused strategies; Structures enabling entrepreneurial activities; Business mission and values above just creating shareholder value; Multiple stakeholder philosophy; Iterative learning and continuous improvement; Humble, enthusiastic and motivated leaders; High employee engagement and high accountability; Execution excellence.

As you can see, growth is more than a strategy; it is a system of all the above mentioned, which eventually results in high employee engagement and performance excellence. Edward Hess presents the following factors that trigger high employee engagement:

Stock ownership; Promotion from within policies; Humble and passionate leaders; Fair and transparent HR policies.

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