573
n
The urge to conquer
put new information and skills into it, and periods of inactivity
are just as important as the practice itself. Practice sessions are
much less effective if you don’t have slow periods in between
them.
Yet, nowadays, examining corporate strategy, I see many rms
who have set themselves ambitious growth targets fall into the
same trap. In order to catch up with competitors, for instance,
they enter new markets at double the speed, undertake twice as
many acquisitions, or hire double the number of employees. But,
unfortunately, it doesn’t work that way.
Just like me practicing the cello, organi-
zations need rest and time in between
growth spurts to recuperate and digest
the effort. Trying twice as hard does
not mean you’ll gain twice the benets.
There are limits to how fast you can
grow, without starting to suffer from it.
We call this “time compression diseconomies” – a term coined
by Professors Dierickx and Cool from INSEAD. When you, as
an organization, try to compress lots of effort and growth into
a short period, it will not be as effective as when you spread it
out over a longer period of time (which is why we call them
“diseconomies”).
A large research project I undertook examining the growth
strategies of 25 multinational companies showed exactly this:
growing at a moderate yet steady pace increased protability
much more than did short outbursts of rapid expansion. And,
unlike the effect of my youthful cello efforts on my teacher’s
auditive organs, these rms’ performance really was music to
their shareholders’ ears.
Seeds and fertilizer – how to build a firm
American visitor: “How come you got such a gorgeous lawn?”
Lord: “Well, the quality of the soil is, I dare say, of the utmost
importance”.
‘‘
organizations
need rest and time in
between growth spurts
to recuperate and
digest the effort
’’
Business Exposed58
American visitor: “No problem.”
Lord: “Furthermore, one does need the nest quality seed and
fertilizers.”
American visitor: “Big deal.”
Lord: “Of course, daily watering and weekly mowing are jolly
important.”
American visitor: “No sweat, just leave it to me!”
Lord: “That’s it.”
American visitor: “No kidding?! That’s it?!”
Lord: “Oh, absolutely. There is nothing to it, old boy, just keep it
up for ve centuries.”
The joke above – although admittedly not a very good one
– makes a good point for the growth and management of
organizations. What many rms, trying to grow fast or add
scores of acquisitions, often fail to realize is that companies
work in much the same way as a lawn. You can acquire all the
individual elements – buy the machinery, lease the building, hire
the people, acquire the assets, and so forth – pretty quickly and
relatively easily, and put them together. But this does not mean
that you will have a working organization.
An effective rm requires that the various elements of its organi-
zation – both the “hard” factors (such as its structure, incentive
system, etc.) and the “soft” elements (such as the culture of the
place, informal communication patterns, etc.) – are ne-tuned,
interact with, and reinforce one another. Building such an organi-
zation implies more than just “owning the parts”; it takes continued
dedication, hard work, and, most of all, it simply takes time.
This also has important implications for how you can create a
competitive advantage. Often, we think of competitive advantage
as something a rm has: a brand name, a set of patents, a unique
location, and so forth. Things that, for competitors, are difcult
to replicate so that it can give a rm a sustained advantage over
them. However, what the anecdote above points out is that the
organization itself can become a source of sustainable compet-
itive advantage.
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