CHAPTER THIRTY-ONE

The No-Growth Enterprise

EVERY COMPANY I KNOW STILL proclaims “10 percent growth a year” as its objective. But many, in a great many industries, are quite unlikely to grow in the next few years, no matter how well the economy is doing. At the best they will grow no faster than population, that is, very slowly. This will not only hold true for businesses. It applies even more to nonbusinesses such as schools, universities, and hospitals. Yet few executives today have ever managed a no-growth organization.

The most important requirement is to maintain, and indeed to improve, the quality of the human resource, and especially the professional and managerial groups. Once a company or an industry ceases to attract and to hold competent people, dry rot has set in; and the resulting long-term decline is exceedingly difficult to reverse. Even in depression times, competent people do not stay where they have no challenge and no opportunity and do not see achievement and performance.

The no-growth company therefore has to make its jobs big and challenging, especially at the entry level. This is a 180-degree shift from what we have been doing these past thirty years. During most of this time, up into the late 1970s, expansion was fast. But good young people were still quite scarce; the baby-boom age-group joined the labor force in substantial numbers only in the mid-1970s. Hence we tended to make entry-level jobs small and easy and to build layers of management to give close supervision to inexperienced people. Above all, we tended to promote very quickly anyone who showed ability to perform. Now we will have to change these practices.

Above all, we will have to build challenge and recognition into the job again, rather than overstress promotion to the exclusion of everything else. The university and the military have been even more promotion-focused than has been business. Typically in these last decades, the young man or woman who received the promotion—the young woman who made assistant vice-president in the bank or the young man who made captain in the Air Force—immediately asked, “And what do I have to do now to get the next promotion right away?” Now we will have to structure jobs so that the young people ask, “What can I do to make the job bigger, more challenging, more achieving, more rewarding?” And we will have to learn again that recognition, both through money and through other means, has to motivate to improve performance on the job. Indeed, in the no-growth company, a vacancy is an opportunity to abolish a job or a management level rather than an opening for a promotion.

Still the no-growth organization also needs opportunities for advancement so that it can attract young people and can hold performers. Otherwise it will soon decline into organizational senility. It has to do what military services learned long ago: get rid of the middle-aged who have reached their plateau in the organization and will not be promoted further.

In the United States it is possible (as it is almost impossible anyplace else) to put a younger person over an older one. But even in the United States it is not easy and is not done very often. Unless the middle-aged who are not going to be promoted further are moved out of the management ranks, younger people will be blocked behind them and will either leave or, worse, retire on the job and turn rancid. The military retires such people. Business, or the hospital or the university, can’t do this, if only because it couldn’t bear the costs. No-growth companies will have to learn to place such people in a second career. Usually such people aren’t “burnt out"; they are simply bored and need to be “repotted,” need the challenge of a new job, of a new environment, and of new associates. But unless the no-growth company establishes clearly both that it will not keep on forever those professionals and managers who stop advancing and that it then takes responsibility for helping such people find new assignments and challenges, it will soon find itself unable to attract new young people and will age and go downhill.

And if the business does not grow bigger, it has to become better. Any organization needs challenging goals. If it is no longer realistic to say “We plan to double in size within ten years,” then the goal has to be “We plan to double our productivities within ten years”—of capital, of key physical resources, and of people at work. Improving productivity is always a realistic goal and can always be done. All it normally requires is commitment all the way down from the top and conscientious, hard, unspectacular work day in and day out. And the institution that works seriously on its productivity will also soon have the means to reward its people.

There are also some “don’ts”—things not to do in the no-growth company. Don’t rush into “growth industries.” Mindless diversification does not work. There is no “easy business.” Also, in most no-growth institutions the main earnings stream for many years ahead will have to come from the existing mundane business. And if this business is neglected in the excitement of diversification into growth business or into cash cows, everything will go down the drain—including the red-hot acquisition. The first question to ask in diversification and acquisition is always “What do we have to contribute that will make a decisive difference to the new venture or the new acquisition?” If the answer is “nothing” (or “nothing except money"), the result will predictably be catastrophe.

And then the company must avoid making “no growth” a self-fulfilling prophecy. Managing the no-growth company requires asking all the time “What are our strengths? And where are there new opportunities to apply them productively, whether because of changes in population and demographics, or in markets and distribution, or in technology?” For an organization that maintains its human-performance capacity and improves its productivities is highly likely to encounter, and fairly soon, major new growth opportunities.

Opportunities will knock on the doors of even a stagnating industry. The major American railroads in the past ten years are a good example. Twenty years ago, their resurgence would have been considered to be as unlikely as Lazarus’s resurrection. Growth opportunities will even knock in a long, deep depression. There were plenty of them in the 1930s for any organization—whether business, hospital, or university—that kept on getting better. IBM, for instance, then laid the foundation for its growth from a small, marginal supplier into a world-class giant. But opportunity only knocks on the doors of those that deserve it.

(1983)