Managing Growth

Managing Growth

As is undoubtedly clear to you by now, unmanaged growth is one of the greatest threats to business survival. It is true that in the start-up phase, some businesses starve from a lack of sales, but even here the problem is typically a result of poor management. Money that should have been put to one side to keep the business afloat long enough to return a profit is spent on inappropriate advertising, unnecessary lease payments, or perhaps is never secured in the first place.

The temptation to grow quickly is powerful. It is a pathway, filled with potentially exciting short-term gains. Unfortunately, short-term gains often negatively affect the long-term success of a business. We've covered this topic a number of times, so suffice to say that every time you are faced with an opportunity for growth, consider its impact on the whole of your business before proceeding. Of course, if you are prepared for it, rapid growth may be exactly what you are looking for. Just remember, growth is the natural result of good business, not the other way around.

For production, unmanaged growth can result in product returns due to production errors, missed deadlines due to production capacity overloads, or even a complete shut down due to a lack of financial or other resources. If you can't afford your production process or if you can't keep up with the demands being placed on your production process, you run out of things to sell.

The solution to unmanaged growth, of course, is proper management; in other words, planning and preparation. While it's true that things almost never go exactly as planned, if you plan well enough you'll probably be in the ballpark, which is certainly a whole lot better than not having a clue. To properly manage growth over the long-term, it must happen in accordance with your corporate strategy. That's why you wrote your Strategic Objectives in the first place. When you know where you are headed, it makes your chances of getting there much more likely.

If the key to a successful business is properly managed growth, then the key to properly managing growth is the development of your business systems. Nowhere is this concept more self-evident than in production. If your business grows faster than it can handle, it is your production department that will feel it first. If customer demands are not met on schedule, if errors begin to show up, or if quality begins to deteriorate, the results can be debilitating.

Properly designed and implemented production systems can help to drastically reduce or even eliminate these errors. While not all systems are created equal, any system is usually preferable to no system. If you know that your production systems operate at 80 percent efficiency, for example, your ability to plan for growth is much better than if it ranges between 65 percent and 95 percent depending on who is working. This is not to say that 80 percent is sufficient, but once your business operates with predictable consistence, any improvements you make will have a lasting and predictable impact.

To be effective for the long-term, your Operational Strategy must guide the design of your Production systems. It is through these systems that your Operational Strategy comes to life, moving your business towards your Strategic Objectives, and ultimately, your Corporate Mission. So your production systems play a key role in keeping your business on track. Without them your Strategic Objectives are just a bunch of good ideas.

Of course to every rule there is an exception. In the year 2000, many Porsche automobile dealers experienced such a demand for Porsche Boxters that people had to wait for months to receive their cars. Some people were even willing to pay large sums of money to trade places with those at the head of the line and used models of the car ended up selling for more than new models. In this case, the scarcity of the product helped to support the exclusivity of the product, fuelling the public's demand for the car. By maintaining tight quality controls and by regulating the number of cars they made available, Porsche kept its product quality from suffering. Certainly the dealers might have liked a few more cars to sell, but while this was clearly a case of unexpected demand, it would be unfair to call it a case of unmanaged growth.

What special demands might rapid growth place on your production systems? What would happen if this type of growth happened tomorrow?

Given your response above, what will be required of your production systems in order to adequately prepare for the future growth of your business towards your Strategic Objective? A general response is fine for now. This will act as a guide as you design and implement your specific systems.

1. Quality — This is typically one of the first things to be affected when a company starts to grow too quickly. Make sure you have the systems in place to keep this from happening. If anything, quality should improve over time. Based on your Strategic Objective, what minimal levels of quality do you aspire to achieve through your production systems?

2. Quantity — As your sales increase, your customers will expect you to handle their requests with the same grace, speed, and attention to detail as if they were each your only customer. The problem is, many businesses have a limited production rate. They can only produce so many widgets per hour. There are currently two schools of thought for managing this situation. One says to keep your costs down and add to your production capabilities as necessary, while the other says to invest in a structure for handling massive growth well in advance of anticipated future sales increases. Once again, the road to common sense leads someplace down the middle for most businesses. Invest in your future growth, but do so within the limits of a carefully designed budget. One possible solution to a production bottleneck is outsourcing. If you can find a reliable resource that meets your minimum quality standards, you may be able to outsource some or all of your production activities.

What changes must take place in order for your production systems to handle the increased sales projected by your Strategic Objective?

3. Reliability — Customers must be able to count on you. Your marketing department made a promise to your customers and your production department is expected to deliver on that promise. The more your business grows, the more promises you make.

That's great, because you have more and more opportunities to create satisfied customers. On the other hand, if you don't deliver on those promises, you now have more and more unsatisfied customers. This is the deadly sting of unmanaged growth. The very thing that creates rapid growth will cause rapid demise if not taken care of. For example, how will growth impact your ability to complete your customers' orders on time?

What reliability issues, other than quality and quantity, must be addressed by your production systems in order to achieve your Strategic Objective?

Thomas Horton, CEO of American Management Association, tells us of the time he went to visit his 90-year-old mother in Florida. She asked if he would like an electric blanket she had purchased at Sears. He told his mother he would take it for his daughter. She told him that it was a funny colour, but if she didn't like it, she could always exchange it at Sears.

When he looked at the blanket, he discovered that his mother had purchased it from Sears in 1949 for $8.89. He couldn't convince her that Sears wouldn't take it back. She said, “They'll take it back, just you see.” His mother remembered her long-ago dealings with Sears and had faith in its reputation.

4. Information — As a business grows, everything is magnified. This is why your attention to detail is so important. With 500 customers, for example, a production error rate of two percent may be manageable. You can catch the mistakes before they go out the door. With 5000 customers, however, that two percent may become unmanageable.

Tracking this type of information helps you identify small problems before they become large problems. This allows you to eliminate them at the source, rather than trying to catch them at the door on the way to your customers. In this way, good information systems support the evolution of your production systems.

Make no mistake. If you do a good job for your customers, your business will grow whether you prepare for it or not, so why not set it up right and enjoy the ride. We'll examine this in more detail when we identify your Strategic Indicators, so for now, briefly list some key pieces of production information you will need to track in order to achieve your Strategic Objective.

5. Costs — As production increases, costs go up. In addition to the more obvious direct costs associated with increased production (i.e. an increase in labour and raw materials), however, equipment may need to be replaced more often, a larger facility may eventually be needed, additional equipment may be needed, additional staff may be required, and so forth.

What additional production costs might you incur as a result of growth?