Growth, measurements and management (Part 1)

Whenever there is an economic recession (technical or otherwise), corporations often react by retrenching staff. This is done because of the common sense that says that:* we must remain profitable ALL the time. * when times are bad (because growth is negative) we must cut the costs in order to remain profitable* a big portion of the running costs of a business are the people* therefore cutting the people will make the business profitable again.

Brilliant logic? Perhaps.

Part 1 - Is it reasonable to grow all the time? How do some do it? Why do others (most) fail?

We should perhaps ask a few questions:

1. Is it reasonable to be growing every quarter? Growing every quarter means we must produce and sell more each and every quarter. It also means that the consumers must be buying more in this quarter than in the previous quarter, and even more in the next quarter. Is this reasonable? I mean, how much more food can one take every quarter? and can you eat more in the next quarter? Can you buy another TV next quarter?

2. To expect growth must imply a prediction that MORE people will buy your products this quarter than last quarter. The reason is (single reason, not grammatical error) that there are many people who will buy the products because they dont have it yet (or is replacing a product that is neither car, or a property such as a house), AND they will choose your products over a competitors' offering. Logically, the two conditions must be true for growth to happen. Logically, we can see why it may be a little bit unreasonable to expect the conditions to remain true for an extended period of time.

3. If it is not reasonable to be growing in sales volume, is it reasonable to be growing in profits all the time? To grow in profits without increasing volume, means you must either increase the selling price or reduce the costs. There is no limit to increasing prices, except that after a point, people stop buying. On the other hand, there is a limit to how much costs you can cut. (Zero is the theorectical limit, but is not realistic in real life). So can we expect the same quantities to be sold while we continuously increase the prices quarter after quarter? Or is it reasonable to expect that we can cut costs every quarter and yet produce the same quantities at the same quality?

4. If it is unreasonable to expect growth for extended periods, how do some remarkable companies show continuous growth for the past 10 (or 20) years? New products, new markets and new innovations! Expect sales growth when there is a growing market demand. Expect it to slow when everyone and his dog already owns sufficient units of your product. Expect profits to grow as you learn how to better make the product, either by being better (and therefore cheaper) at it or by making a better product (and therefore charging more for the product). So it is possible only if we become innovative by either supplying to new markets, or creating new (including variant) products, or finding a better way to make the product.

5. To satisfy point 4, we must now depend not merely on quicker machines, or cheaper materials. Realistically, we depend on (I know this is often said, but I mean it here) people. Only humans (specifically the employees on the floor) can help in innovation. These are the companies that continuously report growth (in quantity, real profits or both) for extended periods.

6. So why do some of them (and many other non-innovative companies) stop growing? before we answer this, we have to look at what companies do when growth slows (still growing, but slower).

See next article.