Why Company Growth Can Ruin Culture, People, and Profitability – And How to Fix It
Growth isn't always good. Companies focused on growth for its own sake risk damaging their culture, employees, and profitability.
This long-form article is for companies and employees concerned about entering a growth cycle. I discuss the negative implications of focusing on growth and how they can be resolved.
Starter Questions
Is your company focused on growth for its own sake?
How are your growth targets determined?
Is company growth contaminating your culture and people?
Growth as a Strategy
Company growth requires a customer-focused strategy. With growth as a strategy, no data exists to confirm if the existing market will allow growth. Growth targets are sometimes set without market research or an understanding of existing and future customer needs. These growth rates may be based on historical economic values, but do not align with Product, Position, Price, or Promotion.
This leaves the how up to mid-level managers and sales teams, creating a theater for focus on short term profits. A great example is General Electric’s entry into digital. (Here’s a link to the book, Lights Out: Pride, Delusion, and the Fall of General Electric.) GE hired programmers for their new cloud software – even entertaining the construction of their own data centers – without a strategy. The authors provide the perfect analogy: Hiring and building the staff for the assembly line but had not yet designed the car.
The 5 Problems with Growth as a Strategy
When a company pursues growth as a strategy, it contaminates company culture and its people, making it impossible to remove without changing the entire leadership team.
Focus shifts from sustainable long-term improvement to short-term profits.
Sales teams sell independent of customer needs.
Organizational culture permanently deteriorates.
Mentoring ends.
Company controls, processes, governance, and ethics are compromised.
1. Focus Shifts from Long-Term Improvement to Short-Term Profits
Focusing bonus incentives on annual growth rates changes the motivations of the company and its employees. Individual business unit managers prioritize their own growth targets over company and team targets. Where resources were once shared, those expenses are now seen as hits to business unit profits rather than as an overall benefit to the company. This reduces collaboration and creates strained internal relationships. This short-term focus causes leadership to overlook context and market specifics. New ideas, products, and solutions are suddenly evaluated as being either 10% better or 5% cheaper. This leads to a hyper awareness of the product rather than solving real customer problems. This is a compensation problem as much as it is a leadership issue.
Questions to Ask:
Is the focus on growing revenue? Profit? Both? Delivering more revenue may be important, but if the strain to do so decreases overall profit percentage, the company is pushing beyond its capabilities. Profit growth should be the focus before revenue growth. This pushes the company to be more productive and remove nonessential activities. Inefficient processes decrease productivity as revenue grows.
Why is the company seeking growth? Market data and blue oceans must support the business strategy. (For more on this, I highly recommend Blue Ocean Strategy: How to Create Uncontested Space and Make Competition Irrelevant.)
Would the company prefer 25% revenue growth annually with unknown profit, or 5% revenue growth annually with guaranteed profit? Company direction is decided before growth is pursued. Growth for its own sake has invisible profit losses which are not realized until customers and employees leave.
Cure: Understand external relationships. Internal optimization and execution are essential to external delivery. Better management of external relationships categorizes customers by level of service required – not just revenue delivered. Focus on lifting up the customer for long-term satisfaction rather than short-term sales.
2. Sales Teams Sell Independent of Customer Needs
Because bonuses are determined by annual sales and growth, the sales cycle shrinks to less than 12 months – regardless of the industry, product, or geographical and cultural norms. The need to win becomes more important than learning about the customer. (Not that winning is inherently negative, but winning at the expense of our values and customer trust is.) New salespeople are hired to push new and existing clients towards company products and services, whether they need them or not. Wins are expected immediately, setting up new employees for failure. Salespeople morph to meet the stereotype we despise: someone who talks too much, does not listen, and is motivated only by more money in their pocket. Sales teams also miss important feedback which yields better products – and in turn incremental revenue growth.
Questions to Ask:
Are growth targets realistic? Targets should not be less than typical sales cycles nor exceed market availability. (Market estimates of future sales are always wrong.) Resources must be available for business development to succeed. This includes having time to learn about the customer and the market.
Are growth targets the same across countries and products? Not all profits are created equal. In the context of global business, a product will have different revenues and profits in Canada versus Germany.
Does leadership provide the how for growth? Or do they push sales without data? New and existing sales teams need direction from leadership founded on customer needs. Sales teams also need focused training on how to learn about the customer to help them solve problems their customers don’t know they have - or will have.
Cure: Refocus on the customer rather than the product. One product may not be needed by all company customers. Customer and company longevity and value creation should be the primary motivators with a foundation of creativity and improvement.
3. Organizational Culture Permanently Deteriorates
When immediate growth does occur, the negative culture shift solidifies due to positive short-term financial results. Executive leadership promotes the hiring of employees motivated by growth alone. Existing employees once seen as stable and reliable are recategorized as not buying into the culture of growth. The company strays from its core capabilities. Values and company culture are diluted as employees are pushed beyond their capacity and ability to execute work. A new culture emerges where employees take on more than they can handle out of fear, driving towards burnout.
Questions to Ask:
How many times does a company's business plan say “grow?” The language must focus on people and processes. When capacity is exceeded, culture begins to shift.
What kind of culture does the company want? The culture that made a smaller company successful is not the same culture that will make a large company successful – even if the name and the people are the same.
Are numbers or creation the focus for employees? Employee motivation is lost as they push to deliver numbers instead of creating solutions. Toxic thinking develops as management asks their teams: “What did you do for me (leadership) this year/quarter/month/week/day?”
Cure: Confirm there is a how for growth, promoting it as a result. A “process focused” culture is required to grow at a rate the company can sustain while keeping processes intact. The how must account for existing culture and the company strategically decides what parts of the culture should change as a bigger company.
4. Mentoring Ends
Employees stop attending training as business development meetings take over their calendar. These meetings become the priority to win the deal and meet the growth targets. Mentoring stops as more resources and calendar time are assigned to growth. New employees experience poor onboarding as they are expected to deliver results immediately.
Questions to Ask:
Do all employees experience a consistent onboarding process? Varying onboarding causes further dilution of values, culture and goals.
Is mentoring available and open? Employees need a place to learn and share their concerns without fear of making career-limiting commentary.
Is the only means of performance improvement the annual review? Employees should be pushed to make their own plans with guidance from a mentor and review quarterly at a minimum.
Cure: Do not overload employees while assuming they will learn in parallel. The company needs a time-management strategy specific to their products and services so teams know how to manage their time to both deliver work and include necessary training and mentoring for performance improvement.
5. Company Controls, Processes, Governance, and Ethics are Compromised
Growth pushes back against established processes, putting additional strain on resources and capacity. If foundational processes are not established and mature, the maintenance of them falls apart at the expense of growth. The company is pushed beyond the capacity of its processes. The quality of work suffers. Shortcuts are made to keep up. Some of the shortcuts prove effective, further solidifying the new culture of growth.
Questions to Ask:
Will the defined timelines push process, stability, and employees beyond their capacity? Teams will cut corners as sales expectations decrease to less than cycle norms.
Are profit expectations realistic given the overhead and management structure of the business? If the company is too arrogant to look at its own structure and processes, unethical means will be pursued to grow profits.
Are teams too busy to support existing governance requirements? It will become too easy to allow work activities to go out to the customer for the sake of the potential sale to meet the numbers. The governance processes will be seen as too cumbersome and thus left aside.
Cure: Address the real inefficiencies of the company before growth as a result is pursued. Review company overhead and existing processes for capability and consistency. This does not mean eliminating roles and employees, rather first look at how performance can be improved for each process. (Remember that it is the fault of the system - not the employees.)
Closing Thoughts
When growth happens for its own sake, any reason for slowing down is interpreted as underperformance of the business and its employees rather than as a problem with systems and processes. This frustrates account managers and alienates clients who want to have a genuine business relationship without the pressure to take on new services they do not need. The company continues to hire for growth, bringing in new employees who will support the new growth mission of the organization, exaggerating the issues previously mentioned. Sustaining the growth rate year over year becomes impossible as more wins are required to meet targets. Learning, employee engagement, creativity, and product innovation are left behind in a storm of burnout. Growth as a strategy causes companies to find more “things” to deliver rather than focusing on their capability to deliver.
Companies should focus on their clients, the productivity of their employees, and capacity of their processes. Growth should be the result – not the strategy. When growth opportunities are identified through data and real customer needs, processes can be modified to allow the company to perform and maintain its culture without overextending employees. Growth happens naturally because the product or service genuinely benefits existing or new customers.