Growth that results only in volume and does not produce higher overall productivities is fat—it should be sweated.
Management needs to think through the minimum of growth that its company requires. What is the minimum of growth without which the company would actually lose strength, vigor, and ability to perform, if not to survive? A company needs a viable market standing. Otherwise it soon becomes marginal. It soon becomes, in effect, the wrong size. And if the market expands, whether domestically or worldwide, a company has to grow with the market to maintain its viability. At times a company therefore needs a very high minimum growth rate.
A business needs to distinguish between the wrong kind of growth and the right kind of growth, between muscle, fat, and cancer. The rules are simple: Any growth that, within a short period of time, results in an overall increase in the total productivities of the enterprise’s resources is healthy growth. It should be fed and supported. But growth that results only in volume and does not, within a fairly short period of time, produce higher overall productivities is fat. Any increase in volume that does not lead to higher overall productivity should be sweated off again. Finally, any increase in volume that leads to reduced productivities should be eliminated by radical surgery—fast.
ACTION POINT: Determine the minimum growth rate for maintaining your organization’s market standing.
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* Source: The Daily Drucker by Peter F. Drucker