Magazine: Bigger, better, stronger – December 2023
Most companies aim to grow in order to remain competitive and survive in the market. Yet growth comes with challenges. Managers therefore need to see more than just the advantages, as Mathias Binswanger, Professor of Economics at the University of Applied Sciences Northwestern Switzerland, points out.
For many companies, growth is an essential pillar of success as well as a strategic goal. They want to use it to increase their market position, their value and their profitability. “Most companies warmly welcome the idea of growth,” says Mathias Binswanger, Professor of Economics at the University of Applied Sciences Northwestern Switzerland in Olten and private lecturer at the University of St. Gallen. “They see entrepreneurial opportunities in it – for example, because it enables them to achieve a certain market power and perhaps even a monopoly position.” However, companies don’t necessarily have to grow to successfully exist. Instead of quantitative growth, companies can also grow in terms of quality. “Smaller organisations in particular can concentrate on a niche and still be successful, despite the size of their company remaining stable,” explains Mathias Binswanger.
Companies that grow on their own usually offer products or services that are in demand among their customers. This kind of success is good, but it can become a trap. If the workload remains high for a long time, the pressure on staff increases. This creates a risk of overheating, of sorts, which has a negative impact on the working environment. “An excessively high workload shouldn’t become the norm. Otherwise it can lead to staff going off sick, resigning or even making risky mistakes,” Mathias Binswanger emphasises. It is the job of a manager to shape periods of growth positively, through open communication, efficient processes, setting priorities and making the right investments at the right time – for example in new technologies or extra skilled workers.
However, finding and retaining qualified employees is becoming an increasing challenge for many organisations. The reasons for this are that skilled workers are in high demand – especially in technical and healthcare occupations – and also that employees’ expectations of their prospective employers have changed. “The problem is partly of our own making. The Swiss economy has got used to being able to recruit employees from abroad when it needed them,” says Binswanger. “In the long term, this comes with the risk of skills being lost.” Companies are trying various measures to tackle the problem, for example by allowing flexible forms of working and investing more in the training and development of their employees.
Once organisations have got their recruitment sorted, the structures within the company need to be continuously adapted to match the growing workforce. While in small companies people often communicate spontaneously and verbally, in more mature organisations processes need to be designed, responsibilities established and rules and regulations defined. “Larger companies need more management systems. This always comes with a certain level of anonymity, and so the danger of bureaucracy increases,” explains Binswanger. It is important to create structures that are appropriate, so that the particular strengths of a company are not lost as a result of growth.
Because of all the challenges involved, growth always has to be a strategic decision and not something that happens by chance. Companies should be clear about how much they want to expand and weigh up the pros and cons.
In general, growth phases require companies to be particularly vigilant. “There are more uncertainties than when a company is developing steadily.” New employees and increased production capacities or marketing activities mean that additional investments are necessary. In most cases, the costs of these investments are not immediately matched by rising sales and profits – it often takes time for investments to bear fruit. “Costs can rise disproportionately during a growth phase, while turnover and profit can’t be accurately estimated,” Mathias Binswanger points out. That is why it is important to prepare expansion measures properly. Careful investments and financial planning as well as continuous cost control help to ensure that investments and profitability remain in balance.
Even if companies have done all their homework, growth is not entirely within their control. External factors such as the economy or offerings from competitors also play a significant role. New regulations and laws likewise have the potential to positively or negatively affect the success of a company. Companies must therefore keep an eye on risks and opportunities with the help of professional monitoring. “Even if this can be very difficult depending on the market, forward-looking planning is essential for sustainable growth,” says Mathias Binswanger. “Using the status quo as a starting point and assuming that things will carry on developing in the same way is the wrong strategy when conditions on the market are changing rapidly.”
Because of all the challenges involved, growth always has to be a strategic decision and not something that happens by chance. Companies should be clear about how much they want to expand and weigh up the pros and cons. “Managers mustn’t just see the advantages of growth, they also need to consider the consequences,” Mathias Binswanger emphasises. This calls for a certain level of caution, though: “Managers often make the mistake of expanding too quickly during growth phases.” Before making investments and hiring additional staff, decision-makers should analyse how sustainable the current growth is. Is it a short-term phenomenon or a long-term market development? This is a crucial question as far as Mathias Binswanger is concerned.
