Healthy or Unhealthy Growth

Most of us when we get larger after a certain age, do so at our own peril (increasing obesity, great risk of heart and other serious illness). When CEO’s pronounce “scale” as an imperative for an acquisition strategy, why do I think it says more about their own fears and their inability to innovate successfully? Sure stronger balance sheets are desirable from a client’s perspective and it is easier to take risks when the pockets are deeper. Most obviously in sectors such as pharma, biotech and defence where the R&D lead times are many years and the risks with a new product exponentially higher. When I hear US health insurers (Anthem, CIGNA, Human and Aetna) pushing the same message, I draw breathe and ask:

If you are a visionary CEO,

  1. Why has your business reached a growth plateau (or sub-scale)? (what are the “causes”: incorrect market assumptions, poor strategic implementation, reduced productivity, insufficient innovation and so on)
  2. Are the causes of your growth plateauing (or size) predominantly external or internal? (there is always a bias towards external when more often than not the reasons are internal)
  3. What is the minimum level of growth in future without which your business would be in danger of becoming a marginal player? (It is relatively easy to be explicit about costs, it is much harder to articulate profitable growth. Why? Personal accountability.)
  4. Why is “scale” the answer? (what unique resources, expertise, products and so on are available that only when combined successfully with the driving force in the new business would create a more impressive future for your firms’ key constituents – customers, shareholders, employees, healthcare facilities and physicians, regulators etc)
  5. Why now? (limited window of opportunity)
  6. Why in the manner proposed? (Tried and failed alternative organic growth or strategic alliance options)

If you are not a visionary CEO, I suggest you quit now.

Investors are wise to not take the bait. There is a litany of businesses where “scale” is a soft excuse for simply stripping out cost and the acquiring CEO boosting their ego and pay packet. No business can dominate it is market alone without dramatic top line revenue growth. The fastest way to do that is to sell new products to existing customers and existing products to new customers. Let’s see the case in full technicolour before rushing to judgement.

© James Berkeley 2015. All Rights Reserved.


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