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Be Paranoid About Healthy Growth
Author: Mike Teng  | Posted: 21-12-2006 | Comments: 0 | Views: 239 | Rating: (50)  (?) 
John Chambers, CEO of Cisco Systems says that he possesses a 'healthy paranoia'. He is paranoid that Cisco may grow too far from its customers, partners and employees. Andy Grove of Intel first wrote about paranoia in the book, 'Only the paranoid will survive'. Company should not just be paranoid about survival, it should also be paranoid about healthy growth.
John Chambers grew Cisco from 1995 to become a super growth engine, which fuelled the burgeoning demand for computer networking. Its sales revenues grew from $2.2 billion in 1995 to $18.9 billion in 2000. The profits grew from $0.84 billion in 1998 to $4.3 billion in 2000. Without Cisco routers, there would be no World Wide Web. By year 2000, over 75 percent of all Internet traffic traveled over Cisco products and the future appeared bright and expected to grow from 275 million to 1 billion by 2005.
However late in 2000, the US economy went sour and by early 2001, the high-growth Cisco System was in trouble. It was forced to write off billions of stocks and laid off 7,900 employees. The stock fell and Cisco Systems fell from its pedestal of growth. Chambers was always mindful that Cisco's bubble might burst, although he was taken by surprise too by the sudden turn in Cisco's fortunes. Faster than most other CEOs under similar circumstances, Chambers restructured Cisco by putting stress on profit and cash flow performance. He put emphasis on focus, execution, productivity and taking only calculated risks. The company did subsequently show signs of improvements.
Another example is Donald Trump's corporate empire. He was acquiring and growing very rapidly from real estate, hotel, casino and airlines. When the real estate market crashed in New Year in the late 1980s, Trump was almost bankrupt. Like the proverbial Phoenix, he emerged from the ashes and became a comeback kid in the 1990s. Both John Chambers and Donald Trump had learnt a bitter lesson that a company must emphasise on getting healthy first before growth and expansion.
The 1980s and 1990s were decades of growth by merger and acquisition. However, the successes had been far and few. Also, companies that went through growth by merger and acquisition were highly geared and paid dearly for their overburdened debt situation. As a result many are still digesting their acquisition or prevented from further acquisitions. In the 2000s, growth will be more organic rather than through pure acquisitions. Companies will plan more for real growth through internal development and expansion. Branson has risen to this challenge by building his businesses through organic growth rather than acquisition. Growing and starting new companies enables him to stretch his people and he enjoys providing opportunity for his employees. At the risk of overplaying his image, this strategy fits his concept of the organisational family, one that grows by progeny rather than by adoption.
One also ought to be paranoid if the company is not growing. The market, the staff, the creditors and the shareholders demand growth. The bank interests, inflation, wage increase, returns on investments are all expected to grow and therefore the company must also grow correspondingly. Chances are that if you are not growing, your competitors are growing at your expense. Companies need to have sustainable growth, otherwise they are dying. Similarly, a person who totally retires is heading for the grave and need to grow mentally in order not to become senile.
Even in so-called mature and competitive industries, companies are growing. For instance, Dell Computers is still growing despite the very tough and mature personal computer market. Many old companies such as Coke, Proctor and Gamble and Gillette are still growing in the markets with hundreds of similar brands. Growth is always possible no matter what the age is. Thomas Alva Edison deemed mentally slow by his teachers patented a total of 1,033 inventions! His work spanned a lifetime and grew with age, with the first patent issued at age twenty-one, his last at age eighty-one. For both corporate and individual, the lesson is never to stop growing.
However, top line growth per se is useless, as evidenced in the demise of many dot.com companies in the world and construction companies in Singapore. If the growth is not accompanied by attention to costs, productivity and efficient use of resources then the growth is not sustainable and can spell more troubles.
However, companies need to have a healthy and balanced view of growth. If growth is done artificially to please the stock market and shareholders, then it cannot sustain. This happens to companies that go on an acquisition binge and they get indigestion. Therefore, one should target for healthy growth, which is based on a solid foundation
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