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What to Do When Growth Stalls

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"We will have no growth before 2010."

That emphatic statement came from Norbert Reithofer, CEO of BMW, in the March 30 issue of Fortune magazine.

Even BMW—arguably the best-managed automotive manufacturer in the world—is not immune to the global economic crisis. And any growth the company does achieve in 2010 won't excite its shareholders if it's just rolling over miserable 2009 results.

As much as we would all like to believe that we're masters of our own destiny, the unfortunate truth in business is that growth stalls. In my research (comprising 60 months, two national quantitative studies, and a host of CEO interviews), I found that in any given year some 15% of companies stall.

Over the course of a decade, more than half of companies stall. That's in normal economic times. Given what we're facing in 2009, it wouldn't surprise me if 50%, 60%, or even 70% of companies report flat or negative revenue growth this year.


Yahoo CEO Carol Bartz described her friend (and former eBay CEO) Meg Whitman's last few years at eBay, when the company's performance was not so hot, this way: "Every CEO who has left their job recently has left a bit of a mess, because of internal or external circumstances."

She's right, of course, but if she's like most corporate leaders, she doesn't realize the significance of the word "internal." While most pundits continue to focus on the external circumstances befuddling every company, my research reveals that it really is what's inside that counts. Internal dynamics are much more significant predictors of how fast—if at all—a struggling company will return to growth.

Broadly speaking, the externalities that lead to stalled growth can be placed into three major categories that I collectively call market tectonics. The label fits, because just as shifting plate tectonics in the geological world can cause everything on the ground to shake, market tectonics affect all companies.

The tectonics most often blamed for causing growth to stall are economic events (no surprise there), aggressive competition (watch what happens if IBM buys Sun), and changing industry dynamics (the founder of Sirius recently said that satellite radio's time has come—and gone).

But market tectonics don't discriminate; the realms of economics and innovation march relentlessly on and don't play favorites. The real key is how companies affected by market tectonics respond to them.

And there are four critical internal dynamics with which stalled companies struggle that tend to keep them down:

1. They argue

When things are going right, company leadership can do no wrong. But when things go wrong, everyone thinks his or her way is right. A lack of consensus among the senior management team ensures that nobody's recovery strategy can be effectively implemented, regardless of who has the best plan.

When Ed Zander and Carl Icahn fought a public battle over the future of Motorola, the company simply continued to drift. It didn't matter who was right or wrong—as long as the rift went on, Motorola was rudderless.

2. They lose focus

When growth stalls, a pall can be cast over what once was thought of as a surefire strategy. It's easy for struggling companies to abandon, often unintentionally, what brung 'em to the dance. Sometimes a loss of focus causes the problem, as successful companies let their egos overcome brand discipline.

Gateway computers effectively used a quirky identity to build trust in its affordable PCs but then began changing its management team, distribution strategy, and product mix so often you couldn't tell where the company was heading. As a result, it headed down.

3. They get scared

Courage isn't the absence of fear; it's doing what you know you should do even when you are afraid. But when growth stalls, it's easy for a company to lose its nerve. Advertising messages get "safer," capital investment seems more dangerous, and the marketing that fuels the engine of growth slows to a trickle (and is sometimes cut off entirely).

Larry Young, CEO of Dr Pepper Snapple Group, says, "Even though the majority of Americans are still working, the fear factor that has gripped the nation is having a significant impact on consumer psychology." It's also having an impact on corporate psychology.

4. They can't commit

Everyone understands the myth of the silver bullet, but that doesn't keep worried leaders from seeking one. At precisely the time when patience is warranted (BMW isn't going to sell a lot of cars this year no matter what it does), expectations on Sales and Marketing actually rise. When something "doesn't work," it's time to try something else. And then something else. In a slippery environment, you need to carefully allow your strategy to gain traction. Otherwise, all you'll end up doing is spinning your wheels.

* * *

Those destructive internal dynamics are common among struggling companies, and their impact is made worse by how often they go unrecognized. Like varying symptoms of a disease that no one recognizes are related, internal dynamics conspire to keep companies in a negative feedback loop. Inconsistency feeds the loss of focus, which perpetuates the loss of nerve, which only creates more internal tension, which fuels more inconsistency.

Without intervention, this vicious cycle can take a company down before anybody inside knows what happened.

But there is good news. Companies that recognize the symptoms and take steps to overcome them can be surprisingly successful at healing. It begins in the boardroom, with an honest assessment of management differences and a commitment to achieving strategic alignment. This, by definition, has to be Step 1, as overcoming stalled growth takes the fortitude and teamwork of all involved. CEOs who recognize that they can't do it alone—and who won't tolerate petty disagreements and turf battles—can set the tone for the foundation of a recovery plan.

I lay out the path for that return to growth in When Growth Stalls: How It Happens, Why You’re Stuck & What to Do About It. What it looks like for any given company will, of course, be unique to the organization and its circumstances. But by fostering internal alignment around a focused strategy and committing sufficient time and resources to it, any stalled company can increase its chances to mount an effective recovery.


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Steve McKee is a BusinessWeek.com columnist and author of When Growth Stalls: How It Happens, Why You're Stuck & What to Do About It (Wiley/Jossey-Bass, 2009). Learn more at www.WhenGrowthStalls.com.

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  • by balan. k. Wed Apr 29, 2009 via web

    Its good stuff, encouraging. keep it up. its 3star, by chance I pressed 1,OK
    Bye

  • by Holly R. Fri May 1, 2009 via web

    Great article!

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