When Growth Is the Only Solution

For a healthy company facing tough choices, the smart bet is often expansion

We're a small software company— 250 people—with a growing problem. After 20 years, some of our long-term employees, though they work hard and hold vital client and application knowledge, can't seem to handle the rising complexity and are getting expensive in terms of productivity. We don't want to counsel them out, but I sense we're investing too much in coaching them. What's the right way to handle this? — Anonymous, Los Angeles

You say you have a growing problem; we'd say you have a growth problem. Because aside from the layoffs you are trying to avoid and the stepped-up coaching that isn't working particularly well, a rapid and meaningful expansion of your business is the only solution to the painfully common—and precarious—situation you face. Indeed, if you don't start growing soon, you and your old-timers could all end up going down with the ship.

Not to sound alarmist, but in your case, we are alarmed. Countless companies of every type and size, sailing along smoothly for decades, have been sunk by your "enemy": the inclination to manage away a competitiveness problem with tweaks, a cost-cutting program here, an efficiency project there. The American automotive and telecom industries in the 1980s are perfect examples. They tried every management tool, device, and process. Little worked. And that's because managing your size is not the solution to competitive pressure. Growth is. It is the magic elixir that cures almost every business ill. No other kind of "fix" delivers its transformative power.

Think about it. You can try to boost the skills of your long-time employees, but it's costly, slow, and has reaped little benefit so far. You could also let them go humanely, with generous exit packages and outplacement counseling. But even with their relatively low productivity, the expensive people in your ranks appear to have valuable, even irreplaceable, knowledge. When they walk, how much business walks with them?

Which leaves just one option, getting bigger to generate new revenues to support your original team and benefit from their skills and contributions to your culture.

Your approach to growth can be organic, expanding your offerings and the markets in which you operate. But don't take organic to mean evolutionary. You've got to take real risks right now, moving faster and farther afield than you might initially like.

Better yet, don't dismiss a bolder move: buying your growth. Small outfits like yours are often reluctant to acquire. But with your tight-knit company's shared culture and limited product line, you're well-positioned to buy another company and integrate quickly. The economic situation may also work in your favor, as many companies facing slower growth could be more receptive than usual to an offer.

We certainly don't mean to suggest that your problem is a cakewalk. Solving it will take the courage to change. But if you focus on growing out of your problem, there's a strong chance for a happy ending. Not just for you, but for your people, old and new.

As companies globalize, are candid performance appraisals and employee rankings still possible in cultures where they seem to stir undesirable reactions? — J. Jones, Minneapolis

It's all a matter of throttle.

Look, some cultures, particularly those in Asia, seem to, well, freak out when American managers start practicing differentiation, especially the ranking of employees into performance categories, such as the top 20%, middle 70%, and bottom 10%. Then again, some Asian cultures have welcomed it. Indeed, we've seen companies in Chicago and Atlanta resist differentiation as often as we've seen ones in China and Europe embrace it. Our conclusion: Differentiation works everywhere when managers introduce it with clarity, spell out its benefits, and practice it fairly. Sure, cultures with deep traditions of "politeness" need differentiation to be throttled in slowly. But people the world over long to know where they stand. When it comes to accepting change, only their speed limits differ.

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