In his recent book, 'The Breakout Nations', author Ruchir Sharma analyses how GDP growth rates of countries tend to flatten out once the per-capita income levels hit a certain income range. He argues that the 'low base' effect that these countries benefited from, for faster economic growth, disappears and they struggle to keep pace with the faster economic growth of yester years. Does the same hypothesis hold good for corporations as well? Are companies that attain a certain size by revenue or employee count condemned to slower growth rates?
Analysis of corporate performance of several decades suggest, not necessarily. Many companies do under-go a 'mid-life' wobble, the great ones have always found a way to re-orient and realign themselves to emerge stronger. Companies such as IBM, P & G, GE and others continue to grow fast despite their size. If anything, they prove without doubt how size and scale can be a decisive competitive advantage, when leveraged well.
So, how can size be a decisive competitive advantage?
Large services companies, managing growth in an era of slowing growth in developed countries, would need to take into account the following –
- Building a culture of ownership – With size comes the problem of silos?, a view of narrowed identity of belonging to a certain group / function which can be a detriment to the success of the company in the new world where collaboration and integration of services are key to success. Building a culture of collective ownership requires encouraging and rewarding behavior that encourages team work, a sense of camaraderie and collective ownership in the success of the company.
- Decentralized decision making with high levels of accountability - in many organizations, decentralization of power does not percolate far enough to make P & L impacting decisions. Yet the ideas for business growth are usually hidden in the minds of people on the ground. Are these people empowered and rewarded enough to surface and implement game changing ideas? Incentivizing delivery, technology and marketing teams with performance based rewards could act as a catalyst.
- Sustainable margin plan – With the economy in a constant state of flux, companies need to re-calibrate differentiation and pursue margin plans that are sustainable. With scale, the ability to trade off volume growth with higher levels of productivity can be effectively used to compete effectively to offer lower price points to customers without diluting margins. With scale should come the ability to flex the muscles of productivity to achieve new levels of operational efficiency.
- Heavy investment in technology – Investing heavily in technology to improve productivity, decision making and driving customer / market analytics will provide competitive advantage. Only a large company will have resources to actively invest into ground breaking technologies for achieving breakthroughs in business outcomes. Hence, there is a need for the Corporate Information Services team to be more closely integrated with business.
- Innovation at account level – In addition to funding important corporate level initiatives, services companies could budget for and fund innovations at the account level, impacting the customer directly. Funding for these initiatives outside the account level P & L can provide confidence for accounts to take big swings without too much downside risks.