Growth Does the Organizational Quest

Growth Does the organizational quest for growth collide with today's conservative financial management practices? Business organizations are often compared to sharks that must move forward and financially, lest they die in stagnant economic waters. In the capitalist market today that is so dependant upon competition, often between many similar economics entities, organizations face a "daunting challenge. "No matter "how bulletproof" the firm's current business model, larger organizations will seek to challenge those models by cutting costs through growth, expansion, and reaching new markets.

"The new reality is that business models have shorter shelf life." Businesses "must constantly attempt to discover new business models" if they hope to survive and grow. Firms must differentiate themselves from their competitors in the market, and to differentiate requires change and expansion of offered goods and services. (Kotelnikov, 2001) But growth also entails financial risk when firms expand and merge.

Even in the heady economic expansion of 1998, Slate Magazine's James Surowiecki warned of a too-general acceptance of "the corporation that promises to do everything, such as Time Warner and Viacom in media or the new Citigroup." Rather, he counseled, "It is hard work to determine the success of mergers, because you have to compare the performance of the new company against the projected performance of the previously independent companies. That makes it easier just to assume success in the absence of complete disaster.

But the chairman of a large midwestern bank put it best when he recently said, "You get big because you're better. You don't get better because you're big." In other words, growth is not enough, and expansion is not enough -- one must survey the offerings of the entity one is merging with, and determine if expansion will produce enough profits to cover the added costs of additional workers and new branches.

This is not to say that expansion is always in error -- witness how Disney's and Lucas film's expanding profits have "come not from squeezing down the costs of producing films but from creating films with licensable properties that could generate profits in other media over long.