The Hindu Business Line : The myth of perpetual motion

PERPETUAL motion has fascinated scientists for centuries. The first description of a perpetual motion machine is believed to have come from India, in the year 624 AD. Subsequently, in 1150 AD, Indian mathematician and astronomer Bhaskara designed a prototype: a machine that looked like a wheel, with containers of mercury around its circumference. As the wheel turned, the mercury would move within the containers in such a way that the wheel would always be heavier on one side of the axle, stimulating rotation. Apparently, he never built and tested this device, but later experiments say it wouldn't have worked.

The business analogy, perpetual growth, is something that has fascinated management experts for a long time. Can an organisation experience, or ensure, perpetual growth? Or, like Bhaskara's wheel, will it ultimately fail?

Consider some hard data, which Clayton Christensen points out in The Innovators' Solution. According to Jim Collin's research into 1,435 companies over 30 years (Good to Great), less than 10 per cent of companies are able to sustain for more than a few years the growth that creates above-average shareholder returns. Further, for those who face the spectre of declining growth, it appears that regaining momentum is difficult. A study by the Corporate Strategy Board of 172 companies in Fortune 50 over 40 years indicates that once a company's growth has stalled, the probability that it can successfully re-accelerate growth is only 4 per cent.

It appears then, that perpetual growth is almost as difficult to achieve as perpetual motion. Just as physical friction prevented Bhaskara's wheel from going on and on and on, strategic friction prevents a business from growing more and more and more.

Every manager is familiar with the `S' curve, which takes its name from the curved shape characterising the performance of a product or a business over time. The `S' curve first slopes gently, reflecting the initial slow growth as the business creates its space in the marketplace, followed by a rapid takeoff, as the idea gains traction. Then the curve flattens out, reflecting plateauing growth as the maturing business begins to finds dissonance with the new environment. A sharp decline then follows as the old success formula becomes increasingly irrelevant in the new world.

Every stage in the growth graph is subject to change and friction. How exactly the `S' will look for different businesses, how sharp the gradient of the `hockey stick' will be, when the plateau will first show its presence, and when the decline will begin: all these will depend on the organisational response to the changing competitive cycle over time, i.e., to changing customer needs, altered competitor imperatives, new regulations, and technological discontinuities.

Growth organisations understand the inevitability of change. They invest in identifying change, in accepting it, and in rapidly responding to it. They do not dissipate time or resources in endlessly debating whether the change is real, or in denying it. They are driven by a hard-headed look at the market as it is today, not by an emotional attachment to assets or brands that they created yesterday.

On the other hand, if a rapid-response gene is not embedded into the organisational DNA, it risks strategic errors leading to slow growth, by succumbing to the "deadly sins" of competitive response: hubris, reproach, knee-jerk, denial. Do any of these responses sound familiar to you?

"We will get 30 per cent market share in the new business by the end of the first year." (Hubris)

"The distribution force did not stay aligned with the marketing goals." (Reproach)

"Let's offer a B1G1 (Buy one, get one free) and knock the stuffing out of competition." (Knee-jerk)

"He (the competitor) cannot sustain this strategy. He is bound to bleed and stop." (Denial)

In Darwinian terms, it is this ability to identify changes, initiate and execute a rapid response to change that determines an organisation's ability to survive in the battle of the fittest.

Even when a business has a successful kick-start, leading to a gratifyingly sharp gradient in the growth graph, it can't lean back and assume that the takeoff will be sustained into perpetuity. In fact, the very act of managing growth creates internal friction: managing multiple products, business, locations, hiring and training issues, resource constraints. Externally, if the business is unstable, managing in uncertainty is difficult. If the business is stable and profitable, the success will attract more competitors to the honey pot.

All good things must come to an end, and the `S' curve of a product or a business will inevitably plateau. Accepting this is important: plateauing is to be expected, indeed, anticipated, as part of the growth process. Yet, it is possible to postpone the point at which the S curve moves from the growth stage to the aging stage. This can be done by a constant emphasis on regeneration: through disruptive innovation, through strategic differentiation, and by constantly reassessing the relevance of your business model to current business imperatives. Of course, this needs periodic introspection to examine the relevance of old ways of doing business in the new competitive landscape.

More important, keep the organisational growth objectives disparate from the product or the business. Emotional attachment to a brand or asset can lead to trying to rejuvenate it long after its natural life is over. Instead, successful organisations accept that while each individual business may go through the growth-plateau-decline stages, the organisation as a whole need not. They ensure a robust pipeline of new businesses, dovetailing them so that the growth in each new curve offsets the decline in the old. Organisations that master this have created a perpetual growth machine. This sounds easy in theory - but actually requires a huge amount of introspection, strategic resource allocation, and above all, an ability to let go of the past while envisioning a brand new future.

Jim Collins describes the effort like keeping a giant flywheel in motion. If you ensure that there is always the positive momentum that keeps the flywheel going, then sustaining growth is difficult, but possible. It is when you allow the flywheel to come to a grinding halt that organisational inertia takes over, making the effort to get it going again a Herculean task. Get it right and you can actually do what Bhaskara could not: keep that wheel going for a long, long time.

(The author is a Chennai-based management consultant. Karate-gy is the proprietary name of strategic exercises conducted by Paradigm Management Knowhow.)

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