So, 2023 is turning into much the same as recent times. We are in the midst of a 5-quarter recession in the UK according to the OECD (though recent forecasts are more optimistic). Consumer prices rose by a marginally lower rate of 8.8% in the 12 months to January 2023 according to the ONS. According to the CBI, business sentiment fell for the fifth consecutive quarter in manufacturing. The war in Ukraine continues. Although wholesale energy price pressure has subsided a little, it remains at roughly triple the prior year average as of the last figures from Ofgem for both gas and electricity. The business growth imperative seems obvious to us but not everyone agrees. Today, we explore the whys and why nots and also visit the power of collaborative capitalism.
Business growth imperative
Although it may seem obvious to business owners and business leaders, not everyone agrees that business growth is imperative. Many people associate business growth with greed, trying to extract more work for the same pay and change to which we respond with fear. Unfortunately, this misses the point entirely, both micro and macroeconomically.
There are three reasons why business growth is imperative:
- Input costs increase and businesses need to find ways to grow to continue to make profits (or they may as well close).
- Competitors seek to grow market share which in turn causes a business to lose customers or compete aggressively on price (or they may as well close).
- Living standards must increase (along with tax receipts) to fund growing public sector expenditure and pay the future pension obligations of an ageing country.
Dissecting the reasons for business growth
Let’s tackle each of these in turn. Firstly, prices continue to rise. Due to demand (e.g. competition, growth in other economies, growing population) and supply (e.g. scarcity of resources, rare minerals and poor farming/mining practices) pressures, costs generally increase. Like it or not, most businesses budget and plan for inflationary increases on most costs from direct production costs to overheads. This requires increased sales, margins or efficiency (including productivity) to offset.
Secondly, competitors tend not to stand still. Some find opportunities and advantages that you have not identified and grow faster than you. Others operate very efficiently and operate at such a scale that it is hard to compete unless you grow with them. Also, some business owners and leaders possess a strong will to win and simply won’t rest unless they can demonstrate how they outperform others.
Thirdly, most governments set a goal of increasing living standards. Emerging economies do this to lift people out of poverty and give people, at the very least, a living wage. Developed economies do this to offset an ageing population with burgeoning pension liabilities or to fund increased public sector expenditure. The public sector borrowing requirement (PSBR) predominantly exists in the UK because economic growth and tax receipts are insufficient to cover these. Ultimately, governments look to private sector enterprises to stimulate growth, increase profits and pay higher salaries. As salaries grow, a greater percentage is subject to payroll taxes and increased ‘take-home pay’ increases discretionary spending on which to collect VAT. This is a basic example to illustrate the point.
Collaborative capitalism
Defined in 2009, collaborative capitalism is a development model focused on the advancement of individuals, businesses or countries. For example, an oil major may help to build schools and hospitals in a country that provides many benefits for local people. Ultimately, these people have improved education, health and earning power with the skills, capability and mobility to work in new jobs created by the oil major.
Collaborative capitalism appears in many forms. For example, if one large enterprise supports a noble cause, it is not uncommon to see other large enterprises, maybe even their direct competitors, supporting that cause. This collaboration may improve outcomes for those in deprived areas, those in marginalised communities and people with disabilities, for example. In turn, these groups may see increased opportunities and a boost to disposable income to reinvest in your products or services.
Alternatively, in the drive to increase social value, SMEs cannot be overlooked. A large business has few customers in a deprived area with few local businesses and little sense of community. Collaborative capitalism could support community cohesion and local entrepreneurs to get started. There are examples of banking and co-operatives seeking to support sole traders to get into business.
Struggling to grow your business?
Given that Gen-Z, and a growing cohort of employees since the COVID pandemic, seek increased meaning at work, is collaborative capitalism part of the answer? It could be that growth via collaborative capitalism better aligns your employees to business objectives. Many businesses struggle with corporate social responsibility (CSR), from volunteering schemes to fundraising for charities. Many volunteering schemes are localised or short-term, though the benefits to wellbeing and employee retention are well-documented. Fundraising for charities is riddled with issues with a plethora of causes to support. An organisation chooses one, two or three charities to support but some employees will support a charity that means something to them. Additionally, some employees may resent the pressure for fundraising, especially when profits are growing.
In summary, instead of cynicism towards growth rhetoric or cynical commitments to good causes, is collaborative capitalism part of the solution? Supporting and developing a group, local businesses or emerging economies creates purpose. Employees implicitly understand that the investment will benefit both the organisation and the areas they seek to develop. In the long-run, the benefits are business growth, higher profits, staff retention and wellbeing.
Getting buy-in for business growth
There are many roads to Rome. There are many ways to grow a business. However, the larger the organisation, the more challenging it becomes to bring everyone to Rome. As a simple analogy, a business with 20 staff co-located in Naples can hire a coach and ride there together and back again on the same day. An international business with 10,000 staff sending 1,000 people to a conference in Rome requires a different level of planning. Flights, trains, coaches, cars, hotels, food, rescheduling work, expense claims, safety guidance, tourist taxes, foreign exchange, larger venues etc. The moral of the story is that the larger business needs to move heaven and earth just to get people together. In other words, one can think short-term and the other needs a plan way in advance to achieve this objective – and this is just to run one event.
So, how does a large business grow? The simple answer is research, planning and change. You find where the opportunities are and how to greater leverage your advantages. You plan how divisions, departments and teams will achieve your strategic objectives. Finally, you support them with change from over-arching programmes to localised projects. With sophisticated and regular communication, we bring people along the change curve to support the objectives. Keeping key internal (and external) stakeholders informed is essential. In conclusion, wouldn’t it be nice if employees were united and motivated by a cause and growing profits at the same time?
Management consulting for growth
Think Beyond aims to make life easier for board by identifying opportunities for growth and accelerating business performance. We support corporates and large SMEs with industry, customer and competitor research. We also support senior leaders with planning, assessing capabilities and assurance over processes. Finally, we support your innovation, change and transformation needs, leading programmes or localised projects across departments or in distinct teams.
If you would like support with business growth, planning and change, simply call a member of the team. Alternatively, why not ask us to call you back or set up a video call to discuss your needs.
Why not check our article about corporate culture and other strategies for change.