The '4Gs' of Smart Growth

The slow economy doesn't have to mean the end of growth for your credit union.

July 28, 2010

The slow economy doesn’t have to mean the end of growth for your credit union.

According to “Smart Growth: Building an Enduring Business by Managing the Risks of Growth,” organizations can continue to grow by expanding their value to customers.
Author Ed Hess, professor at the University of Virginia’s Darden Graduate School of Business, advises organizations to pursue growth strategies based on what he calls the “4Gs”:

1. Growth through improvements. Becoming better at what you do is the “bread and butter” of authentic growth, Hess says. This includes not only making products and services better, but improving the customer value proposition and improving everyday business processes.

“Being better, faster, and cheaper results from pushing responsibility out to the entire organization,” he says. “By enlisting everyone—from the highest-paid executive to the newest employee just joining the company—in searching for better ways to do things, companies can dramatically increase the pace and impact of process improvements.”

2. Growth through scaling. Do more of what made you great. Once a company gets into a groove with its customer value proposition, and once it reaches a point where its business processes are standardized, it can replicate those processes across a larger footprint.

Successful scaling requires excellent execution, and it means scaling of both production and distribution, which can be costly. Service companies might need to change their marketing strategies, leverage the Internet more, or embrace digital or mobile advertising.

“Replicating business processes across a larger footprint is just part of the challenge in scaling a business,” notes Hess. “The other part is figuring out the new business and operating models that might be required.”

3. Growth through innovation. Bring something new to the marketplace. Hess calls innovation, “improvement on steroids”—not just doing something better, but doing something new.

Few companies are innovative because innovation is risky, Hess says. “When pursuing innovation, companies need to remember they have limited resources in terms of people, capital, and time. Growth pursued through improvements or scaling up is less risky than growth through innovation.

“Innovation is sexy, but it’s not for everyone, and not for every stage in a business cycle.”

4. Growth through acquisition. Inorganic expansion via mergers or acquisitions is another obvious path to growth. But it can be risky, especially for small companies.
“Even large, experienced companies find it difficult to get a timely and adequate return on an acquisition because of the specialized skills required—experience with due diligence and post-merger integration,” says Hess. “For smaller companies, acquisitions should be approached with extreme caution.

“A key part of your success with the 4Gs—no matter how good or bad the economy—lies in knowing how to choose the right path for your business,” Hess continues. “For many companies, a likely path to pursue would be to focus on a product or service niche with a specific customer segment, and then to grow the business by improvements and scaling.”