UnderstandtheDifferencesbetweenGoodGrowthandBadGrowth
Growthofanykindbydefinitionincreasesrevenues,butnotallgrowthisequal.Growthcanbeclassifiedintwoways:goodgrowthandbadgrowth.
Goodgrowthisorganicorinternallygenerated—itissustainable,profitableandefficientfromaresourceperspective.Badgrowthistheanticipatedresultofone-offtransactionslikeacquisitions.Itusuallyfailstodeliveranylong-lastinggrowth.
WhyIsThereGoodandBadGrowth?
■Whybadgrowthisbad—whichoccurswhencompaniestakeshorttermdecisionsthatnegativelyimpactonlong-termvalue.Forexample:
Manymergersandacquisitionsarejustifiedonthebasisof“synergy”andcostsavingsthroughtheeliminationofduplicatedcosts.Historyhasshownthatveryfewofthesepromisedsynergiesevereventuate.
Whencompaniescutpricestogainmarketsharewithoutacorrespondingdecreaseincosts,theyareachievinggrowthattheexpenseofprofitability.
Whenfirmsgivesomecustomersunusuallyfavorablecreditterms,theycanenduplosingmoneyoneverysaletheymake.
■Whygoodgrowthisgood—whichoccurswhencompaniesgrowtheirtoplinerevenuesinsyncwiththeirbottomlineprofits,therebycreatingshareholdervalue.Thekeycharacteristicsofgoodgrowthare: