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The challenge of managing rapid growth

The challenge of managing rapid growth
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First Published: Thu, Oct 27 2011. 11 48 PM IST

Updated: Thu, Oct 27 2011. 11 48 PM IST
With India’s private sector expected to account for nearly half of the proposed $1 trillion to be spent on infrastructure during the 12th Five-year Plan, many promoter-led Indian mid-cap firms—eager to leverage this opportunity—have set audacious growth targets hoping to leap into the billion dollar club. Sadly, only a few will succeed.
In our experience, promoters of companies that succeed do six things well— they consciously choose the “roads to run” and “roads to avoid”, build clear execution agendas, strengthen core business processes, effectively delegate but build robust review systems to retain control, do a successful “promoter-professional” tango, and lead change from the front.
In this dynamic environment, promoters consciously need to choose the right road for their billion leap. Many infrastructure and construction companies are rapidly diversifying across new sectors, new regions, and experimenting with new business models (engineering-procurement-construction, or EPC, to build-operate-transfer, or BOT). Consider RoadsCo, which has built a Rs2,000 crore business in roads. As this sector loses its sheen with fierce competition, and insanely low return expectations, should RoadsCo still pursue its dream in roads? If it diversifies, should it enter ports, water, waste, hydro or thermal power, or should it explore roads opportunities overseas in Africa? While answering these questions, promoters should avoid typical pitfalls such as “plunging in” without rigorously evaluating the risks-rewards of the alternatives, or diversifying to find a family member a “job”. They should rigorously evaluate multiple alternatives, stress-test plans for adverse scenarios, and ensure they understand the top five value generators or risk mitigators. One misstep— winning a “lemon” project generating lower-than-expected returns, or sizeable equity stuck in an illiquid project, or taking on high cost debt—can cost years of planned growth.
Linking strategy to an execution agenda is the next critical step to success. An agenda for all senior executives, with clear responsibilities, timelines, and resource requirements is critical to execute the strategy. This needs to be complemented with meticulously crafted review mechanisms to ensure initiatives stay on track and promoters can manage proactively, not reactively. Robust review mechanisms should clearly specify what to review, by whom, how frequently, define crisp MIS templates and data sources. These initiatives should be seamlessly integrated with variable compensation or goal sheets of senior executives to ensure they stay focused on results.
In our experience, most mid-sized companies—in pursuit of rapid growth— forget to upgrade their core business processes. For example, would a project planning or reviewing system that worked well for 20 sites in two cities also work well for 100 sites across 20 cities? Absence of robust processes cause significant project delays, cost overruns and cause working capital to balloon to unsustainable levels. All this can be avoided by identifying a handful of core processes—such as project planning, plant and equipment utilization, annual planning and budgeting, review mechanism—and strengthening these to manage rapid growth with minimal pain.
Perhaps one of the most critical elements of managing rapid growth is successfully managing the organization’s structure, culture and people-related issues. While many mid-sized companies create corporate business units and ask the heads of the latter to be responsible for delivering profits, often this stays on paper. Promoters continue to stay neck deep in operations, call the shots on critical decisions, directly contact project managers on sites often bypassing well paid heads and others in the corporate hierarchy. Why? Because they are apprehensive that they will lose control of the business. Over time, this adversely impacts the organization—top executives get frustrated and leave, it promotes a culture of sycophancy, and the promoter’s bandwidth is never freed up to focus on building new pillars of growth. So what is the solution? In our experience, the promoter’s fears can be alleviated through gradual delegation and creation of success stories; turf wars can be avoided by defining clear decision rights and financial authorities between promoters and professionals, and promoters can gain comfort with a “remote control” in terms of a robust MIS and review system. Effective change management—including conducting pilots before full-scale roll-outs, creating and broadcasting success stories and coaching all stakeholders as they embrace their new roles—is key to success.
Aashish Mehra and Girish Shirodkar, are partners and managing directors with consulting firm Strategic Decision Group’s South Asia practice.
Comments are welcome at otherviews@livemint.com
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First Published: Thu, Oct 27 2011. 11 48 PM IST