In the quest for exponential growth hacks those in a position of leadership ought to be careful not to become entrepreneurial hacks themselves.
News of General Electric being removed from the Dow reminds business leaders to analyze whether their growth mindset is in line with their values.
General Electric is one of the largest organizations in the world with a diverse investment portfolio. When it comes to history, it doesn’t get much richer than GE who was founded by inventor Thomas Edison and banking mogul J.P. Morgan. In 1896 General Electric was one of the 12 original companies to be listed on the Dow Jones Industrial Average (the Dow) which is utilized as a reference for health of the market and investments strategies. GE has grown internally as well as by acquisition and diversified their portfolio of businesses to become a leader in multiple industries to become a multinational conglomerate ranked in 2011 as the 6th largest firm in America.
Recently General Electric was removed from the Dow as an indication of its lack of performance, down 55% over the past year (a net of nearly $100 billion) with is stock being valued at an average of $13 per share in comparison to Walgreens which now replaces GE and has a value of $68. Many speculate that this is another brick in the wall, which the Wall Street Journal notes as, “The unraveling of its finance business and competitive problems.”
If your exponential growth strategy is through acquisition do you reach a point where there is nothing more you can buy?
If you grow by acquisition what is the collateral impact of poor integration of cultures between business units?
Back in 2009, Forbes reported on a $50 million dollar fine issued by the Securities and Exchange Commission (SEC) that General Electric had to pay after, “An investigation into accounting shenanigans that severely tarnished the company’s reputation and helped set the stage for last years collapse in its stock price.” Forbes compares GE’s shifty accounting practices to those of professional baseball players using and covering performance enhancing drugs (PEDs) in order to keep up their appearances on paper that they were meeting or exceeding analysts expectations. Chairman Jeffrey Immelt, the hand chosen predecessor to famed CEO Jack Welch, carried practices which many convinced themselves were in the spirit of teamwork where the company would shift money from businesses to reduce or minimize losses in other areas and in this particular case sold locomotives to what appear to be ghost companies to increase sales numbers.
If you focus on rapid growth does the haste have an impact on long term internal systems such as accounting and production with regards to sustainability?
If the accounting goals become the metric for growth, rather than a measure of progress, what consequences are there when an organization begins to manipulate the numbers to see what they want to see?
We can learn a lot from the fall of pyramid schemes such as the $60 billion dollar ponzi scheme pulled off by the now infamous Bernie Madoff in that the glut of growth can cast a wide net. While Madoff took the fall for being the master-mind behind the scheme, something he still seems to believe and relish, no participant in the earnings or the machine can wash their hands in the collective draw from the system. WNYC Studio’s Radiolab created a podcast titled Ponzi Supernova which dug into the story behind the worlds largest con and was able to get feedback from Bernie Madoff himself. In short, Madoff viewed himself as an outsider and refused to be dismissed which started a process of winning by any means and he stumbled across a method for doing just that.
If the accounting goals are the driver for business growth rather than the checks-and-balances of you operation, you can convince yourself – like General Electric, Bernie Madoff, or perhaps more notably the employees and participants in both declines – that what you are doing is necessary. What do we tell ourselves? Everyone is doing it. If you hear yourself say or think these four words then you shouldn’t ignore the historically proven red flags. Like professional athletes, do we tell ourselves, I’m only going to do this to jump start or get back in the game and then I will go back to doing it the right way? Again, our systems have red flags, but if we ignore them we are headed down a path that it is difficult to return from. The gains of rapid growth are alluring but the consequences are severe as in the examples above where building on shaky ground can erodes over a century of performance or shady dealings can land you in prison.
Three simple principles for checking yourself before you wreck yourself:
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