THE UNDISCIPLINED PURSUIT FOR GROWTH AND EXPANSION

Why do Organizations fail? To be honest, we have no outright answer to this tricky question because the reasons are numerous. Some experts argue that corporate demise is due to actions or inactions of top management. Others put the emphasis on an Organization’s structures, processes and business models which foster rigidity to change.

While we cannot confirm with certainty what the actual causes of corporate failure are, we know for sure that there can be plenty of signs or red flags to indicate that the Organization is heading for failure or disaster.

A few days ago, we published Part I (https://www.linkedin.com/pulse/five-warning-signals-failing-organization part%3FtrackingId=srBYilrNUxI5EYJTx2foyw%253D%253D/?trackingId=srBYilrNUxI5EYJTx2foyw%3D%3D) of our Five-part Article Series, where we analyzed Warning Signal #1: Excessive Pride or Arrogance created out of Success.

In this second Article, let’s examine Warning Signal #2: Undisciplined Pursuit for Growth and Expansion. Here, we have observed that Organizations fall prey to a lack of focus and discipline, thus jeopardizing their future and success.

To see the destructive potential of ‘Undisciplined Pursuit for Growth and Expansion’, let’s consider the example of Nakumatt Supermarket, the former Kenyan Retail Giant.

Nakumatt Supermarket’s Story of Undisciplined Pursuit for Growth

The Nakumatt Supermarket is [was] a family retail company, that humbly began in 1978 in a small town of Nakuru in Kenya, and after many years of hard work and innovation, the Company grew into one of the leading retail giants in the East African region. Between 2006 and 2013, Nakumatt’s consolidated revenue was estimated to have grown by over 220% from $200 million to $650 million.

However, after some decades of uninterrupted success, the Company started taking a downward spiral. Nakumatt’s troubles are predicted to have mainly began in 2010 when it took on an audacious expansion plan that inaccurately forecasted the economic profile of their target consumers.

In this plan, Nakumatt expected very high, sustained economic growth rates – coupled with rapidly growing household incomes and spending – in the East African region. And to meet this expected new demand, the Company opened more stores, expanding from 36 branches in 2010 to 64 across the East African countries of Kenya (46 stores), Uganda (9 stores), Tanzania (5 stores), Rwanda (3 stores), and Burundi (1 store), by 2017. They had close to 6,500 employees at the time.

The expansion process was largely implemented through external financing and soon after, the Company became highly indebted to lenders which resulted in the failure to meet its obligations in all markets. Details from Global Credit Ratings indicated that Nakumatt’s debt grew by over 280% from $44 million in 2012 to $170 million in the first half of 2017.

By October 2017, Nakumatt Supermarket was declared bankrupt and all the stores in the region were closed, thereby bringing the Company’s 39-year-old corporate journey to a sad ending!

How to Deal with Growth and Expansion?

The unfortunate stories of once-great Organizations such as Nakumatt Supermarket highlight the risks of growth obsession. These entities pursued outsized growth, much of which simply did not fit with the strategic insight that produced their greatness in the first place.

Let us be clear: we are not trying to advocate for complacency; we are not trying to discourage Organizations and Leaders from evolving into new arenas – far from it. Growth and expansion can be pursued but these should always be in a DISCIPLINED manner by considering the following:

• Foster a clear balance between continuity and change. On the one hand, Organizations should adhere to the principles that produced success in the first place, yet on the other hand, they should continually evolve, modifying their approaches with creative improvements and intelligent adaptations.
• Organizations must ensure that their growth consistently aligns with their core values, strategic vision and controls.
• Leaders must remain humble, open to constructive criticism, and vigilant about potential pitfalls.
• Only invest in new arenas where you can attain distinctive capability, better than your competitors.

By recognizing the dangers of undisciplined pursuit for growth and expansion, Organizations can change or correct the course of their corporate ships and steer them to the right direction. Ultimately, GROWTH should NOT be confused with EXCELLENCE!

To be continued…