HBR On Strategy: Episode Summary - "To Grow Profitably, Take It Slow"

Release Date: February 26, 2025
Host: Alison Beard
Guest: Professor Gary Pisano, Harvard Business School

Introduction

In the episode titled "To Grow Profitably, Take It Slow," Harvard Business School Professor Gary Pisano joins host Alison Beard to delve into the intricacies of business growth. The discussion centers on why rapid growth, often lauded as a primary success metric, may not always be sustainable or profitable. Instead, Professor Pisano advocates for a more measured approach, emphasizing strategic planning around the rate, direction, and method of growth.

The Problem with Rapid Growth

Alison Beard opens the conversation by questioning the prevalent obsession with accelerated growth in today’s business landscape. She references data indicating that after adjusting for inflation, three quarters of companies exhibit little to no growth, and even those in the top quartile can't sustain high growth over extended periods.

Professor Pisano responds by affirming that the fixation on rapid growth has been a longstanding feature of investor-led capitalism. He remarks:

"What's always top of their mind [CEOs] is growth. Particularly publicly held companies are thinking a lot about growth. That's what their investors are demanding."
[03:30]

He underscores that while growth is inherently a strategic goal, the challenge lies in balancing ambition with the organization's capacity to support that growth sustainably.

Lessons from Case Studies: Pals vs. Be Good

To illustrate his points, Professor Pisano discusses two contrasting case studies within the fast-food industry: Pals and Be Good.

• Pals: A small fast-food chain renowned for its exceptional quality and speed. Pals emphasizes profitable growth by developing a robust internal culture and rigorous training for store managers, ensuring each new outlet maintains high standards. Pisano highlights Pals' approach:

  "They decide when to add a new store is when they have kind of a graduate of their internal development program and say, okay, here's somebody, they're ready for a store, let's go open a store."
  [12:00]

  This method ensures that growth is controlled and sustainable, leveraging existing strengths without overextending resources.

• Be Good: In stark contrast, Be Good experienced rapid expansion driven by aspirations to match giants like McDonald's. The company struggled with maintaining its foundational culture and managing supply chain complexities, leading to operational inefficiencies and eventual decline.

  "They start this fairly rapid growth... it's harder to maintain the culture. It's harder to deal with the supply chain issues."
  [15:17]

These examples underscore the importance of aligning growth strategies with organizational capabilities and culture.

The Three Elements of Growth Strategy

Professor Pisano introduces a framework for sustainable growth, comprising three interrelated components:

1. Rate of Growth: Determining how quickly a company should expand.
2. Direction of Growth: Deciding which markets or segments to enter.
3. Method of Growth: Selecting the strategies to achieve growth, such as organic expansion, acquisitions, or partnerships.

He elaborates:

"A growth strategy is composed of three interrelated sets of choices. One is how fast should we grow? The second is direction... The third element is method of growth, which is how do we attain the resources to grow."
[17:24]

The interplay between these elements requires careful consideration to avoid pitfalls such as overextension or misalignment with market demands.

Practical Guidance for Leaders

Addressing leaders seeking to implement sustainable growth strategies, Professor Pisano offers actionable insights:

• Identify Bottlenecks: Leaders must systematically assess their organization's resources to pinpoint constraints that may hinder growth. This involves evaluating not just financial capacity but also human resources, supply chains, and operational processes.

  "Identify what are the bottleneck resources, and a competent CFO will make sure, that cash is not a bottleneck... you have to apply that same logic to every other resource in the company."
  [10:52]

• Develop Capabilities in Advance: Instead of reacting to growth opportunities haphazardly, companies should proactively build the necessary capabilities to seize them when they arise.

  "What companies should be trying to do, investing, and I wouldn't say so much capacity, but it's capability in advance."
  [22:24]

• Foster a Strong Organizational Culture: Maintaining a cohesive and resilient culture is paramount, especially as the company scales. Rapid growth can dilute cultural values, leading to operational inefficiencies and employee disengagement.

  "Culture is a huge part of what breaks when companies grow quickly. That is probably one of the single biggest, most fragile parts of organizations as they grow."
  [13:46]

Communicating Sustainable Growth

Effective communication is essential for gaining buy-in from stakeholders when adopting a measured growth strategy. Professor Pisano advises:

• Craft a Credible Story: Leaders should articulate a clear and strategic narrative that outlines the rationale behind the chosen growth rate, direction, and method. This narrative should demonstrate how the strategy aligns with the company's long-term goals and operational capabilities.

  "You need a credible story… It has to have a strategic rationale around… how we achieve that growth."
  [25:34]

• Manage Expectations: By setting realistic growth expectations, companies can foster trust with investors, employees, and customers, avoiding the pitfalls of overpromising and underdelivering.

  "Companies who announce these really aspirational growth goals for a short while… once they disappoint, the markets are pretty unforgiving."
  [25:34]

Conclusion

The episode underscores that sustainable and profitable growth hinges not on the sheer speed of expansion but on a strategically balanced approach. By meticulously evaluating the rate, direction, and method of growth, and by fostering robust organizational capabilities and culture, companies can achieve long-term success without the volatility often associated with rapid scaling.

Professor Pisano's insights challenge conventional wisdom, prompting leaders to reconsider growth as a nuanced strategic framework rather than an unbridled pursuit. As he aptly puts it:

"It's not glamorous. It often doesn't get you on the CEO of Fortune or the latest website reporting on company businesses. But I think it's probably more effective to grow that way."
[20:09]

For business leaders aiming to navigate the complexities of growth, this episode provides a comprehensive roadmap for achieving enduring success.

For more insights and in-depth discussions on business strategy and innovation, tune into future episodes of HBR On Strategy.