In most industries, it is probably safe to argue that under-par performance is the existential problem, not in-line performance. Executives don't get fired unless their outcomes are sub-par, compared to industry averages.
Is low connectivity service provider revenue growth a problem? It might seem obvious that it is a problem, but whether it is an existential problem is probably the better way to frame the question. Different industries have different growth rates, profit margins and roles in the value chain. Noting such differences might be highly useful for firm and industry strategy.
It might simply be unreasonable to expect traditionally-slow-growing industries to alter those patterns, just as we might be skeptical about firms in traditionally fast-growing industries that do not seem to exhibit the “industry standard” growth rates.
The exception is if a given firm in a given industry is able to deploy or acquire assets in different parts of an industry value chain that have distinctly-different growth characteristics. That is the logic behind the “move up the stack” argument.
As a management professor once advised us, “if you have a choice, choose a fast-growing industry.” The reason is that similar amounts of effort and skill (the same effort by a single individual in different settings) will produce different outcomes when applied to declining, slow-growing or fast-growing industries and firms.
The point is that annual growth rates are a “problem” in any industry only when the trend worsens and growth slows over time. But that is not necessarily an issue management can fix, in any one company in any single industry. Over time, profit margins or growth rates in many industries have slowed, in part because of market saturation and competition.
Indeed, one would be hard pressed to find an industry whose revenue growth rates have not declined over time.
And with the caveat that different segments and firms might have different growth rates, industries with utility-like characteristics show the same slower revenue growth rates as seen in most other industries.
The point is that slow growth rates, or slower growth rates, are not necessarily an existential problem. Expected growth rates might simply reflect the near-universal slowing of industry growth rates in virtually all industries over time.
And to the extent that utility-type industries and connectivity businesses traditionally have growth rates in the middle of all industries, continued “slow growth” is not unexpected, nor unusual, nor an imminent threat.
That is simply the nature of the business. To be sure, not every provider in every segment has the same growth rate. But the reasons for such divergences are hard--if not impossible--to replicate. Younger firms tend to grow faster than older firms. Non-dominant firms sometimes get help from regulators to increase competition with dominant firms. Some segments of an industry grow faster than others.
Sure, every executive would prefer faster growth rates over slower growth. But there are rational limits to how much that is subject to managerial skill.
No comments:
Post a Comment