Question
Why are companies always chasing growth?
Answer
I am surprised at the huge variety of answers and the assumption all around that it is a management choice. It is only a management choice for privately held companies that have no ambitions to go public or take external investors.
Since the mid 1980s in the US at least, there's really been only one, rather artificial reason why companies chase growth: shareholders actively demand share price appreciation as a wealth-building trend (and abandon any company that doesn't listen), the law basically requires managers to prioritize it, and an entire strategy industry has emerged that is devoted to driving share prices up, including a boutique segment that specializes ONLY in that at the level of managing the finances.
Under ordinary circumstances, the only way to drive up the share price is to drive up earnings (i.e., "growth"). Usually this means revenue rather than margins, since there are limits to how much you can increase margins these days, since all companies practice similar cost efficiency regimes.
When these organic growth ways of delivering increased shareholder value are not available, smart bookkeeping begins and "growth" is delivered through everything from M&A to share buybacks (all of which are actually decline masked by 'robbing Peter to pay Paul dynamics).
Before the 1980s, there was a slightly different reason: growth happened without being chased at all, because demographics and the state of market penetration for most of the basic product/service categories was quite low. This was healthier, natural growth, like that of a growing kid.
Between about 1800 to 1900, you had basic Adam-Smith style growth fueled by the economies of industrialization, again natural, due to unfulfilled growth potential, not "chased."
Before THAT, between about 1600 to 1800, you had trade-driven growth, within a mercantilist economic model (pre Adam Smith), which didn't believe in the modern notion of growth, but assumed that land was the only source of wealth. "Growth" in this era was considered something of a zero-sum thing, and it became a self-fulfilling prophecy.
For the record, I think this growth focus is toxic and harmful in the sense of Edward Abbey: "Growth for the sake of growth is the ideology of the cancer cell."
The world economy is now past its teenage years, and graceful maturation, not "growth" is what needs to be sustained. Unbridled pursuit of growth (thanks ultimately to shareholder greed) is destroying the foundations of the economy, causing massive off-the-books social costs and killing us through the relentless pressure to increase "productivity."
Many parts of the problem can be solved with better-designed incentives and business practices, but there's one structural problem that I can't see any way to solve: our Ponzi scheme model of using today's surplus to support yesterday's workers (and today's retirees).
This has become an unbalanceable equation. We may need to gradually shift to a model where there is no such thing as retirement: people work as long as they are able, in whatever way they are able, and only those who actually need to be fully supported by others get the safety net.
Since the mid 1980s in the US at least, there's really been only one, rather artificial reason why companies chase growth: shareholders actively demand share price appreciation as a wealth-building trend (and abandon any company that doesn't listen), the law basically requires managers to prioritize it, and an entire strategy industry has emerged that is devoted to driving share prices up, including a boutique segment that specializes ONLY in that at the level of managing the finances.
Under ordinary circumstances, the only way to drive up the share price is to drive up earnings (i.e., "growth"). Usually this means revenue rather than margins, since there are limits to how much you can increase margins these days, since all companies practice similar cost efficiency regimes.
When these organic growth ways of delivering increased shareholder value are not available, smart bookkeeping begins and "growth" is delivered through everything from M&A to share buybacks (all of which are actually decline masked by 'robbing Peter to pay Paul dynamics).
Before the 1980s, there was a slightly different reason: growth happened without being chased at all, because demographics and the state of market penetration for most of the basic product/service categories was quite low. This was healthier, natural growth, like that of a growing kid.
Between about 1800 to 1900, you had basic Adam-Smith style growth fueled by the economies of industrialization, again natural, due to unfulfilled growth potential, not "chased."
Before THAT, between about 1600 to 1800, you had trade-driven growth, within a mercantilist economic model (pre Adam Smith), which didn't believe in the modern notion of growth, but assumed that land was the only source of wealth. "Growth" in this era was considered something of a zero-sum thing, and it became a self-fulfilling prophecy.
For the record, I think this growth focus is toxic and harmful in the sense of Edward Abbey: "Growth for the sake of growth is the ideology of the cancer cell."
The world economy is now past its teenage years, and graceful maturation, not "growth" is what needs to be sustained. Unbridled pursuit of growth (thanks ultimately to shareholder greed) is destroying the foundations of the economy, causing massive off-the-books social costs and killing us through the relentless pressure to increase "productivity."
Many parts of the problem can be solved with better-designed incentives and business practices, but there's one structural problem that I can't see any way to solve: our Ponzi scheme model of using today's surplus to support yesterday's workers (and today's retirees).
This has become an unbalanceable equation. We may need to gradually shift to a model where there is no such thing as retirement: people work as long as they are able, in whatever way they are able, and only those who actually need to be fully supported by others get the safety net.