The Growth Imperative
By:
Clayton Christensen
- "Financial markets relentlessly pressure executives to grow and
keep growing faster and faster. Is it possible to succeed with this
mandate? Don’t the innovations that can satisfy investors’ demands for
growth require taking risks that are unacceptable to those same
investors? Is there a way out of this dilemma?"
Life is not fair definitely applies in this case. I don't envy the
pressure the executives are under to meet the demands of the
share-holders. It takes real intestinal fortitude to survive and
hopefully thrive in their position. Of course they are well compensated
for the pressure they are under, so no sympathy here. UTC has managed
to stay in the game for decades and I believe part of their success is
attributed to the fact that they don't have all their eggs in one basket
and continue to adjust their business acquisitions to better position
themselves in the market. They have their core business units which
give them their constancy and capitol value and they have a set of
smaller business venture type units which they "play" with in the stock
market. They are taking a risk right now with their latest acquisition
of Goodrich. We'll see how this plays out in the long term.
UTC has also invested heavily in off-shore markets which gives
them leverage and makes them more competitive. All that being said,
they are not too big or successful to fail and therefore must always be
on the look-out for dangers and opportunities looking forward. Timing
is as critical as selection when it comes to investments and decisions to sell off divisions. So far, they've proven themselves successful.
I would respond to the premise of the growth imperative with an age old saying, "what goes up must come down." This saying suggests that the continuous growth is not sustainable.
ReplyDeleteI would agree with you when you say that you have no sympathy for the executive who feels the pressure to increase earnings year after year. Afterall, what is the reprecution to a CEO of a public company that fails to meet its numbers, a golden parachute? I would argue that the risk is more on the side of the investor who should be astute to the potential fall out of the growth imperative.
I think that Goodrich was a good acquisition for UTC. Considering that Goodrich, paired with Hamilton Sundstrand's product offerings, UTC will become a customer's one stop shop for aircraft accessory needs (engine, air management system, landing gear, hydraulics, props, etc) As you mentioned, the reason why UTC has been so successful throughout the years is by having a strong focus on the core of their business, and I think that Goodrich is only going to make UTC's core business that much stronger.
ReplyDeleteMax I couldn't agree more about Goodrich. Some of the most critical supplier made componenets on a Sikorsky made aircraft are made by Goodrich. Along with an already diversified company like Hamilton, it should be a good fit.
ReplyDeleteI would argue UTC has made a fairly long run while barely growing at all. Our product base has stayed roughly the same for quite some time. Market share has grown but slowly in my opinion.