Sustainable Growth

FRAMINGHAM (04/18/2000) - Last year, when Federal Reserve Board Chairman Alan Greenspan told the U.S. Senate Joint Economic Committee that "an impressive proliferation of new technologies is inducing major shifts in the underlying structure of the American economy," he had information technology in mind.

The chronically downbeat Greenspan acknowledged in his testimony that the record-setting economic growth in the U.S. at the time was due in large measure to "newer forces" in the economy. IT had become a critical variable in what the Fed chairman called "our underlying monetary policy objective: maximum sustainable economic growth."

In other words, the old rules no longer apply.

Controversial Term

Sustainable growth is a controversial concept, particularly among environmentalists, who see it as theoretically impossible. In Valuing the Earth: Economics, Ecology, Ethics (MIT Press, 1993), Herman E. Daly and Kenneth N. Townsend claim that "the economy is an open subsystem of the earth ecosystem, which is finite, nongrowing and materially closed. ... The term sustainable growth when applied to the economy is a bad oxymoron - self-contradictory as prose, and unevocative as poetry."

Nevertheless, sustainable growth is the official policy of the U.S. Federal Reserve and many American corporations. They assume that economic or revenue growth from existing resources is less susceptible to inflationary forces and therefore can be sustained for longer periods.

By all accounts, IT is becoming a linchpin to successful sustainable growth.

"IT tools are a support mechanism for any business to achieve sustainable growth," says Tim Galpin, author of Making Strategy Work (Jossey-Bass Publishers, 1997) and global practice leader for mergers and acquisitions at Watson Wyatt Worldwide, a Bethesda, Maryland-based consulting firm. "Management is learning about how IT can be a facilitator of income growth, not just a cost center."

Win Liu, who teaches management science at Baltimore-based Johns Hopkins University's MBA program, agrees. He adds that innovation and time-to-market issues are critical to help a company attain sustainable growth.

"IT is quite different [from] traditional business operations in chemicals or restaurant chains, for example, because of the pace of the industry," Liu says.

New Markets

Innovation is what Sonoco Products Co. had in mind four years ago, when it began a program dedicated to sustainable growth. Sonoco used IT to help make its existing services more efficient as well as to create new services.

For example, the 101-year-old Hartsville, South Carolina-based provider of packaging products replaced its aging mainframes with Hewlett-Packard Co. Unix servers to track and stock packaging products from other suppliers for its top customers. The new service helped earn revenue while improving customer service and interaction.

"We're very good at cost control, but we need to develop top-line revenue growth with new products, getting into new markets and services," says Sonoco CIO Bernie Campbell. "IT can play a role in all of these."

Move Fast

IT is a fast-paced environment, and managers at the forefront of sustainable growth programs must be comfortable with the speed such a strategy requires.

In traditional businesses, most things develop over long periods of time, explains Liu. "In IT, things are created daily," he says. "In old industries, you have time to make up for your mistakes. In IT, that's not the case," he says.

As part of its sustainable growth program, Sonoco set up a new supply chain for its flexible-package division, and IT response time was put to the test.

"In a supply chain, things happen at breathtaking speed," says Henry Lander, Sonoco's supply-chain director.

The company has to link the nine plants throughout North America in its flexible-package division with numerous suppliers and customers. A change in one part of the chain swiftly affects other parts.

"You need strong internal controls, and you need to keep on top of them," Lander says.

In a tightly coupled supply chain, Campbell adds, "you can reduce inventory and waste."

Motivation Is Key

Smart, happy employees are the linchpin to sustainable growth, according to Larry Emond, senior vice president at The Gallup Organization in Princeton, New Jersey.

But employee motivation in Fortune 500 companies seems to be lagging. Gallup research indicates that growth from existing business was a paltry 0.1 percent in 1998. Mergers and acquisitions account for most of the revenue expansion of the top companies in the U.S.

Emond places the blame squarely on the shoulders of managers who don't recognize the importance of employee motivation. Customer loyalty, he says, is the No. 1 problem facing CEOs. Employees are the public face that most customers encounter, but workers often lack necessary training. That's especially true in call centers, where turnover is high and employees tend to be underpaid and uninspired.

Technology can be a useful tool for motivating employees in order to achieve sustainable growth. Many companies, for instance, use intranet portals to attract and retain staff and train them in new systems.

"Education can help achieve strategic growth goals," Galpin says.

Educated employees are more motivated and greatly improve a company's chance of reaching its growth goals, he says.

A Formula for Growth

Sustainable growth is a hot topic in finance. Economists use it as a model to evaluate the state of nations as well as the upside and downside of public companies' finances.

To get an introduction on calculating the sustainable growth potential of your own company, a competitor or any public enterprise, Alexandria, Virginia-based consultancy Kathleen Sindell Ph.D. Consultants has published a formula on its Web site, www.kathleensindell.com/sustainable.htm. Company founder Kathleen Sindell says she uses the formula to determine whether companies are adequately funded to reach their public growth pronouncements.

She says CIOs need to develop their own benchmarks to determine whether they have the capacity to meet growth expectations. Some of the variables to consider are technology performance and its capacity, technical staffing levels and skill sets, project budgets and the company's ability to finance the IT growth strategy.

Definition

1. A business strategy to expand revenue that isn't dependent on mergers or acquisitions. Sustainable growth develops new markets or services from ongoing operations. 2. IT services dedicated to corporate revenue generation such as e-commerce, virtual exchanges and other fee-based online operations.

Join the newsletter!

Error: Please check your email address.

More about GallupHewlett-Packard AustraliaJossey-BassMIT

Show Comments