Growth in some form or the other is necessary for progress and survival of a company. But most companies view growth mostly in terms of expansion and diversification. But this is only one form of growth. This article explores a broader and a holistic conception of corporate growth in the form of a case study. Case is based on an actual strategic situation but the names are changed.
Stuck in a Groove
Dharani sugars is a highly profitable and cash rich company which wants to grow. Dharani reported a profit of 37 crores on a revenue of 255 crores; it is debt free and sitting on a cash reserve of Rs. 75 crores; it can’t be in a better position to grow but does not know how. For the past few years the most important item in the agenda of Directors’ meeting is growth and growth. Until now the company is satisfied with a single mill in a single location. But now the company’s management has realised that with so much cash in the kitty, to remain confined within its narrow grooves is not good for the company. “We want to grow” says Ranganathan, Managing director of Dharani Sugars, “That is the only way we can meet the expectation of the company’s shareholders and other stakeholders.” But despite the management’s firm commitment to growth, Dharani is unable to grow. Why? What prevents it from going? According to Ranganathan, the main obstacle is “lack of opportunities.” Is this the only reason for lack of growth or is there something more?
Dharani had not even the usual add-ons like the cogeneration facility and the distillery which most of the sugar mills have. Only recently it has decided to set up 19-MW cogeneration plant to make good use of distillery. This shows that the company is reluctant to invest and expand.
However, it may be true that Dharani does not have enough space for expansion within the state in which it operates. In its current location, there is not enough sugarcane around. Like every other sugar mill, Dharani has to buy its sugarcane from a command area or cane growing area around it earmarked by the state government. And Dharani’s command area cannot grow any more sugarcane. A few years back, when the state government carved out new command areas to allow some more sugar mills to come up, Dharani fought very hard to get an area allocated to it. But it lost out to other companies many times its size. “Today there is virtually no promising location in the state for putting up a new sugar mill.”
But Dharani management does not want to venture out outside Tamil Nadu because Dharani’s first attempt to do so in Orissa ended in a fiasco and a big loss for the company. “I agree there are opportunities in UP and Bihar but we do not seem to have the risk appetite any more after the Orissa fiasco”, said Ranganathan.
As we have indicated earlier, Dharani Sugars seems to equate growth rather exclusively with expansion and diversification. Dharani management has to rethink its concept of growth. The pursuit of growth can be in four dimensions. First is growth in terms of efficiency, productivity, profits, revenues, customer satisfaction and market-share; second is growth in terms of expansion and diversification in geographical products, plants; third is growth opportunities for people in the organisation; fourth is growth in terms of contribution to the progress and well-being of the community of which the organisation is a part. This fourth movement is not considered as growth in traditional management. But in the integral view it is also a form of growth because it helps in the moral development of the organisation which in the long-term can bring material results. In all these four levels the main areas of growth are a clear vision or goal, innovation and a quest for progress which means, in the corporate lingo, continuous improvement and constant learning or “learning organisation” where failures and mistakes are viewed as sources of learning. A company can grow simultaneously in all these areas and all great companies which have attained a certain level of maturity or competence grow in all the four levels at the same time. However each company has to decide which level requires priority attention in its present condition. Let us now examine how these principles of growth can be applied to Dharani Sugars.
Dharani Sugars has a healthy bottomline with a profit margin of Rs. 37 crores with debt-free cash reserves of Rs. 60 crores. This shows Dharani is a professionally managed firm which has attained a level of efficiency and productivity in managing its resources. However growth opportunities are practically unlimited. Dharani can make a conscious effort to even beat national or international benchmarks in sugar industry in various parameters like for example productivity, resource utilisation or quality by bringing new technology or management techniques like TQM or Six Sigma or Lean manufacturing or best practices from other companies.
This line of growth may lead to more profits and more revenues. But the question which Dharani management is grappling still remains; i.e. “what to do with the more money flowing in?” Here comes the importance of other forms of growth.
Diversification and expansion is the second form of growth. Here, Dharani has some serious constraints which require innovative thinking. Here are some of the possibilities which Dharani can explore.
- Since Darani is at a sound financial position, buy or enter into a partnership with another private sector sugar company which is facing financial difficulties.
- Look for alternative to sugarcane like beet which is regarded as more healthy and nutritious and consumes less water.
- Experiment with new products like organic sugar, which has a large export potential and a big hit in US.
- Value added products like branded sweet shops or packaged sugarcane juice.
Dharani management should not be deterred by the Orissa failure; it must learn the lessons and try again in Orissa and other states with a better planning and understanding of the conditions prevailing in the prospective location. The third form of growth is in the domain of people. Here the ideal is to create a work-place which provides sufficient opportunities for the people to grow professionally in terms of knowledge, skill and also personally as human being in their mind, heart and soul, with an emphasis on inner and outer well-being of people. A company like Dharani situated in a rural area, small, profitable and cash rich, without much competitive pressures, is probably in a better position for creating such a workplace than a bigger company struggling against fierce competition.
The fourth movement of growth is what is now called as corporate social responsibility. Here also a company like Dharani located in a rural area has immense scope for contributing positively to the development of the community of which it is a part. Apart from the traditional charitable activities like schools or hospitals, Dharani can think of other schemes like enhancing the employability of rural youth, vocational education, entrepreneurship training, nurturing rural artisan, harnessing the innovative potentialities of rural youth, free libraries.
So, Dharani Sugars should not confine itself to a narrow vision of growth in the form of expansion and diversification. If the company is not able to grow much in this dimension because of lack of opportunities, it can focus its attention more on the other three forms of growth. If Dharani can build an organisation which is efficient, provides a work environment that fosters professional and personal development and wellbeing of its employees and contributes substantially to the progress of the larger community of which it is apart then it has achieved a qualitatively better growth than a company which has grown big and fat with relentless diversification and expansion, but lacking in other three dimensions of growth.