Consulting to Growth Companies

This article will focus on consulting to growth companies. It will provide an overview of the role that consultants play in growth companies, a description of global growth companies, and approaches to identifying and ranking growth companies. In addition, the strategies that companies use to promote growth, performance, and innovation and the issues associated with human capital in growth companies will be addressed and analyzed. This article will be of particular use and interest to consultants to growth companies. As this article will explain, consultants, with domain expertise and suggestions for optimization of a company's strategic assets, are vital to the success of growth companies.

Keywords Consultants; Global Growth Companies; Growth Companies; Human Capital; Innovation; Performance; Strategic Assets

Management > Consulting to Growth Companies

Overview

Growth companies are those companies whose rate of growth significantly exceeds that of the average in its field or the overall rate of economic growth. Growth companies, which increase at significantly faster rates than the overall economy, differ from mature companies that have stable earnings and little to no growth. Growth companies are classified into high, moderate, and low growth companies. High growth companies refer to companies that grow at an average rate greater than 20 percent per year for at least four or five years in a row. Growth companies tend to reinvest their earnings back into the company to expand the business and promote increased growth and performance.

The stakeholders of growth companies, including mangers, investors, consultants, and the public, are influenced by the performance of growth companies. Managers seek out these companies for the profit and challenge. Investors seek out these companies for the higher than normal return on investment dollars. Consultants seek out growth companies for the abundant work and opportunity they provide. The public seeks out growth companies as an expanding source of employment. Growth companies are characterized by the leadership position that they claim in an expanding product or market area. Growth companies, common in the technology industries, tend to develop, promote, and capitalize in new and technologically-focused goods or services (Kotter & Sathe, 1978).

Growth companies, characterized as learning organizations, make use of consultants to guide choices, build structures, develop goals, and allocate resources that promote growth. The following sections provide an overview of the role that consultants play in growth companies, a description of global growth companies, and approaches to identifying and ranking growth companies. These sections serve as a foundation for later discussion of the strategies that companies use to promote growth and the issues associated with human capital in growth companies. This article will be of particular use and interest to consultants to growth companies. As this article will explain, consultants, with domain expertise and suggestions for improvement and optimization, are vital to the success of growth companies.

Consulting to Growth Companies

Consultants refer to professionals who perform specific services for a fee. Consultants work in numerous fields including human resources, investment, financing, production, research and design, marketing, shipping and distribution, forecasting, safety, risk management, and regulatory oversight. Consultants may or may not be licensed depending on their field. Consultants in the legal and accounting fields must be licensed while the fields of computer programming, business strategy, and marketing have no licensing requirements for consultants. Consultants can help traditional companies achieve growth. Consultants to growth companies may assist in the preparation of a business plan, raising capital, conducting market research, or advising in the development of a company's product, manufacturing process, or marketing strategy. Consultants help companies develop the following strategies that promote substantial, long-term growth (Zielasko, 2006):

• Sense of purpose: Companies must have a purpose and a mission outside of profits. The purpose can be product, service, or market related. The sense of purpose will unite employees and create increased loyalty and efficiency.
• Market intelligence: Companies must move beyond internal focus and analyze market trends and how their company can capitalize on the market.
• Customer-driven processes: Companies must concentrate their efforts in developing and implementing customer-driven processes that put the customers' needs first.
• Smart technology: Companies must develop smart and interconnected tools.
• Seeing the future: Companies must develop forecasting tools.
• Finding and keeping the best and the brightest people: Companies must seek out and work to keep industry talent.

Consultants to growth companies generally work on a contract basis and do not earn fringe benefits. Consultants to growth companies generally sign consulting agreements which refer to contracts between companies and advisors who are not their employees. The contracts cover the scope of the consultant's obligations, understandings as to who owns his work product, the limitations on his authority, and the company's fee payment obligations. The following issues are described or addressed to varying degrees in every consulting agreement (Hanson, 2004):

• Scope of Work: The consulting agreement must specifically state what services the consultant will provide. The time given for the consultant to perform the services must also be explicitly stated.
• Compensation: The consulting agreement must specifically state the compensation that will be for paid to the consultant for the provided services. Examples include flat fees, salary, expenses, bonuses, and company shares.
• Independent Contractor Status: The consulting agreement must indicate the contractor's independent contractor rather than full-time employee status. This distinction is a requirement of tax reporting law.
• Term and Termination: The consulting agreement must specifically state the term of the contract in months or years. The client and the consultant may also choose to add specific details and requirements for termination of the contract by either party. Common criteria for termination of consulting agreements include breach of contract and illegal activities.
• Rights and Data: The consulting agreement must specifically address the allowable and legal uses of the consultant's work produced while under contract. The consulting agreement should, if relevant, specify copyrights and ownership rights of work or products.
• Conflict of Interest: The consulting agreement often includes a non-competition clause for, at least, the length of the contract. This clause prohibits the consultant, while under contract, from doing similar work that would compete with the client for business or market share.
• Non-Solicitation: The consulting agreement usually includes a non-solicitation clause which forbids the consultant, while under contract, from soliciting the client's employees.

Consultants, as described above, participate in similar ways in growth companies across businesses and industries. Consultants to growth companies help companies learn to be flexible, handle change, work as a team, and work at a high level of efficiency and performance despite risk and uncertainty.

Global Growth Companies

The potential for growth across businesses, industries, and markets is increased by the emergence of new economic markets and transnational companies. New business opportunities abound in the new global marketplace for emerging and established corporations. The World Economic Forum, an independent international organization committed to improving the state of the world by engaging leaders in partnerships to shape global, regional and industry agendas, tracks global growth companies. Economic globalization and related practices are changing business practices worldwide. The World Economic Forum developed the Community of Global Growth Companies as a resource to support emerging businesses as they navigate the challenges of new geographies, markets, cultures and regulatory systems. The World Economic Forum hopes to support and align with companies that will become future industry leaders.

Global growth companies, as defined by the World Economic Forum, are businesses that have demonstrated a clear potential to become leaders in the global economy based on such factors as a company's business model, growth record, leadership and the markets it serves. Global growth companies meet or exceed the following criteria:

• Global growth companies expand outside their traditional boundaries.
• Global growth companies experience annual growth rates exceeding 15 percent.
• Global growth companies have revenues between $100 million and $2 billion.
• Global growth companies demonstrate leadership in a particular industry.

Economic indexes, such as the Standards and Poor's 500, suggest that global growth companies, which span multiple markets, will continue to outperform companies that remain tied to a single market.

Identifying & Ranking Growth Companies

The financial sector tracks company growth and performance data to evaluate the health of companies and the relative risk in investing in companies. Company growth and company performance are not the same thing. Growth refers to economic expansion as measured by any number of indicators. Performance refers to the results of activities of an organization or investment over a given period of time. Performance is a criterion for evaluating growth. Company growth and performance is measured and tracked by financial news organizations such as Business Week and financial investment organizations such as Standard & Poor's.

Growth companies tend to be measured and ranked within specific industries and markets. For example, in 2006, Business Week released the figures for the top 50 hot growth technology companies. Business Week determines and measures company growth by sales growth, total return to shareholders, return on equity, and overall sales. Examples of hot growth technology companies in 2006 include Amkor Technology, Apple Computer, AT & T, Google, Gilead Sciences, Cognizant Tech Solutions, Amphenol, Oracle, NII Holdings, and Lam Research. Business Week also produces a list of the 50 best performing companies. The top 2007 performers, measured by the two core financial measures of average return on capital and sales growth over the previous 36 months, include Google, Coach, Gilead Sciences, Nucor, Questar, Sunoco, Verion Communications, Colgate-Palmolive, Goldman Sachs group, and Paccar. The comparison between the top growth companies in technology and the top performers across industries illustrates the difference between growth and performance. They are related categories but not one in the same.

Business Week bases their list on the ten economic sectors, including financials, technology, healthcare, basic materials, energy, consumer staples, industrials, telecom, utilities, and consumer discretionary, that make up the Standard & Poor's 500 (S & P 500) company index. The Standard & Poor's 500 ranks the leading companies in the U.S. economy's ten biggest industries. The S & P 500 market index began in 1923 and expanded to include 500 companies in 1957. Rankings and indexes, such as those described in this section, influence the public and financial sectors investment choices.

Applications

Growth Companies

There is a strong correlation between growth and managerial and operational strengths, ideas and vision, and investment and funding. Growth is related to how effectively companies understand and maximize their distinctive capabilities and strategic assets. Distinctive capabilities refer to skills that enable companies to operate at an exceptional level of effectiveness. Examples of distinctive advantage include an innovative corporate culture, talented management and development groups, and business networks that enhance supply and purchasing. Strategic assets refer to the resources companies have that they can exploit. Examples of strategic assets include intellectual property, reputation for quality and fast delivery, a desirable location, and exclusive licenses and copyrights.

Companies gain competitive advantage by understanding, promoting, and capitalizing on their distinctive capabilities and strategic assets. Distinctive capabilities and strategic assets only create competitive advantage and growth when they are managed correctly through the life cycle of a company or product. For example, start-up or early stage companies will go through distinct development phases, including pre-seed, seed, start-up, early-stage, and expansion, that require different management tools, tactics, and approaches. Management, during each of these phases, will be working on developing management structures and systems that build and exploit the company's distinctive capabilities.

Issues that effect growth include human capital, intellectual property, change management, and investment funding. Growth companies tend to have an operating business plan that guides the company toward growth choices and activities. An operating business plan refers to a dynamic document that highlights the strengths and weakness of the company and guides the company toward learning and increased efficiency.

Companies depend on outside consultants to strategize and establish a company position on human capital, intellectual property, change management, and investment funding issues. Professional business consultants are often brought into the company to help develop the operating business plan. Legal consultants, often highly specialized intellectual property lawyers, are usually necessary to navigate and resolve the company's intellectual property issues. Change management consultants may help a company develop change management processes for initiating and implementing organizational change. Financial consultants may be used to brainstorm and attain funding. Financial consultants tend to have expertise in funding areas such as government grants, loans programs, private investment, and corporate ventures. Financial consultants help companies connect funding priorities to capital to create growth (Turner, 2006).

Management consultants help managers learn to manage in a way that creates and promotes growth. Consultants lead companies in maximizing the strengths associated with company financial resources, brand recognition, global reach, economies of scale, and human talent. Consultants also help companies develop a pro-growth business environment by improving business strategy, work strategy, organizational arrangements, and people management approach (Nadler, 1997):

• Business strategy: The company business strategy refers to the context for specific business decisions and operating strategies. Examples include strategies for growth, business focus, product cannibalization, partnerships, and global focus.
• Work strategy: Company work strategy refers to the set of business decisions required to bring the vision to life and drive growth. Examples include competitive innovation, organizational speed, and cost efficiency.
• Organizational arrangements: Growth companies tend to choose organizational arrangements such as structural simplicity, small and autonomous business units, pervasive growth mindsets, and shared organizational values and culture.
• Human capital: Growth companies are dependent on the talent and vision of their people. Top talent is often drawn to growth companies or ventures by the opportunity to work on cutting edge projects in semi-autonomous work environments.

The following section describes the human resource issues common in growth companies.

Issues

Human Resources & Growth Companies

The greatest strategic asset of most growth companies is their human capital. A growth company's management team, research and design team, human resources team, financial team, production team, marketing team, distribution team, and consulting team, together, comprise the human capital that create growth. Growth companies, across businesses and industries, tend to experience similar human capital or human resource problems. The organizational approach to solving human resource problems (and eventual outcome and resolution) influences a company's ability to initiate and maintain growth.

Growth companies tend to experience problems caused by the need for rapid decision-making; problems caused by rapidly expanding job demands; problems caused by large recruiting and training demands; problems caused by constant change; and problems caused by a constant strain on resources. Consultants from outside the company often assist growth companies with resolving human resource problems. Growth companies tend to employ similar solutions to these human resource problems. Common solutions to human resource problems, as described above, include the following (Kotter & Sathe, 1978):

Recruiting, selection, and training: Growth companies tend to be extremely selective in their hiring process and devote extensive resources, both money and thought, to their training process. Characteristics of people hired into growth companies include: The ability to perform the job without retraining; the potential for development and growth; the ability to handle and initiate change; and flexibility. Companies experiencing profitable growth tend to show a greater commitment to employee training than non-growth companies. Growth companies emphasize different training topics and approaches; emphasize tailored, job-specific topics such as product and customer knowledge; stress on the job training; develop their senior and middle managers through leadership training, and regular management conferences; and promote informal communication within the organization.

• Team structures and team building: Growth companies tend to have team or matrix structures and prioritize and promote team building within the organization. Team structures, in contrast to traditional hierarchical organizations, allow for success within changing and rapid decision-making work environments. Outside consultants are often utilized to lead team-building exercises intended to strengthen connections, learning, trust, and decision-making abilities.
• Managing the culture: Growth companies tend to have an actively articulated and managed but informal company culture. Characteristics of the culture of growth companies include a shared belief in openness; a shared vision for the company; an explicit commitment to employee welfare and quality of life; and norms that support and value learning, flexibility, and change. This company culture is facilitated and promoted through shared, rather than hierarchical, decision-making, a work environment that may be aesthetically-pleasing and offers food and exercise facilities, the practice of internal job postings, and flexible schedules.
• Planning: Growth companies tend to engage in active organizational and human resource planning. The leaders and managers of growth companies tend to excel at understanding, assessing, and forecasting potential problems. This long-range vision allows managers to address problems and plan solutions before situations become destructive to the organization and inhibit growth.
• Human resource staffing: Growth companies tend to employ full-time human resource managers to manage and oversee employee hiring, training, and evaluation. Human resource managers in growth companies tend to go beyond traditional personnel management to work as problem solvers, life coaches, advisors, confidants, and mediators. The human resource manager of a growth company will play an integral role in company activities and regularly meet with mangers, the company president, and team-members to assess both their performance and satisfaction in their rules.

Human resource or human capital in growth companies is considered to be one of the most important and malleable factors or variables effecting growth. Human resource consultants have the potential to help companies optimize their human capital and talent and, ultimately, promote increased growth.

Conclusion

Growth companies engage in constant evaluation and forecasting activities to assess how well the company is meeting its goals as well as to search out new opportunities. Consultants to growth companies can improve human resources, investment, financing, production, research and design, marketing, shipping and distribution, forecasting, safety, risk management, and regulatory oversight. Most importantly, consultants can help companies assess their distinctive capabilities and strategic assets and develop their operating business strategies. Growth companies eschew industry assumptions, develop strategic focus, and value innovation as a means to growing their customer base. Growth companies tend to dare to innovate in products, services, and delivery. Growth companies optimize their unique strengths and focus on innovation to make their competitors irrelevant in the marketplace (Kim & Maugborgne, 1997). In the final analysis, consultants to growth companies have the opportunity to work in dynamic work environments and influence the direction and operation of the world's most innovative companies.

Terms & Concepts

Business Environment: The combined factors, such as tax structure, public services, government regulations, labor force, and infrastructure, that affect the profitability and experience of conducting business in a particular business organization.

Business Strategy: The context for specific business decisions and operating strategies.

Corporation: A firm that is owned by stockholders and operated by professional managers.

Consultants: Professionals who perform specific services for a fee.

Consulting Agreements: Contracts between companies and advisors who are not their employees.

Distinctive Capabilities: Skills that enable companies to operate at an exceptional level of effectiveness.

Growth: Economic expansion as measured by any of a number of indicators.

Growth Companies: Those companies whose rate of growth significantly exceeds that of the average in its field or the overall rate of economic growth

High Growth Companies: Companies that grow at an average rate greater than 20 percent per year for at least four or five years in a row.

Operating Business Plan: Dynamic document that highlights the strengths and weakness of the company and guides the company toward learning and increased efficiency.

Performance: The results of activities of an organization or investment over a given period of time.

Strategic Assets: The resources companies have to exploit.

Bibliography

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Suggested Reading

Beneda, N. (2003). Estimating free cash flows and valuing a growth company. Journal of Asset Management, 4, 247-257. Retrieved June 7, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=11383256&site=ehost-live

Bragg, S. (2000). How explosive growth companies can conserve cash. Journal of Corporate Accounting & Finance (Wiley), 12, 9-14. Retrieved June 7, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=17077299&site=ehost-live

Sherman, A. (2003). Human capital — a critical growth driver. Fast-Track Business Growth, 73-82. Retrieved June 7, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9329933&site=ehost-live

Treynor, J. (1994). Growth companies. Financial Analysts Journal, 50, 12-16. Retrieved June 7, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9504113313&site=ehost-live