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Growth and Efficiency

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March 06, 2020

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In terms of practical operations, executives in the business sector need to make decisions in situations requiring focusing on one thing and implement strategies to drive the organization to such direction with existing resources. In most cases, businesses have to choose between Growth and Efficiency. Both of these must be traded off in business operations. If executives choose to create growth, they have to pay less attention to efficiency. If they aim to improve efficiency, they have to accept that the business will not be able to create the great growth.

However, since the growth often refers to the expansion or increase in various dimensions of business operations, including sales, market share, manpower, segment opening or new products, this means that the more expenses must be incurred to enable the business to expand its operating activities.

In this term, growth is the opposite of efficiency as the development of efficiency focuses on using existing resources for the highest value. It may emphasize on reducing costs in order to achieve the same sales volume or using the same amount of resources in an organization to increase its sales volume and reduce losses.

In summary, we are not able to create growth and efficiency simultaneously as the creation of growth requires increasing resources and expenses. While focusing on efficiency, the organization will pay attention to the reduction of the unit cost of operations.

The next question is businesses should focus on growth or efficiency. According to my experience as an entrepreneur, I think businesses can choose to focus both areas depending on the period of business cycle of the industry we compete with. If the business is in an uptrend cycle and launched products are innovative and popular in the market, it should focus on the growth. However, if the our products have limited marketing channels and there are many competitors in the market, it should focus on the efficiency in order to maintain profit levels.

Regarding the choice between growth and efficiency, there are some interesting ideas that I got from the book called Jeff Bezos: In His Own Words. This book focuses on the experiences and ideas from Jeff Bezos, the founder of Amazon, the large global technology company. Bezos said that businesses should dedicate all their resources to the point where the change of only 1% is significant to the entire company instead of the increase in efficiency of 1%. According to Bezos' statement, it represents a viewpoint that focuses on building growth before efficiency, which reflects Amazon's rapid growth in sales and expansion of new business segments, including retail business, shipping, streaming, and cloud. Amazon's experience emphasizes that when executives choose to focus on what areas, they must survey what period of business cycle that businesses are in and whether their business is expanding or already saturated.

In summary, businesses have a situation where decisions are to be made and the direction must be determined. The main option is to choose Growth or Efficiency. In practical ways, businesses can choose both areas. The main factors for consideration are the current situation of the industry in which we are competing is at a point of expansion or saturation. If it is in the period of expansion, we should dedicate all resources to create the growth. However, if this industry is saturated or not expanded significantly, we should focus on increasing operational efficiency. Businesses cannot focus on creating growth and efficiency simultaneously due to its opposite nature. The creation of Growth causes expenses, while the creation of efficiency aims to reduce expenses. As a result, it is the duty of executives to analyze the industry situation in order to further establish appropriate strategies.

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