All Growth Will End

Today’s announcement of the acquisition of Cadbury by Kraft is more evidence of one of the great lessons I learned from Jim Schrager - my strategy professor at the University of Chicago Graduate School of Business.

All growth will end.

The question is, what then?

Organic growth comes from three sources.

1. A growing economy. A rising tide lifts all boats.

2. A growing industry. Same principle, fewer beneficiaries.

3. Innovation.

When one and two lose their power, innovation is all that’s left. A point Apple has demonstrated powerfully in the last twelve months, during which its share price has risen from $78 to $210. Proof of the power of innovation in any economy. And which the launch of the iTablet next Wednesday will undoubtedly continue.

But when a company’s innovation pipeline is allowed to run dry, it falls victim to weak economies and mature industries.

At that point, all that’s left is transactional growth.

As mature industries, chocolate and processed cheese take some beating. Chocolate has been around for about 2000 years. Processed cheese since 1916. But whatever your passion, neither gets the business heart pumping when it comes to year on year organic growth potential.

Given that, with rare exception, neither Cadbury or Kraft have been able to produce meaningful innovation pipelines, the growth of both companies has for forty years or so been predominantly fueled by merger and acquisition.

Cadbury got into and then out of the soft drink business before settling in 2008 on a strategy that focused on being the biggest and best confectionary company in the world.  Their plan, laid out on their website emphasizes focus, efficiency and under-developed markets. A plan that lacks passion and Purpose. Big for big sake contains neither.

Kraft’s history involves endless name changes, mergers and acquisitions. They have been owned by Phillip Morris and merged with Nabisco.

Twice Kraft have sold off their entire confectionary business. A confused strategy for a company that just spent $19 billion on acquiring another one.

As a growth strategy this deal is a short-term solution. M & A deals rarely produce the kind of results the owners project, and the inherent problems of both companies now become a larger headache for more people.

As a demonstration of long-term planning it demonstrates what might kindly be described as inconsistency.

But as proof that some companies run out of new ideas before they run out of money, it’s hard to beat.