What companies can learn from Liverpool’s growth stall

Whatever the reasons, the slump after the success is a fairly common occurrence. It happened to jeans maker Levi Strauss in 1996, a year after it achieved its highest ever sales, capping a decade of exponential growth in revenues and profit. Quite suddenly, it seemed to slide off a cliff as sales went into free fall, down by a third in the next four years, while market share in 2000 had halved from the start of the decade.

Levis was going through what an HBR article on the subject called the “growth stall”, a crisis that has over the years hit some of the world’s best companies including 3M, Apple, Caterpillar, Daimler-Benz, and Volvo. Take ArcelorMittal. Till 2008, the company was flying high. Following a series of audacious takeovers in the previous five years, it had become the world’s top steel maker. In 2007-08, it reported sales of $124.9 billion, up nearly a fifth from the previous year, with a profit of $9.4 billion. Yet the very next year, following the collapse in global demand after the financial crisis, its sales virtually halved as profits turned to losses. Its stock price crashed as it also lost market share to Chinese companies. The high of 2006-07 was replaced by years of struggle.

In sports the phenomenon has also been called the “Second Season Syndrome”, which football journalist Simeon Gholam defines as “a team, who after defying expectations and punching well above their weight in their first season in a new division, suffers from an anti-climactic second season, enduring a severe collapse in form, slumping down the table and possibly ending in relegation.”

Literature on the subject reveals that most growth stalls emanate from internal, not external or environmental factors. Which means in most cases they could have been prevented. In their HBR piece, the authors identified four major causes of growth stalls. These were a premium market position backfiring, a breakdown of innovation management, abandoning a core business prematurely and lacking a strong talent bench.

The good news: unlike a Nokia or a Kodak, many companies and teams have been able to ride back from the growth stall.

Take the Indian cricket team that left for the 2007 World Cup in the West Indies. In the previous World Cup in South Africa, the young team had surprised everyone by going all the way to the finals. This time it was coming off a hot streak with wins over fancied opponents. Coached by Greg Chappell and led by Rahul Dravid, the team should have done well on the slow, turning wickets in the Windies. It didn’t, losing to Bangladesh and Sri Lanka to go out in the group stage itself. Yet the same team stormed back to lift the next edition of the tournament in 2011.

Liverpool could still turn around its depressing season by winning its last three games and sneaking into the Champions League. But the club, whose wage bill at around £325 million last season is second only to Manchester City’s £351 million, needs to introspect on the reasons for its fall from grace. It might find that success bought by paying top dollars isn’t always sustainable.