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Mistaking Growth for Development
Mistakes of Mainstream Management [MMM Series]: Chapter 9
Laksh Raghavan
January 05, 2025
Today’s post is dedicated to one of my favorite Systems Thinkers, Russell Ackoff. He was the proponent of the ideas central to this post: The lens of growth vs development.
I’ll take this lens to the Tech. startup scene in Silicon Valley and to large corporations and articulate how they typically mistake growth for development with some examples.
Organizational psychology is a fascinating field. The late Charlie Munger had to say a few things about the importance of incentives in organizations. Before I quote him, we must note that the concept of “blame” doesn’t make sense when organizations are viewed as complex adaptive system with purposeful actors.
As Morgan Housel often reminds us that there is a saying in the Social Services circles (these are the folks that deal with the kids who tend to have behavioral and social issues throughout life):
All behavior makes sense with enough information!
Similarly in an organizational setting, people's actions, even those that seem irrational or puzzling, often have a logical basis when viewed through their unique experiences and circumstances (including their position/department in the organization).
As an executive or a founder, if you have a worldview that (most) people (that went through your hiring process) are individually good, then look at the incentives (and incentive-caused-bias) at play in order to explain their collective dysfunctional behavior.
“Show me the incentives, and I will show you the outcome.”
“Never, ever, think about something else when you should be thinking about the power of incentives.”
Table of Contents
Growth vs Development
Here is a pertinent quote from Russell Ackoff about the lens of growth vs development:
"Growth and development are not the same thing. Neither is necessary for the other. A rubbish heap can grow but it doesn't develop. Artists can develop without growing. Nevertheless, many managers take development to be the same as growth. Most efforts directed at corporate development are actually directed at corporate growth.
Growth is an increase in size or number. Development is an increase in competence, in one’s ability to satisfy one’s own needs and legitimate desires, and those of others. Corpulence is a product of growth; competence a product of development. Growth is quantitative; development is qualitative. Growth is a matter of earning; development is a matter of learning.
A corporation develops to the extent that it increases its ability to contribute to the development of its stakeholders. Growth may inhibit development but development cannot inhibit growth. Bigger is not necessarily better. The best reason a corporation can have for growing is to maintain or increase employment while increasing the productivity of labor. Here growth is a means, not an end."
A lot of people found it curious how Apple didn’t do any mass layoffs like the other Tech. giants in the recent past. Well, that’s because they didn’t go through a hiring spree during the pandemic (unlike the other tech giants) in the first place. Before we speculate about that, let’s first start with a pertinent quote from Steve Jobs:
“Victory in our industry is spelled survival.”
Jobs understood the focus needed on long-term viability. With that context, let’s look at how the incentive structures, organizational design, policies, etc. are setup at Apple - click this link and watch the video (1 min 27 sec) to hear what Tim Cook had to say about that.
Tim Cook curiously says that there is only one ‘Profit & Loss’ (P&L) for Apple - at the company level. Jobs understood that local optimization of P&L may be detrimental to the whole company. If iPhone had to cannibalize iPod, so be it! Local efficiencies don’t guarantee global effectiveness.
Now compare that to how your organization is setup with different budgets, cost centers, P&Ls, etc. Now think about how hiring budget is calculated/funded/justified in your organization. Can the variables that determine it create a spike - say like during the pandemic when many turned to online - from shopping to entertainment?
With that thought for you to chew on, let me shift to discussing the lens of growth vs development on the tech. startup scene (colored by my living in the Silicon Valley for the past 15 years)…
Startup Scene in Silicon Valley
Before I get to this topic, I’d like to set the stage by recollecting an old wisdom from the East about starting a new businesses. I was born and raised in Tamil Nadu, India. As luck would have it, Tamil is one of the two longest-surviving classical languages in India, along with Sanskrit, attested since c. 300 BCE. Old Tamil literature is full of terrific insights, especially about human behavior - a lot of Lindy ideas.
From Kural to Midjourney
A popular one is Thirukkural (or Kural) - a classic Tamil language text, divided into three books with aphoristic teachings on Virtue, Wealth and Love - 1,330 short couplets, or kurals, of seven words each. That’s it!
Here’s is what the old text says about starting a business:
குன்றேறி யானைப்போர் கண்டற்றால் தன்கைத்தொன்று உண்டாகச் செய்வான் வினை.
It loosely translates to
A business undertaking started with your own money is like elephant-fights witnessed from a hill.
I always used to wonder about the meaning of that verse and why he so, from my childhood days. But, I got my answers in Silicon Valley.
The mistake of confusing growth with development is committed by many Venture Capitalists (VCs) and thereby the founders that work with them. Not all VCs behave this way, but this behavior continues as late as the current AI mania…
Let’s see what David Holz, the founder of Midjourney has to say:
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