Corporate leaders can be forgiven for taking an increasingly cautious view of the future: growth in the developed markets remains slow while growth in the emerging markets is falling from a once-great height. But those who fail to pursue top-line growth and, instead, focus on cost cutting to improve the bottom line risk falling behind more enterprising competitors. Around the world, and in every industry, sector, and business, there are companies managing to grow fast and to build an enduring lead over their rivals.
BCG’s research shows that the gap in operating margin between corporations in the top-performing quartile (companies achieving high growth and high operating margins) and those in the bottom quartile has widened dramatically as the global economy has become ever more volatile and unpredictable. In 1950, the gap was 13 percent. Sixty years later, it was 59 percent.
What is the secret of the fast-growing companies?
In essence, leaders at these organizations understand that there is a growth imperative. This drives them forward. They see opportunities everywhere, pursue them relentlessly, and never think that their job is done. For these leaders, there is always more commercial space to be conquered. There are always more holes than cheese.
Why Growth Is Imperative
In the boom years, before the financial crisis struck in 2008, companies could succeed simply by riding market growth. Now, however, CEOs have no such luxury. Competition is more intense than ever—not least because global challenger companies from emerging markets have burst on the scene just as global growth has slowed. The presiding law is Darwinian natural selection. You either grow or you die.
Growth itself is not a strategy, however, and it cannot be the sole focus of any company. As Edward Abbey, an American essayist, warned, “growth for the sake of growth is the ideology of the cancer cell.” Before anything else, companies must win what we call the “right” to grow—and this means building a sound operational foundation.
Ultimately, however, growth—or, rather profitable growth—is the best way for companies to create sustainable economic value. BCG’s analysis reveals that over a five-to-ten-year horizon, 60 to 75 percent of total shareholder return is derived from a company’s profitable growth. In other words, profitable growth is much more important than even earnings or dividend growth.
And growth has an importance that extends far beyond total shareholder return. It is crucial for sparking a winning spirit within a company, which is especially valuable in tough times since it creates a virtuous circle. It provides companies with economies of scale and the advantages that come from a broadening network of customers and suppliers. It also generates the funds required to invest in innovation and experimentation—which can eventually lead to business expansion, greater market share, and still more profits. By contrast, the absence of growth can be a straitjacket, inhibiting a company’s creativity and triggering its downward spiral, or doom loop.
Perhaps most important of all, growth helps to attract and retain the most talented people by fostering a feel-good, can-do culture. Every era has its desirable corporate destination—its “place to be.” In the 1950s, the industrial goods companies attracted the smartest graduates; in the 1980s, the technology companies topped the list of hot employers; and today, the leading online companies have a special draw on the best and the brightest. What do all of these sectors share in common? They experienced exploding growth when they commanded the labor market.
Growth creates more and better opportunities for everyone. In fast-growing companies, promising young thinkers and doers do not have to wait in line for promotions behind less innovative but more senior coworkers. In slow-growth (or no-growth) companies, by contrast, even the best and brightest might have to toil for years before a superior falls under the proverbial bus and an opportunity opens up. So it should come as no surprise that many of the young high-value employees at these organizations become frustrated and, in the end, choose to move elsewhere.
Where To Find Growth
Even though global growth has slowed, individual companies are finding the opportunities for growth as great as ever: there really are more holes than cheese. It is just a question of knowing where to look.
The first priority of any company that commands one or more competitive advantages over its peers should be expanding the existing business—that is, maximizing the core. This can be accomplished in a number of ways, such as boosting demand by better understanding the needs of customers, increasing the effectiveness of the sales force, or fine-tuning prices.
Another way is to offer improved products and services to existing and underserved customers while developing underused distribution channels to reach them. Companies embracing this strategy include soup manufacturer Campbell’s, consumer-goods giant Procter & Gamble, and premium automotive manufacturers such as Audi, BMW, and Mercedes-Benz. All have used their existing brands to strengthen their product portfolios and to appeal to larger groups of consumers.
No comments:
Post a Comment