Here is a brief excerpt from an article written by Kabir Ahuja, Jesko Perrey, and Liz Hilton Segel for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.
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Growth winners think about growth in new ways and pursue it across multiple dimensions.
Growth isn’t just about building value; it’s fundamental to long-term business survival. Consider this: almost half of the 100 largest companies on the New York Stock Exchange 30 years ago that enjoyed strong shareholder returns but did not post top-line growth had been acquired or delisted 20 years later.
Despite such compelling statistics, we find that many companies continue to focus on controlling costs as a way to drive earnings. When controlling costs dominates the corporate agenda, it sucks the oxygen out of any growth plan. Conversely, we’ve found that companies that have a clear agenda for organic growth and pursue it systematically outperform the competition.
How companies actually capture that growth, however, has changed drastically with the rise of technology and advanced analytics. Digital has changed the nature of growth by rapidly accelerating the pace of business, expanding the scope of competition, and often introducing new business models seemingly overnight. Companies that are most successful at driving growth are those that can execute across multiple dimensions and inject speed, agility, and analytics into their corporate DNA.
The new world of multidimensional growth
Achieving above-market growth relies on taking advantage of tailwinds and reducing exposure to headwinds. Better allocation of resources or driving acquisitions and divestitures to be in the right place explains more than 75 percent of the variance between high and low performers. But that’s just part of the story. A look at the share-price performance of 550 US and European companies over 15 years reveals that for all levels of revenue growth, those with more organic growth generated higher shareholder returns than those whose growth relied more heavily on acquisitions.
Given this new dynamic, we wanted to understand better how businesses think about driving organic growth and what the top growers actually do to achieve it. To that end, we surveyed almost 600 executives at leading companies around the world. We found that companies are active across three broad growth dimensions:
o Investing. These companies squeeze funds out of various sources (e.g., admin) to double down on existing high-growth activities. An example of this approach is Zara, which found a winning model in its rapid-fashion program and grew by relentlessly investing in it.
o Creating. Winning companies build value by designing and deploying new products, services, or business models. Adobe, for example, has grown rapidly by developing its Creative Cloud services and establishing an innovative new model in which customers get access to all Adobe products for an ongoing fee.
o Performing. These businesses continuously optimize core commercial capabilities in sales, marketing, pricing, and customer experience. Capital One epitomizes this approach by using advanced customer data to identify microsegments of customers, tailor products to them, track trends, and test products.
For executives managing a complex landscape of competing priorities and pressures, this three-dimensional framework provides a simple way to assess approaches to growth and identify the capabilities needed to follow through on them. While 60 percent of respondents singled out one primary dimension for growth, all of them had a baseline of activity across each dimension. But overindexing on a single dimension means that companies could be leaving growth opportunities on the table by not paying enough attention to the other options.
This point is suggested in the survey. Each dimension can enable above-market growth, though with varying effectiveness. Thirty-five percent of Performers grew faster than the market average, compared with 31 percent for Creators and only 19 percent for Investors. Among the companies with the most significant growth, however, 44 percent execute across multiple dimensions, though not necessarily simultaneously. They dial up or down on each dimension based on their goals. “You’ve got to be working the core while you build the new growth opportunities,” says Neil Smit, CEO of Comcast. “I think a lot of times my job is knowing when to pull the right levers at the right time.”
Amazon is a helpful illustration of this effect in action. The global e-commerce company succeeded originally as a technology-driven company that optimized processes and out-executed its competitors. But its continuous growth has been supported by driving investment into new categories from fashion to electronics using the same business engine, while also creating new revenue streams through products like Echo and Fire, new services like Prime that is now core to their retail business, and new businesses like Amazon Web Services.
This isn’t to suggest that multidimensional companies drive growth equally through each dimension. In fact, the data suggests that growth leaders rely on a single core dimension but actively engage another one or both, with results varying based on how much weight a business gives to each. Some 35 percent of companies that are dominant in the Investor profile but also proficient in other profiles are high growers. For multidimensional Performers, it’s 34. The strongest growers were multidimensional Creators, 43 percent of whom grew faster than the market.
“While best-in-class performance is our foundation for success, we are diligently investing in other relevant growth opportunities, such as in e-commerce markets,” affirms Jürgen Gerdes, member of the Board of Management of the Deutsche Post DHL group (responsible for Post, eCommerce, Parcel). “Most recently we have tapped into the creator profile with very successful digital innovations, such as our messaging service SIMSme and our innovative electric vehicles, called the StreetScooter.”
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Kabir Ahuja is a partner in McKinsey’s Stamford office, Jesko Perrey is a senior partner in the Düsseldorf office, and Liz Hilton Segel is a senior partner in the New York office.Tags: Amazon, Comcast, Growth winners think about growth in new ways and pursue it across multiple dimensions, Invest [comma] Create [comma] Perform: Mastering the three dimensions of growth in the digital age, Jesko Perrey, Kabir Ahuja, Liz Hilton Segel, McKinsey & Company, McKinsey Quarterly