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Innovation and growth are often lumped together as management concepts, for good reason: it’s self-evident that innovation drives growth, and conspicuous fast growers often benefit from high-profile innovations. Our research, however, suggests growth-minded companies stand to benefit by disaggregating the two concepts. There are, in fact, multiple paths to growth, and the most common growth characteristics among above-average growers often aren’t related to innovation. Significant as well, companies aspiring to the highest levels of growth need to sequence their initiatives carefully. Put differently: you probably can’t do everything at once.
How many levers?
In earlier research, we explored three broad profiles that describe how companies achieve organic growth.1 “Investors” tap new sources of funding or reallocate existing funds to capture new growth for their goods and services. “Creators” build business value with new products or through business-model innovation. “Performers” grow by steadily optimizing commercial functions and operations. Our latest findings suggest that focusing on two of these growth levers simultaneously will spur growth more effectively than emphasizing one.2
In fact, we found that more than three-quarters of companies that mastered two or more levers grew faster than their industry (Exhibit 1). This makes intuitive sense; combining two approaches allows for synergies that can multiply impact. Companies with strong reallocation practices (investors), for example, can provide managers with the needed additional resources to optimize higher-potential assets (performers). Too often, this sort of helpful one-two punch is the exception: companies instead tend to emphasize what worked in the past, and thus to rely too heavily on a single lens—which leaves potential growth on the table.
What about three levers? In some sense, it’s the gold standard; a healthy proportion of top-growth-quartile companies were investors, performers, and creators.3 That said, executing on every front simultaneously is more than many companies can handle. That’s particularly the case for large organizations, where complexity tends to multiply as growth initiatives proliferate.4
The power and limitations of innovation-led growth
Creative companies are more heavily represented among the fastest growers. And the ability to innovate consistently appears to separate the good growers in the second quartile from exceptional ones in the top quartile. We found that exceptional growers were 56 percent more likely to have mastered creative practices (that is, reached the 70 percent successful adoption level) than the second-quartile firms (Exhibit 2).
What’s also true, however, is that it’s hard to get innovation right: nearly half of all the companies surveyed were weakest in creative practices, while fewer than one in five said innovation was an area of greatest strength. In addition, our research suggests that the pursuit of innovation is not the surest way to move into the top-growth tiers. Rather, the most prevalent practices among above-average growers reflected mastery of core investor and performer levers (Exhibit 3). Three of the top five practices characterizing upper-tier growers were related to investing: aligning on priority markets, engaging in portfolio management informed by prospective returns, and overseeing resources top down. Two more were tied to performing: developing high-value customer development across business units and measuring the voice of customers. The prevalence among high performers of strengths related to smart resource allocation and strong commercial performance suggests that they are more than mere table stakes for growth and that executives should not take them for granted, even if they seem rudimentary.
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Growth is difficult, but our research shows that it’s possible to bring a disciplined approach to improving your growth trajectory. Build momentum through well-sequenced initiatives. Support them with the right capabilities. And get your organization on board with a multifaceted approach that often will rest on a strong foundation of resource allocation and execution before taking on the tougher discipline of innovation. While this may challenge some traditional growth tenets, it also offers a reason to start moving—with confidence. What you do well today prepares the way for the next leg of the climb.
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Here is a direct link to the complete article.
Abhinav Goel is an associate partner in McKinsey’s Cleveland office; Duncan Miller is a senior partner in the Atlanta office, where Ryan Paulowsky is a partner.