MANAGEMENT SPECIAL ..... How growth champions thrive even in stagnating markets

How growth champions thrive even in stagnating markets

A deeply ingrained growth mind-set gives these organisations the ultimate edge.

Today, it’s no surprise that corporations’ focus on growth has risen to cult-like popularity.

In one of the most laborious analyses McKinsey has ever conducted, a team spent more than a year studying hundreds of large companies. Researchers mapped out how the companies grew over a decade, comparing portfolio momentum against market-share improvement by analysing market growth within each granular business segment, accounting for M&A along the way.

The team’s most powerful finding? On average, the company that grew about 8.7 percent a year gained 5.4 percent of this from portfolio momentum, about 2.5 percent from M&A and only 0.8 percent from market-share gain.

Only 13 percent of companies averaged more than five percent of annual growth directly from market share gain over a ten year period.  Some of the most successful market share gain actions, from new product launches or pricing moves tend to trigger competitors’ reactions that often slow or even reverse these gains.

Based on what 90 percent of companies do to cultivate growth, we strongly emphasize dynamic resource re-allocation as well as M&A to take bigger advantage of portfolio momentum. But we also emphasize that the strongest growth business have generated greater returns to shareholders when their growth was mostly organic as the ultimate objective is value creating growth.

All this is easier said than done! What does it take to grow and successfully add value?

As strategists, we first look for strong competitive advantages, innovative business models and an outward focus on areas such as customer obsession and important external trends. However, executives who have enjoyed strong phases of growth tell us about a zealous growth mind-set that gave them a crucial edge. They refer to a deeply ingrained belief and attitude that was shared across the company, that the business model is well-positioned, and they have the capabilities and resources to deliver above-industry growth.

So, what does it take for organizations to cultivate such a growth mind-set that will authentically permeate throughout the organisation?

With this question in mind, we have identified five traits that successful growth companies exhibit.

1. Passionate belief in limitless opportunities for growth and a relentless “can do” attitude.

Growth champions distinguish themselves from average companies through a particularly ambitious and bold “growth mind-set,” which is fuelled by a belief in infinite opportunities for market creation and market expansion. These players seize such opportunities through an intense focus on building and expanding their products’ customer base (household penetration) by continuously enhancing the value propositions of their existing products and/or launching attractive new products. In doing so, they keep attracting new customers to buy, and more customers to buy more – often at higher prices. Such a growth mind-set is in contrast with the “fixed pie mind-set” prevalent in many other companies, which consider markets as more or less finite, and choose to fight for market share as their main strategy, only to find themselves underperforming and achieving lower growth rates and possibly even going out of business as it happened to the likes of Kodak and other players in the traditional print media business.

While digital disruption presents massive new opportunities, this mind-set can activate innovation even in very traditional environments. A team at a Consumer Packaged Goods company managed to create a very sizable new market for a specialist laundry stain-remover product within the seemingly stagnant Fabric Care market, where competitors were busy battling each other for market share. Taking inspiration from Henry Ford: “Whether you think you can, or you think you can’t—you’re right,” and driven by a remarkable “can do” attitude, the team developed and launched a series of innovative product and communication ideas that prompted customers to rethink their laundry routines. Starting to believe that laundry detergent alone is not enough to thoroughly clean their clothes, customers began using the stain remover on top of their regular laundry detergent, even paying a premium.

A distinguishing characteristic of growth-focused companies is to defy the notion of “saturated markets.” As one CEO put it: “We don’t believe in mature markets… There are no mature markets, there are only mature minds….” He further challenged: “Why should the global footcare category not become as big as the global hair-removal category?” Given that the global hair-removal market is several times the size of footcare, it is easy to see how ambitious the company is about growth.

2. Purpose that inspires customers and energizes employees.

We have also found that growth champions proclaim and live by a compelling company or brand purpose. They make it clear that they stand for something bigger and articulate a higher level meaning, a raison d’etre of why they are in business that is well beyond just making a profit. They see such purpose not only increasing the engagement of their customers externally but also view it as a powerful source of motivation and energy for the organisation internally. This nurtures and reinforces the growth mind-set and culture that gives these companies the critical edge.

Starbucks’ philosophy embraces this approach. Their well-defined and articulated purpose of “Creating connections for self-discovery and inspiration” and being “a place for conversation and community… a third place between home and work” provides an internal compass and a sense of inspiration for their employees on how to serve and satisfy their customers. It goes well beyond providing a good product (coffee); it inspires employees how to best serve their customers and how to create the best atmosphere and ambiance to enjoy the wider and full experience of a “coffee house”.

Another impressive example for how purpose can fuel the growth mind-set of a company’s brand team is from Unilever’s more than a century-old disinfection soap Lifebuoy.  Focused on Developing Markets, the brand declares its higher aim “to be a champion of health and hygiene” and wants, “to get 1 billion people to change their hand-washing habits to reduce infant deaths throughout the world.” Their famous Indian campaign of “Helping a child reach 5” illustrates the inspirational and unifying power of purpose on driving growth.

For Lego, purpose was also what played a key role in a major turnaround of their business. Finding themselves on a “burning platform” with slowing sales, slowing profits and overcomplexity as a result of diversifying into too many adjacencies too quickly (Harry Potter, Star Wars, movie-tie ins), Lego embarked on a bold “back to basics” journey with a refocus on their core business, Lego bricks. Reflecting on “why Lego exists” and what they uniquely do best, they put a powerful re-articulation of company purpose at the heart of their turnaround: “Inspiring and developing children to think creatively, reason systematically and … [enable them to] experience the endless human possibility.” As a result, Lego tripled its business over the following 10 years.

3. Storytelling

This is the catalyst that helps great leaders inspire others with their vision and unleash entrepreneurship and can-do attitude in others. The story brings to life the conviction and passion for winning with compelling explanation why. Many organizations look back to a defining moment when the story became viral, often thanks to some gesture or memorable quote.

At the end of a very disappointing international trip in 1993 that highlighted poor in-store presence for Samsung, Chairman Lee gave a three-days speech (yes, three days!) to his team that became the foundation of Samsung’s management principles and the spirit of it was best captured in a memorable quote: “Change everything but your wife and children.”

Haier’s quest for leadership in China can be tracked back to when its iconic leader, Zhang Rumin assembled the full plant team and used a sledgehammer to ceremoniously smash 76 fridges after repeated customer complaints about poor quality. In the ensuing 20 years, Haier has developed into one of the strongest consumer brands in China.

Long before he brought to market iPods and iPhones, Steve Jobs had a simple and powerful story to share about why Apple can re-emerge as a leader with great products, great marketing and great distribution, largely by just “Getting back to the basics”. His story relates to Apple’s strengths (“pockets of greatness”), what isn’t working and what will drive success. It’s authentically delivered, it’s emphatic (“I just came out of a meeting with engineers whose projects were cancelled and they were three feet off the ground with excitement because they finally understood where we are headed”), it’s specific (“cut 70% of our products”) and it is bold (“not just catching up with the best of the best but breaking new ground”).

4. Bias to action and speed over perfection

In a world that moves at an ever-faster pace, growth companies know that speed is of the essence. Companies want to be first to market with their new products, they want to stand out through innovative campaigns and offers, but they must also successfully satisfy consumers’ ever increasing expectations and fast changing demands. Growth champions prefer speed to perfection, but also know when not to compromise.

They rigorously review and pressure test initiatives and deliberately invite controversial views of the teams to intensely debate what the ultimate best option or solution is.  They do so, however, with impressive speed, leaving neither time nor tolerance for bureaucracy coming into their way or for dealing with politics of “not invented here syndrome.” Thus, growth companies ensure fast company-wide alignment and full commitment from all active stakeholders to shift the focus onto the next critical step: excellence in execution.

In his now famous “Day 1” letter to shareholders, Jeff Bezos talks about high velocity decision making. He encourages light-weight decision making process for decisions that are reversible (where you can afford to be wrong), making decisions with 70 percent not 90 percent of the information, putting more emphasis about recognizing and correcting mistakes rather than improving decision making quality.

This doesn’t mean making many small decisions. Once growth champions see something is working, they boldly fuel the growth through extra funding generated from cost squeezes in other parts of the business.

A good example of a fast and bold mover is Zara. Renowned for its capability of designing and distributing a new garment to market in just 15 days, it doubled down its investment behind this proven “fast fashion” business model, which resulted in well above-industry growth levels over many years that followed.

5. Keeping the entrepreneurial spirit alive

When successful executives reminisce about the days where the company was smaller and more agile, they especially miss the collaborative and entrepreneurial behaviors that great start-ups excel at. The times when everyone took it for granted that great ideas can come from anyone, anytime and anywhere—inside and outside the organisation. When even fairly junior members of the team felt they have permission to take risks to test, learn and select what works and at the same time fought against every dollar of unnecessary spend like it was their own.

While no company can retain the spirit from its early days in the proverbial garage, when growth mind-set is real, it is infectious and reverberates across the organization. It is how the vision, purpose, storytelling and decision making process energizes and mobilizes the front line to act in the best interest of the company and fight to win in the market.

While some of the best technology disruptors come to mind, there are great examples from more traditional markets, too. There are countless stories of strong employee commitment, engagement and enthusiasm from companies like Southwest, Starbucks, Samsung, Toyota or John Lewis–which have delivered consistent growth in tough competitive markets.

Being a true and long-term growth champion requires mastering a wide range of challenges from superior strategy and winning business model all the way to excellence in execution. On top of this, as we have seen, it is a deeply ingrained mind-set for growth that gives these organisations the ultimate edge.

Yuval Atsmon is a senior partner in McKinsey’s London office. Norbert Lurz is a Senior Advisor in McKinsey & Company’s Consumer Packaged Goods Practice and a former Senior Executive of Procter & Gamble, Gillette and Reckitt Benckiser.

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