Choosing the right path to growth
To
boost organic growth, most companies need a diverse set of initiatives—and how
you sequence them matters.
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. 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.
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 .
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 performerlevers . 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.
Sequencing the growth journey
Moving your growth journey forward in a structured way will sidestep a common trap
that we have observed: pushing growth and product initiatives almost
haphazardly in hopes of jump-starting a strategy. Instead, companies need a
more deliberate, stepwise approach to building growth initiatives and
capabilities. While there is no iron law of sequencing, the data are clear that
a steady pace of change is vital: we found a positive correlation between the
number of growth best practices adopted by a company and the company’s
growth-performance quartile . Across all companies surveyed, we found that
employing two additional practices, on average, correlated with an organic-growth
edge ranging from one to three percentage points. Companies that regularly
fine-tune and add to their capabilities appear to improve their odds of
generating steady performance gains, providing additional resources that
leaders can reallocate, as needed, to further their growth agenda.
Getting this right, in
our experience, goes hand in hand with rigorous initiative and performance management, which includes rallying
organizational support for growth priorities; supporting them with capability
building, incentives, and cultural change; and looking for opportunities to
exploit synergies among new business initiatives. That’s the path a global
manufacturer is following as it strives to shift its growth performance in
critical markets from lagging to leading. The company has started by upgrading
the effectiveness of its transactional pricing, marketing tactics, and core
sales force—priorities that, leaders believe, will help it hold its own against
rivals. Looking forward, the senior team is studying more ambitious initiatives
to accelerate growth, surpass competitors, and increase market share. One avenue,
for example, would boost the use of advanced data analytics, to gather deeper
insights on customer-procurement practices and emerging product preferences.
Those data and greater mobilization across functions would help managers
uncover and share insights about untapped growth opportunities. Margin
improvements from the initial steps would provide the means, confidence, and
capabilities for more innovative efforts. Sales teams, R&D, and
product-development functions, for example, would be able use the data-driven
knowledge about customers and markets to collaborate more closely on new,
higher-margin offerings aimed at nascent customer preferences.
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.
By Abhinav Goel, Duncan Miller, and Ryan Paulowsky
https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/choosing-the-right-path-to-growth?cid=other-eml-alt-mkq-mck-oth-1810&hlkid=795a3247a13c483a98e334a2c66479b9&hctky=1627601&hdpid=4ef535d0-28f5-4934-af7d-dbc8928d2b52
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