11/20/2023 0 Comments Empirical rule percentagesThis dichotomy reflects the influence of acquisitions and divestitures, as well as portfolio choices-that is, varying degrees of exposure to segments with different rates of growth. The fastest-growing company in the sector increased its revenues by 21 percent annually, while the slowest contracted by 9 percent per year. Per year over the period of our analysis. Take the telecommunications services industry, which grew at 1.6 percent In their best-selling book, The Granularity of Growth, our colleagues observed that many “growth” sectors have sluggish subindustries, while relatively “mature” sectors include rapidly growing segments. The selection of markets needs to be precise, however. Firms facing market headwinds, on the other hand, may need to aggressively reallocate their resources toward tailwinds, potentially staging large-scale pivots. This suggests that organizations already in attractive markets should keep investing to stay ahead of the pack. Over the past 15 years, companies that expanded in ways that maintained or increased their exposure to fast-growing, profitable segments generated one to two percentage points of additional TSR annually. This age-old axiom holds especially true today as the acceleration of pre-COVID-19 trends widens the gap between corporate winners and laggards. As a result, revenue grew by 9 percent per year and the company generated an impressive 29 percent in annual shareholder returns. The management team used this advantage to expand the store network from approximately 900 locations that year to more than 1,500 in 2019. But the bar is high-fewer than half of the companies in our sample excelled at more than three of the ten rules, and only 8 percent mastered more than five (Exhibit 2).įor example, a department store chain had a business model-brand-name bargains in stores with low inventories and costs-that in 2007 delivered 5 percent higher ROIC than its cost of capital. The more rules you master, the higher your reward. The resulting “growth code” allows you to benchmark your growth performance and set the bar for your next strategy. We have quantified what it takes to master each rule, as well as the extent to which excelling at each improves corporate performance. Ruthlessly prune your portfolio if you need to. Combine healthy organic growth with serial acquisitions. Expand internationally if you have a transferable advantage. Focus on growing where you have an ownership advantage. Nurture growth in adjacent business areas. Focus on growth in your core industry-you can’t win without it. It’s not enough to go with the flow-you need to outgrow your peers. Prioritize profitable, fast-growing markets. Our findings suggest ten imperatives that should guide organizations seeking to outgrow and outearn their peers. To understand how organizations can try to overcome these obstacles, we studied the growth patterns of the sample companies through various lenses. This suggests a strong tendency for growth to revert to the mean. Among companies that grew predominantly organically, the rate was even lower, at one in four. When we compared our sample’s performance in the first half of the last decade with the second half, only one in three companies that were in the top quartile of growth between 20 managed to maintain that rate in the subsequent five-year period. Healthy growth has also been hard to sustain. We studied the performance of these companies from 2005 to 2019, the 15 years prior to the COVID-19 crisis. Companies with unreliable or missing segment data were excluded from the sample. 1 Our sample consisted of the 5,000 largest publicly listed companies by revenue globally in 2019. To help our clients identify these pathways, we conducted an in-depth study of the growth patterns and performance of the world’s 5,000 largest public companies over the past 15 years. To buck these trends, business leaders need to follow a holistic growth blueprint consisting of three core elements: a bold aspiration and accompanying mindset, the right enablers embedded in the organization, and clear pathways in the form of a coherent set of growth initiatives. Now, with a slowing global economy, rising inflation, and geopolitical uncertainty, growth that delivers profits and shareholder value may become more elusive still. Furthermore, increases in capital investments outstripped revenue expansion, compressing returns. Corporate growth slowed dramatically after the global financial crisis, with the world’s largest companies growing at half the rate they did before 2008. That has not been easy to accomplish over the past 15 years. One of the surest signs of a thriving enterprise is robust and consistent revenue growth.
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