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Elements of Growth: Four Strategies You Should Adopt – Or Stagnate!

Most organisations crave growth. Shareholders demand growth. Growth is what drives CEOs to success – indeed, growth drives the economy. But how to achieve growth is not often that easy.

Recently, The Boston Consulting Group studied the performance of 1,600 global companies with revenues over $1 billion. The study’s design focused on mature businesses that found ways to grow sustainably—growth for the rest of us. To take a longer view of value creation and to avoid extremes in the market cycle, they looked at rolling five- and ten-year periods covering 1990 through 2007. The criteria: stagnant revenues for the five prior years, breakout growth at double the rate of peers, and sustained growth for at least five years. Only 310 companies—1 in 5—made the cut. And among these uphill growers, there were companies that destroyed value in their attempt—through bad acquisitions, expansion of a doomed core, or unrewarded innovation. They focused on value-creating, uphill growers and looked for patterns among their moves.

The Boston Consulting Group summarises their findings in  four valuable lessons:

Earn the right to grow. Value creators pursue growth in its proper order: operational soundness first, followed by core premium reinforcement and core or adjacent expansion. Nearly all value-creating growers in our study held or expanded margins as they grew. They avoided expensive resuscitation of structurally unwinnable positions or divested these altogether to concentrate on areas of advantage and strong capital returns. They built margin through concurrent, aggressive fund-the-future operational improvement. And they pursued profitable growth by favoring adjacent segments with higher margin exposures.

Know your advantage. Companies do best when they define precisely what they do well and use that knowledge to edit portfolios and evaluate growth opportunities. Wolverine, one of our uphill growers, had an advantaged capability in making sanded pigskin leather. This allowed the company to make shoes people have to wear feel like shoes they want to wear. Understanding this advantage helped Wolverine make choices, divesting losing positions in retailing and in athletic shoes and aggressively expanding in casual and work shoe adjacencies.

Aggreko, a U.K.-based provider of power generation and temperature control solutions, overcame growth headwinds by exploiting its advantage in rapid temporary power deployment. As volume stagnated in its core business, providing power for construction projects and events, it found a strong tailwind in addressing electricity blackouts and shortages in developing markets.

Expand your field of vision. Companies have biases and comfort zones related to where and how to grow that can constrain opportunity. Look broadly before selecting a growth plan. Are there faint signals in the core—such as unusually profitable customers or rapidly growing subcategories—that can be amplified? Beyond the core, consider adjacencies that deliver standalone growth, profit accretion, or some reinforcing benefit to the core. Finally, new frontiers of opportunity can exploit old advantages or assets in radically new ways. Gerber Products, for example, has grown by multiple means throughout its history. It expanded organically from baby food to the toddler segment. And it found an unconventional way to exploit its trusted brand by moving adjacently into juvenile life insurance.

Integrate vision, choices, and action. Having envisioned the phonograph, Thomas Edison drew a quick sketch, marked it with the words “Make this,” and handed it to his machinist, John Kruesi. The unheralded Kruesi turned vision into action, a translation that eludes many value-destroying growers. One of our clients—who says that vision is “where the rubber meets the sky”—is taking pains to translate the company vision into concrete choices on where to play and invest. The company is creating a culture of growth execution by chartering specific initiatives, defining new and needed capabilities, and aligning operating metrics and targets. This alignment of vision, choices, initiatives, capabilities, and metrics is a hallmark of our successful clients—and of valuable growers.

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