Growing a business does more than add value. It also ensures long-term survival, according to a recent McKinsey report, ‘Invest, Create, Perform: Mastering the three dimensions of growth in the digital age’.
The management consultants say growth can now be conceptualised across several dimensions. While the need for top line growth has been understood for a while, digital disruption is increasing the stakes and the pace of growth, the McKinsey report said.
- Take our Which-50 reader survey and go into the draw for a chance to win a pair of Sony H.ear Bluetooth headphones or 1 of 5 Google Daydream VR headsets
Many companies were still too focused on cost control and failed to systematically pursue growth, the report said. “When controlling costs dominates the corporate agenda, it sucks the oxygen out of any growth plan. Conversely, we’ve found that companies that have a clear agenda for organic growth and pursue it systematically outperform the competition,” the authors said.
For those that achieved organic growth the returns are there. “A look at the share-price performance of 550 US and European companies over 15 years reveals that for all levels of revenue growth, those with more organic growth generated higher shareholder returns than those whose growth relied more heavily on acquisitions,” the report said.
So who are the leaders and how are they achieving meaningful growth? According to the McKinsey report, companies are active across 3 growth dimensions; Investing, Creating and Performing. Those which focus on one core dimension, although not exclusively, were more successful.
“Companies that are most successful at driving growth are those that can execute across multiple dimensions and inject speed, agility, and analytics into their corporate DNA.”
“The data suggests that growth leaders rely on a single core dimension but actively engage another one or both, with results varying based on how much weight a business gives to each.”
“The simplest way to grow is to put money where growth is already happening in existing products, services, or business models,” the report said. It’s about more than staying the course however. Success through the investing approach requires the identification and unlocking of growth opportunities within existing portfolios, the report said.For this approach to be effective, companies need to accurately identify where the growth is occurring within their existing portfolio and “aggressively reallocate,” according to the report.However, this strategy is often impeded by an adherence to past budgets and annual cycles. Growth leaders, aided by data and analytics, will “actively track the performance of their spend and rebalance allocations monthly or even weekly,” the report said.
Informed by customer insights and harnessing the power of data and analytics, creators identify new opportunities for growth. Creators have usually embraced digital and remain agile, the report said.“Companies that are strong on the Creator dimension work at the frontiers of change to develop new business models or identify white spaces, whether they’re in emerging customer needs, unserved segments, or adjacent markets.”Although multidimensional growers are the growth leaders, those who focussed primarily on creativity were doing the best, according to the report.
Performance growers are leveraging digital capabilities to create value in existing processes.
“In our experience, as much as two to five basis points of incremental revenue growth is hidden in existing commercial processes at large companies. Those businesses that best activate the Performer dimension build competitive advantage by continuously optimizing their commercial operating model.”
New technology is opening up new ways to improve and automate current processes. “The scale of data and the analytics tools to process it have opened the door to advanced automation,” the report said.
Significant organic growth requires an organisation wide strategy and commitment McKinsey argues. “While there is no single formula for delivering growth, there is a single overarching trait: having a growth mind-set and pursuing it with vigour.”