Staircases to Growth

With revenue increases of 25 percent a year, how do the world's best growth companies do it? A few steps at a time, each bringing options and new capabilities No formulas, just astute bundling of competences, skills, assets, and relationships ONE THING ABOUT GROWTH IS CLEAR: the literature touting its importance keeps growing, and growing, and growing. What is less clear - and often needlessly obfuscated in management jargon - is how companies grow. Take the tricky, potentially paralyzing, dilemma that confronts most senior executives contemplating growth. On the one hand exists a chasm between their current inventory of institutional capabilities and those required to achieve their growth aspirations; on the other, taking a discontinuous, bet-the-company leap could send the company barrelling down a deep and dangerous crevice, ending in the thud of extinction. To provide some timely, practical advice on how companies can grow, we examined 40 of the world's leading growth companies to find out how they approach, and more important, implement growth strategies (see the boxed insert, About the research base and [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. These companies - in industries from basic materials to high technology based throughout Europe, North America, and Asia - clearly know how to grow: they average 25 percent compound annual growth in sales and 32 percent in shareholder returns (from dividends and capital gains). Their response to the question How do I get from here to there would typically be by big bold leaps but by a series of measured Each step makes money in its own right; each is a step up in that it adds new institutional skills that better prepare the company to open up and take advantage of - opportunities; and each is a step roughly in the direction of a broader vision of where the company wishes to be. When these companies look back at what they have achieved, they see not steps zigzagging all over the place but a distinctive pattern or footprint in the form of a staircase of manageable steps. While few - if any - single steps are dramatic in and of themselves, linking them together as a staircase of sequential growth achieves results that definitely are. None of these companies will say that, looking forward, they had perfect foresight of where the steps would lead. On the other hand they will say that each time they climbed a few they felt they had institutionalized a new set of capabilities, created new business options, and carved a competitive position for themselves that was beyond their reach when they stood at the bottom of the staircase. The staircase approach of continuously compounding skills and options is consistent with the competitive reality of most industries. The competitive landscape is changing so rapidly that it is impossible to predict paths several years ahead. Building a staircase explicitly recognizes that the appropriate strategy for any company depends on where it is today and on the state of the world down the road. The best a company can do under these circumstances is to build appropriate capabilities and create strategic options and opportunities without pre-empting or constraining future flexibility. Staircase of initiatives Successful growers adopt a bifocal perspective which emphasizes both near term and long term: vision and tactics. Even though they plan within a clear strategy, they are not slaves to a mechanistic process for projecting a medium-term budget. Many low-growth companies are. The focus on near-term steps takes advantage of the fact that, each time a company builds new skills, new opportunities open up. It means managers are able to move fast enough to exploit opportunities early, before competitors move in or conditions change. It also encourages managers to behave as entrepreneurs rather than bureaucrats, avoiding excessive deliberation and paralysis by analysis. …