What are the sources of corporate growth? According to our analysis of more than 750 companies around the world, a large company’s top-line growth is driven mainly by market growth in the subsectors and product categories where it competes and by the revenues obtained from acquiring other companies. Surprisingly, a third source of growth, the gain or loss of market share, explains only around 20 percent of the difference in the growth performance of companies. These findings suggest that executives ought to complement the traditional focus on execution and market share with more attention to where a company is—and should be—competing.
Our approach: Granularity of growth
We help companies identify where to compete and support them as they design and execute strategies to capture those growth opportunities. In analyzing opportunities, we have found that applying broad terms such as “growth industry” and “mature industry,” while time honored and convenient, can prove imprecise or even downright wrong. Many so-called growth industries, such as high tech, include segments that are not growing at all. At the same time, industries that most consider mature, such as consumer goods, often have segments that are growing rapidly. In many cases, perspectives on growth are created by averaging out the different growth rates in an industry’s segments and subsegments, which creates a misleading view of growth prospects.
Using the exclusive tools and databases described below, we help our clients “de-average” their view of markets and develop a more detailed, or “granular,” perspective on trends, future growth rates, and market structures. After helping companies identify where to compete, we support them as they execute their growth strategies. We help our clients define the capabilities they must build to win, create business plans, allocate resources, mobilize talent, and track their progress.
Emerging markets: An opportunity and a challenge
Our approach combines insights on the factors crucial for successful globalization with a detailed understanding of local markets to help clients worldwide make choices about expanding abroad, understand and operate successfully in new markets, and expand their business networks.
Perhaps nowhere is this strategy more important than in emerging markets. Most multinational corporations consider emerging markets just as critical to their long-term success as the United States or Europe, and they are re-setting their aspirations and strategies accordingly. At the same time, more and more companies based in emerging markets are pursuing growth opportunities abroad. At the moment, the latter group is doing better: revenues for businesses based in emerging markets are growing more quickly everywhere—in developed markets, in their home markets, and especially in other emerging markets.
Tools and databases
McKinsey has a robust set of capabilities and tools to help companies decide where to compete.
McKinsey’s Growth Decomposition Tool helps companies apply the granularity of growth approach by breaking down their revenue growth among three sources: market momentum, M&A, and changes in market share. The tool produces easy-to-read analyses by business unit and by geography.
Our Granular Growth Database contains updated information on the sources of growth and portfolios of more than 500 companies. Companies can use this data to compare their own sources of growth with that of peers.
The Growth MRI analyzes a client’s portfolio of businesses throughout geographic, customer, and product segments, quickly revealing where it is under- and overinvesting in growth opportunities.
McKinsey’s Going Global Diagnostic Survey helps Asia-based companies assess their level of readiness for expanding beyond their home markets.
Recent examples of our work
- To help a leading European bank develop a five- to ten-year growth strategy, we used our exclusive tools to uncover opportunities in specific industry subsegments and geographic markets. We then worked with the client to narrow down the options to those in which the bank had competitive strengths, identifying clear opportunities at a granular level. The client is implementing the recommended strategic options.
- We helped a North American pulp-and-paper company identify new businesses in which it could invest its large cash holdings. We helped identify several new opportunities aligned with the client’s capabilities (for example, real estate, engineered wood products, minerals) and then helped define an entry strategy for those areas. The board adopted the recommendations and allocated the required capital.
- We helped a global consumer electronics company double its market share in China in only two years. By using detailed data on individual store performance, as well as geographic forecasting data, we created 25 city clusters and prioritized the seven that had the highest potential for growth. We then helped the client shift its resources to focus on these prioritized clusters before driving growth in other clusters. The client quickly moved from number five in the market to number two.