In a recent article, we explained that achieving sustainable, profitable growth requires companies to actively choose growth through a holistic approach comprising three elements: developing an aspirational mindset and culture, activating pathways, and executing with excellence.1 We then set out to bring those pathways to life through the ten rules of growth (see sidebar, “The ten rules of value-creating growth”), based on an in-depth study of the growth patterns and performance of the world’s largest public companies.2
We have since discussed this “growth code” with dozens of executives and boards to help them calibrate their growth strategies. In these conversations, one question keeps recurring: Are all these rules equally important?
The answer, of course, is no. The impact of near-core diversification or international expansion, programmatic M&A strategies or industry outperformance will depend heavily on a company’s context. But on average, what is the relative importance of each rule for a typical growth strategy?
To find the empirical answer, we went back to our data set of nearly 1,600 companies and looked at how mastering each rule would affect an organization’s probability of achieving TSR higher than its industry median. We then derived each rule’s relative impact on the probability of TSR outperformance. The resulting ranking lists the ten rules based on their relative impact: companies that mastered the rule were between 1.1 to 1.7 times more likely to beat their industries than those that had not (exhibit).
While the first rule—“put competitive advantage first”—falls in the middle of the pack, having a clear source of competitive advantage is a prerequisite for profitable growth. Companies with low returns need to transform their business models before investing in growth—otherwise, they might struggle to attract and deploy growth capital. Mastering this rule makes companies 1.3 times more likely to outperform their industries on shareholder returns.
“Don’t be a laggard” is the rule that emerged at the top of our ranking. Winning market share away from competitors is a sign of a superior business model, which investors tend to reward. As a result, such companies are 1.7 times more likely to generate peer-beating returns than those lagging behind their industries. While faster growth typically correlates with better returns, we were surprised that outgrowing your peers matters so much more than simply being in a fast-growing market (“make the trend your friend”).
Two rules—“turbocharge your core” and “be a local hero”—covering investment in growth within a company’s core industry or region (those contributing the largest share of revenue) have the second-highest impact of all the rules, at 1.6 times. This makes intuitive sense, as it is very difficult (although not impossible) to achieve enterprise-level growth if the largest parts of your portfolio are not firing on all cylinders. The takeaway is that companies with slow-growing cores should take a fine-grained view of their markets to unearth granular pockets of opportunity—for example, subdividing markets into combinations of customer or business segments and regions—to ensure they allocate capital to the fastest-growing combinations. Companies that lack this option should consider divesting underperforming parts of their portfolios, freeing up capital to pivot to other industries or regions (see the tenth rule, “shrink to grow,” which generates similarly positive returns).
Three of the rules (“look beyond the core,” “grow where you know,” and “go global if you can beat local”) highlight the importance of pursuing growth beyond the core. Across our sample, about 20 percent of total growth came from industries outside the companies’ core business, and 50 percent of all growth came from international markets. Businesses that leverage a source of competitive or ownership advantage to expand into adjacent industries or geographies are 1.2 to 1.3 times more likely to generate peer-beating returns than those that focus solely on their core. The implications for growth strategy are clear: keep refreshing your portfolio of businesses and continuously scan for new growth markets.
Finally, this research reaffirms the long-established fact that it is difficult for companies to consistently generate value-creating growth purely organically or through large acquisitions.3 Those with a programmatic approach to M&A (the ninth rule) are 1.2 times more likely to deliver peer-beating returns and successfully unlock the key growth pathways of expanding the core, innovating into adjacencies, and igniting breakout businesses.
While the impact of individual rules may differ, the biggest benefits come from combining them. In other words, the more rules companies master, the better they will perform. On average, companies that mastered two or three rules generated industry median shareholder returns, while the 38 percent of companies that mastered four or more generated more than four points of excess shareholder returns.
A deeper understanding of the relative importance of growth levers can help executives prioritize growth opportunities. But remember that sustaining profitable growth requires pairing winning strategies with an organization-wide commitment to “choosing growth,” backed by strong execution.