The growth code: Activating pathways to growth

In a recent article, we explained that achieving sustainable profitable growth starts with a conscious, resolute choice to grow. Delivering on this choice requires a holistic approach of developing an aspirational mindset and culture, activating pathways to growth, and executing with excellence (exhibit). We then set out to bring those pathways to life through the ten rules of growth based on an in-depth study of the growth patterns and performance of the world’s largest public companies.

The growth code: Activating pathways to growth

The three major growth pathways are expanding the core business, innovating into adjacent markets and industries, and igniting breakout businesses. The ten rules, in turn, are a kind of “code” companies can use to guide those moves and calibrate them with the growth strategies of the world’s leading companies. They provide the empirically validated key to a holistic and sequenced growth strategy. First, you need to develop a sustainable competitive advantage and ensure healthy growth in the core business and the home market. Once those elements are in place, explore near-core adjacencies and foreign markets where you have a transferable advantage.

By seeking out opportunities for breakthrough businesses and aligning with macro and industry trends, companies can elevate their performance in each of those steps. Since few can deliver sustained growth purely organically, top performers use acquisitions to accelerate their chosen pathways and divestitures to position their portfolios for maximum exposure to tailwinds and away from headwinds.

What does mastery of these rules deliver? Consider the experience of a diversified global automotive supplier. In the decade prior to COVID-19, the company activated multiple growth pathways by following nine of the ten growth rules. Starting with a scalable formula (rule 1) and aided by trends (rule 2), the manufacturer consistently outgrew its peers (rule 3). It maintained a healthy growth rate of 8 percent per year in its core business of automotive parts and accessories (rule 4) and above-average growth in its local market (rule 7).

With that solid foundation, the company was able to boost its adjacent business in the closely related industrial machinery segment where it could leverage its existing intellectual property (rules 5 and 6). It also ventured overseas to capitalize on strong industry growth rates in Asia and North America (rule 8) and it accelerated the pace of its expansion through a series of small to midsize acquisitions (rule 9). Over ten years, following this pathway delivered an impressive 4.5 points of revenue growth above peer median and excess TSR of 10 percent a year. More recently, the company opted to “shrink to grow” (rule 10) by focusing on its core competencies within automotive technology while maintaining the successful industrial machinery adjacency.

Have you made the choice to grow? Future posts to this blog will explore how to create a growth culture, develop growth pathways, and apply some of the ten rules to achieve the best results.

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