Winning at the margins

Davos—the World Economic Forum’s annual meeting—is in full swing through January 20. All this week, our daily charts will focus on some of the key themes of the event, including resilience, sustainability, reimagining globalization, inclusion, and space. For more, see “McKinsey and the World Economic Forum 2023.”

A look at how leading US companies handled the global financial crisis of 2007–11 could provide valuable lessons for leaders confronting today’s uncertainties. One such lesson: focus on margins. According to findings by managing partner, North America, Asutosh Padhi and colleagues, improving margins early during the Great Recession produced bigger gains in performance than early-cycle revenue growth did.

Improving margins is better than speeding up growth alone.

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The main visual is a 3-by-3 grid of boxes. Each box contains a % number. Each % number denotes an estimated excess in total shareholder returns. The left axis is broken into thirds, with the top third indicated at the top and the lower third at the bottom. Each third denotes a separate share of revenue growth from 2007 to 2011. The bottom axis is broken into thirds, with the right-most being the top third and the left-most being the lowest third. Each third denotes a separate share of earnings before interest taxes, depreciation, and amortization in early-cycle margin growth for 2007 to 2009. The message in the exhibit data is that it’s better for shareholders’ bottom lines for a company to succeed in margin growth than it is to succeed in early-cycle revenue growth.

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To read the article, see “Planning for 2023: How US-based businesses can succeed when capital and talent are constrained,” December 16, 2022.