ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Most leaders know they need to look for growth opportunities despite ups and downs in the business landscape. But even if opportunities abound, finding those that turn in consistent growth can be difficult. Tried-and-true methods may not yield the returns they once did, and new ventures may not necessarily create value year after year. This week, we explore some growth strategies that may prove more effective in the long term.

AN IDEA

Consider the value of a new business

In our annual surveys on new-business building, CEOs have consistently rated creating new revenue streams as a top priority. This year, public-equity investors and analysts are following suit. In a separate survey of these groups in September 2023, nearly two-thirds of the respondents say that “it would be advantageous for organizations to increase their investment in new-business building over the next year,” according to McKinsey senior partners Markus Berger-de León, Paul Jenkins, Ari Libarikian, and coauthors in their report on the survey results. “A majority see business building as an effective method for an organization to increase its valuation.” Our survey of companies bears this out: 20 percent of revenues at respondents’ organizations came from new businesses built within the past five years, up from 12 percent last year.

A BIG NUMBER

6

That’s the number of strategies that can help companies post distinctive growth even amid disruption and uncertainty. “Complacency is the enemy of growth,” observe the authors of a McKinsey report on courageous strategies for outperformance. For example, pursuing adjacent and breakout business opportunities may yield higher total shareholder returns (TSR). In our survey of industrial, technology, and communications companies, those that used two or more right-to-win rationales successfully had 12 percentage points higher excess TSR growth compared with their peers.

A QUOTE

“Innovative growers unfailingly put innovation at the center of strategic and financial discussions.”

That’s from a research study led by McKinsey partners Matt Banholzer, Rebecca Doherty, Alex Morris, and contributors. Innovative growers are organizations that excel in both growth and innovation. The companies surveyed are a highly diverse group, spread across four continents and ten industries and including both well-known brands and start-ups. But what they have in common is a commitment to link innovation to growth aspirations. “For instance, our review of the innovative growers’ earnings calls reveals that they talk about innovation twice as much as their peers, and, in those conversations, emphasize innovation as a means to create profitable and sustainable growth,” say the McKinsey researchers. Most innovative growers achieved TSR above their industry median over a ten-year period.

A SPOTLIGHT INTERVIEW

“Companies can innovate and achieve growth without displacing industries, companies, or jobs,” asserts author and INSEAD professor Renée Mauborgne in a conversation with McKinsey on the concept of nondisruptive growth. “It is a positive-sum approach to innovation and growth that allows business and society to thrive together.” Disruption tends to occur when companies create a new market in an existing industry, triggering displacement; nondisruption, by contrast, happens when businesses develop a new market outside the bounds of existing industries, rarely threatening established players or generating backlash from stakeholders. “If there are disruption opportunities, [companies] will pursue them, but they must consider the cost and benefits,” says Mauborgne. “At the same time, there’s the nondisruptive approach. As a CEO, I want to consider both sides and what makes the most sense for the company.”

— Edited by Rama Ramaswami, senior editor, New York

Leading Off will be taking a brief break for the US Thanksgiving holiday. We’ll be back on Monday, December 4. Thank you for reading!

Share these insights

Did you enjoy this newsletter? Forward it to colleagues and friends so they can subscribe too. Was this issue forwarded to you? Sign up for it and sample our 40+ other free email subscriptions here.