Abstract
Growth is the logical continuation of the imperative for speed, agility and movement that is widespread across companies. This chapter intends to help CEOs and top managers identify different growth directions and choose the “right” growth strategy. Choosing a growth strategy requires a refined and “granular” knowledge and assessment of the company’s portfolio of strategic business units (SBUs). After this review, CEOs and top managers must define a precise vision of the level of current and potential growth not only of the whole portfolio, but also of each SBU. In a next step, CEOs and top managers must ask whether the portfolio should be maintained and supported in its current configuration or whether it should be transformed by developing new SBUs and/or by divesting some units.
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Notes
- 1.
Fisher Marshall, Gaur Vishal and Kleinberger Herb, “Curing the Addiction to Growth”, Harvard Business Review, vol. 95, no 1, 2017, p. 65–74.
- 2.
This refers to the red queen in Lewis Carroll’s Alice Through the Looking Glass. He explains how Wonderland works to Alice in the following terms: “here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!” (Lewis Carroll and Martin Gardner, The Annotated Alice: Alice’s Adventures in Wonderland and Through the Looking Glass, New American Library, New York, 1960, p. 345).
- 3.
Zook Chris and Allen James , “Reigniting Growth”, Harvard Business Review, vol. 94, no 3, 2016, p. 70–76.
- 4.
Kim W. Chan and Mauborgne Renée , “How Strategy Shapes Structure”, Harvard Business Review, vol. 87, no 9, 2009, p. 73–80.
- 5.
International expansion, which is a specific type of market expansion , will be addressed within its own chapter (see Chap. 5).
- 6.
Prahalad Coimbatore K. and Hamel Gary , “The Core Competence of the Corporation”, Harvard Business Review, vol. 68, no 3, 1990, p. 79–90.
- 7.
This form of diversification is distinct from unrelated or conglomerate diversification in which the new business does not share any competences and resources with the core business . In developed economies, companies rarely embark on such diversification as the likelihood of failure is very high. For listed companies, unrelated diversification is highly likely to lead to a drop in share value. This adverse stock market reaction to unrelated diversification is known as diversification discount. Indeed, unrelated diversification results in strategic and organisational rupture. Only a few European or American groups with a specific conglomerate profile (like General Electric in the U.S., Bombardier in Canada or Bolloré in France) will find this form of diversification valuable. The diversification motives here are more financial than strategic: Adopting a financial portfolio approach to SBUs in order to reduce overall risk and leverage on the financial synergies for SBUs having different lifecycles. Nevertheless, a renewal of interest for conglomerates has come about recently in the light of the success of diversified groups in some emerging economies. Whether it be business houses in India (like Tata or Mahindra) or holdings in Turkey (like Koç or Sabanci), they all have in common that they are family conglomerates, which have a dominant position (“local champions”) in their home country and expand very rapidly in world markets. Chin Vincent and Michael David C., How Companies in Emerging Markets are Winning at Home, The 2014 BCG Local Dynamos Report, the Boston Consulting Group, 2014. Ramachandran J., Manikandan K.S. and Pant Anirvan, “Why Conglomerates Thrive (Outside the U.S.)”, Harvard Business Review, vol. 91, no 12, 2013, p. 110–119.
- 8.
The annual total shareholder return of a listed company is calculated for a year by adding all the dividends distributed to shareholders and the share value appreciation (equal to the difference between the company’s stock market value at the start and end of the year).
- 9.
Olsen Eric, Plaschke Frank and Stelter Daniel, The Role of Growth in Achieving Superior Value Creation: Spotlight on Growth, The 2006 Value Creators Report, the Boston Consulting Group, 2006.
- 10.
James Kilts was Gillette’s CEO from 2001 to 2005. Under his leadership, the company was profoundly modified: in 2001, when he was recruited, Gillette’s growth was not profitable and both sales and profits had dropped continuously over several years. When Kilts left in 2005, the company was once again on the rails, with annual growth of 9% for turnover and 16% for profit. For more information about James Kilts’ transformation of Gillette, we recommend the following article by three consultants from Booz & Company: Favaro Ken, Meer David and Sharma Samrat, “Creating an Organic Growth Machine”, Harvard Business Review, vol. 90, no 5, 2012, p. 97–106.
- 11.
A company’s market-to-book is calculated by dividing its stock market value (equal to the number of shares in circulation at a given period multiplied by share price), by the amount of its shareholder equity. The market-to-book ratio is often used to measure the stock market value creation.
- 12.
We consider ROA (return on assets ratio) and ROI (return on investment ratio) as quasi-identical, given that the investments accumulated by the company over time correspond to its total assets.
- 13.
Henderson Bruce H. , “More Debt or None?”, bcg.perspectives, the Boston Consulting Group, 1972.
- 14.
A debt leverage (DL) of 2 is often considered as a sufficient cut-off point to distinguish low from high debt. Indeed, a DL of 2 means that the debt corresponds to half the asset value or equivalent to the shareholder equity value. This level of debt is judged as “reasonable” by banking and financial services companies since if the company is financially distressed, shareholder equity will cover the debt.
- 15.
The illustration of the DuPont model with European luxury companies is taken from the case study Bulgari, Burberry, Gucci… Strategy and Value Creation of the European Luxury Companies, Centrale de Cas et de Médias Pédagogiques, Paris, G1697(GB). This case study was written and published by Philippe Chereau and Pierre-Xavier Meschi in 2011 (updated in 2014).
- 16.
On this topic, we can quote as an example the interview given by General David Petraeus to The Wall Street Journal (2 September 2010): “we have never had the granular understanding of local circumstances in Afghanistan that we achieved over time in Iraq […]. One of the key elements in our ability to be fairly agile in our activities in Iraq during the surge was a pretty good understanding of who the powerbrokers were in local areas, how the systems were supposed to work, how they really worked.”
- 17.
Baghai Mehrdad , Smit Sven and Viguerie Patrick , “Is Your Growth Strategy Flying Blind?”, Harvard Business Review, vol. 87, no 5, 2009, p. 86–96.
- 18.
Pinault François-Henri, “Kering’s CEO on Finding the Elusive Formula for Growing Acquired Brands”, Harvard Business Review, vol. 92, no 3, 2014, p. 43–46.
- 19.
Due to missing information on the Kering group and its two divisions, ROS was calculated here by dividing operating profit (and not the net profit) by total sales.
- 20.
Markides Constantinos C., “To Diversify or not to Diversify”, Harvard Business Review, vol. 75, no 6, 1997, p. 93–99.
Further Reading
On the Ansoff’s Growth Matrix, Diversification and the Success of Conglomerates from Emerging Economies
Ansoff H. Igor, Corporate Strategy: Business Policy for Growth and Expansion, McGraw-Hill, New York, 1965.
Chin Vincent and Michael David C., How Companies in Emerging Markets are Winning at Home, The 2014 BCG Local Dynamos Report, the Boston Consulting Group, 2014.
Markides Constantinos C., “To Diversify or Not To Diversify”, Harvard Business Review, vol. 75, no 6, 1997, p. 93–99.
Ramachandran J., Manikandan K.S. and Pant Anirvan, “Why Conglomerates Thrive (Outside the U.S.)”, Harvard Business Review, vol. 91, no 12, 2013, p. 110–119.
On Profitable Growth, Its Measures and Leverages
Deans Graeme K. and Kroeger Fritz, Stretch! How Great Companies Grow in Good Times and Bad, John Wiley & Sons, New York, 2004.
Zook Chris and Allen James, “Reigniting Growth”, Harvard Business Review, vol. 94, no 3, 2016, p. 70–76.
Ersek Barrett, Weisenbach Keller Eileen and Mullins John, “Break your Industry’s Bottlenecks”, Harvard Business Review, vol. 93, no 7, 2015, p. 99–105.
On James Kilts, the “ZOG” and Gillette’s Growth Strategy
Favaro Ken, Meer David and Sharma Samrat, “Creating an Organic Growth Machine”, Harvard Business Review, vol. 90, no 5, 2012, p. 97–106.
On Granularity and Its Application to the Strategic Choices for Growth
Baghai Mehrdad, Smit Sven and Viguerie Patrick, “Is Your Growth Strategy Flying Blind?”, Harvard Business Review, vol. 87, no 5, 2009, p. 86–96.
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Chereau, P., Meschi, PX. (2018). Choosing a Growth Strategy. In: Strategic Consulting. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-64422-6_4
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