‘How the growth outliers do it’ by Rita Gunther McGrath, Harvard Business Review, Jan/Feb 2012

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This article is based on some interesting research by Columbia (New York) Business School where the author is a professor.  It adopts the same approach as many previous studies – started by ‘In Search of Excellence’ thirty years ago – looking at successful businesses and trying to find the common characteristics that correlate with success.  The pitfalls are that correlation does not always mean cause and effect and – as Peters and Waterman found with In Search of Excellence – success is rarely sustained long term.

The objective of the research was to find the drivers behind that holy grail of modern companies and economies – consistent, sustainable growth.  The initial statistics around those companies who have achieved consistent growth are very surprising and make you realise how difficult it is to deliver.  According to the research analysis, only 10 companies out of 2,347 (less than 0.5%) managed to achieve 5% compound growth consistently for 10 years.  And only 4% did so for 5 years.

The researchers looked for common factors but were able to eliminate all the obvious ones; industry, size, market, region, age of company, environment, founder type, were all found not to be correlated with consistent growth.  The companies who delivered were found to be different in every way.  The only common factors that seemed to deliver consistent growth were:
  • Stability of top management (although lower level executives were moved around)
  • A willingness to take small bets early in new markets
  • Diversification of the portfolio; those that are growing compensate for those in decline
  • A willingness to acquire to gain access to new markets, usually small acquisitions
  • An ability to adapt to changing markets and consumer needs
  • Innovation that is centralised and integrated (see Steve’s  Jobs autobiography review for similar views)
  • Companies that are not very well known, and therefore have less public pressures
  • Central control of key decisions
  • Consistent strategies, no major divestments

Most interesting to those involved in learning is the final factor, the importance of corporate culture and shared values, with coordinated training as key to success.  This results in the ability to develop and retain talent.

With this kind of research, the inevitable follow up question is – what do we do with it?  Aren’t some of the above just obvious factors that are associated with success?  Aren’t, for example, stable top management and retention of talent, the effects of consistent growth rather than the causes?  And isn’t it obvious that those companies who acquire others will grow?

Nevertheless the results are food for thought and question some of the conventional wisdom, particularly around acquisitions and diversification.  But you would expect more on the implications for decision making from an Harvard Business Review article.

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