Growth creates value: companies that outperform their peers on growth post 30 percent higher total returns to shareholders. Growth also benefits organizations and their customers, opening up new opportunities for employees and creating additional resources for innovation. It’s hardly surprising, then, that growth is at the top of the agenda for almost every business. In the wake of COVID-19, many companies are looking to growth to help them quickly recover revenues and steady their business. For others, growth is a way to gain market share, capitalize on disruptions in consumer behavior, or lay the foundation for sustained success in the post-pandemic era.
As any executive will tell you, however, achieving and sustaining growth is hard—and it’s not for lack of will or effort. Many companies have pushed well-developed and well-executed programs on a range of initiatives, from customer experience to sales effectiveness, that have shown clear success in delivering revenue. The issue, however, is that these promising results often stall out or deliver only a small portion of the company’s full growth potential.
Delivering transformative growth requires the whole enterprise to act in concert—from the marketing-and-sales teams that drive customer acquisition, to the product and service leaders who deliver the customer experience, to the customer-service staff who help ensure customer satisfaction and loyalty. Because market conditions, competitive threats, and customer sentiments change often, such growth requires a mixture of doggedly persistent and nimble execution.
Over the past few years, we’ve worked with a wide range of organizations on comprehensive transformation programs to drive meaningful and sustainable revenue growth. Based on these experiences, we’ve identified seven principles that help leaders break historical patterns and achieve their growth objectives.
1. Look past the myths
Though growth transformations present significant challenges, executives can sometimes be deterred from attempting them by a few persistent myths.
One such myth is that pursuing growth during a crisis is a distraction from the issues at hand. On the contrary: McKinsey analysis shows that investing in growth during a downturn delivers the best results for organizations with healthy cash positions and balance sheets. While it’s important for businesses to focus on short-term issues related to a downturn, waiting for the economy to recover could mean missing chances to gain a competitive edge. There’s no perfect time to embark on transformational growth, so waiting serves no purpose. The companies we work with tell us they wish they had started sooner, not waited longer.
Another myth we often hear is that a growth transformation will take too long and cost too much. To be sure, growth transformations do require investment, and the full payoff may not come until year two. However, disciplined organizations are able to quickly unlock significant efficiencies (for example, by improving efficiency of direct response channels such as paid search) and capture short-term revenue wins (for example, by adjusting prices).
Yet another myth is that growth isn’t something leaders can control; it’s the result of market forces, competitive dynamics, customer preferences, or sheer luck. True, external factors and good fortune play their part, but it’s equally true that almost every business can improve its growth position. In fact, McKinsey analysis has identified a significant spread in growth performance among companies in almost every sector, indicating there is ample room for growth.
2. Cleansheet a bold growth goal
The all-too-familiar approach to setting growth targets—taking last year’s figures and adding or subtracting a few percentage points based on experience or gut feeling—has always been counterproductive. Now, when the pandemic has rendered year-on-year comparisons meaningless, it is sheer folly. The acceleration of the mass migration to digital triggered by COVID-19 requires leaders to cast a skeptical eye on trend lines and historical precedents and set goals that reflect the new landscape’s potential. That means starting from scratch with a zero-based approach to growth planning. Time and again, we’ve seen leaders leaders using this zero-based approach set and meet goals 40 percent higher than they achieved with their traditional strategies.
A zero-based approach to cost planning is well understood, but how does it work for growth? Top-performing companies start by breaking down the business into its components: customer journeys, brands, product lines, commercial activities. They then set a peak-performance goal for each revenue driver along each journey: generating demand, converting demand to sales, retaining customers, and expanding customer relationships over time. When setting these goals, they look for examples from top-performing units inside the organization and gather external benchmarks from market leaders, experts, and innovators in other sectors. They are guided by curiosity and an open mind, examining how new technologies can support more ambitious goals, challenging institutional norms, and refusing to blame external factors for past performance problems.
For one large retailer, adopting a zero-based approach to growth overturned long-held assumptions that its core brick-and-mortar business could not grow. While its stores had endured years of dwindling revenues, its much smaller online business had been growing at a double-digit pace. Prior forecasts predicted continuing decline for in-store business and a gradual slowing of growth in e-commerce. But leaders set aside these trend lines and their gut feelings about the company’s likely trajectory and looked afresh at marketing strategy, sales-team performance, customer loyalty programs, and potential synergies between the physical and virtual sides of the business. Armed with this wider perspective, leaders reset their ambition: a double-digit improvement in the company’s overall growth rate. Twelve months later, they had achieved it. For more, see “How absolute zero (-based budgeting) can heat up growth.”
