There are three drivers of growth: portfolio management (in which a company manages its business in segments serving different markets which have varying growth potential), M&A and market share performance.
In a study of large firms' growth, portfolio management was found to contribute 43% to their growth with M&As bringing in 35% and market share 22%. The research suggests that executives need to look carefully at the segmented markets they reach with their different products and services and calculate which segments operate within the fastest growing markets.
By taking this granular approach, managers can steer their company's portfolio towards the fastest growing segments, thereby ensuring that the overall group achieves a high growth rate. In other words, companies that are struggling with low growth do not necessarily need to consider changing lanes into a new industry altogether.
They can achieve impressive boosts to growth simply by looking within their own business and building their portfolio around the high growth markets in which they already possess strengths, assets, insights and special capabilities.
This does not mean managers should stop thinking about the execution of strategies, the need to gain market share or strategies to drive growth inorganically through M&As. But it does suggest that they should also regularly consider managing the segments within their portfolio around the most promising markets and recognise this as one of the most effective ways to grow.
The granularity of growth
By Mehrdad Baghai, Sven Smit and S. Patrick Viguerie
Mckinsey Quarterly Online, May 2007
Review by Morice Mendoza