Good morning.
Revenue and profit growth are certainly closely monitored by CFOs. However, fewer than one in four companies outpace their industry peers in these areas, according to McKinsey.
The firm analyzed the performance of the 10,000 largest global companies with data from 2016 through 2022. Although many companies had low growth rates during this time, leaders who delivered growth outperformance pursued one or more of the six strategies McKinsey identified. Growth “outerperformers” refers to the more than 1,000 companies with greater-than-median-revenue compound annual growth rate and profitability than their peers.
One strategy for accelerating growth is creating and fostering a culture and mindset of innovation. Amid outperformers, those identified as “innovative growers” achieved four percentage points higher cumulative total shareholder return (TSR), McKinsey found. These companies set clear targets, convey achievable goals to employees—and “foster a culture that is not afraid to take risks,” according to the firm. Innovative growers even talk about innovation on earnings calls at twice the rate of their peers.
The next strategy is a staunch commitment to sustainable and inclusive growth. According to McKinsey: “Between 2017 and 2021—a period when fewer than one in four companies topped 10% annual revenue growth—half of ‘triple outperformers‘ reached or exceeded that benchmark.”
Triple performers are leaders pursuing positive outcomes for their customers, the planet, and their company’s long-term sustainability, Greg Kelly, a coauthor of the report, and a senior partner at McKinsey, tells me.
Another strategy—grow the core business with smart marketing and sales investments fueled by data, analytics, and AI.
The research found that, on average, 80% of total reported growth from companies tracked is driven by core businesses, with the rest coming from adjacent and breakout ones.
For example, Walmart has pursued an accelerated innovation model to power its core business, boost operational efficiency, and create next-level customer experiences. The retail giant’s TSR increased by 19.8% during the time period of McKinsey’s analysis.
However, it didn’t necessarily take companies five or more years from the implementation of the strategy to attain notable growth.
“In many cases, we actually saw notable growth even in the first year of investment among growth outperformers, as these companies chose to invest in some of their biggest markets and biggest areas of impact,” Kelly says. And that includes developing higher-margin business lines. Walmart Connect, which sells advertising space to partners on screens across its 4,700 stores, “grew nearly 40% year over year,” Kelly says.
Three additional strategies include: pursuing adjacent and breakout businesses; “shrink to grow” when necessary; and mobilizing people to capture value quickly.
To learn more depth about the six strategies and case studies, you can read the full research here.
Sheryl Estrada
sheryl.estrada@fortune.com
