Svenja Stöveken, Principal at Horváth

But what does growth mean? And how do companies grow successfully? Growth is often measured in terms of revenue growth, EBIT growth, market share gains or the increase in free cash flow. While this is not inherently wrong, it is only half the story and provides a very superficial view of the value creation of an industry or a company. A true holistic view must consider the investment needs and opportunity cost of the capital employed. 

A sustainable increase in economic profit is only possible if a company leverages its competitive advantages. This makes it possible to measure and evaluate the actual growth performance of companies and individual initiatives more precisely. 

And that is exactly what we did. Based on economic profit, we set out to find true “growth champions”. To do so, we analyzed the world’s top 4,200 publicly listed companies and compared their economic profit over the period from 2014 to 2023. We wanted to understand: What distinguishes the top performers? What levers and patterns do they use to achieve growth success, and what can other companies take away for their own growth stories? 

The results show: On average, the three most profitable sectors - “Telecommunications Services”, “Personal & Household Products & Services” and “Pharmaceuticals” - generate two to three times the economic profit of the following segments. While growth in the top sectors was comparatively easy to achieve, it was particularly challenging in the segments “Real Estate” and “Transportation”. When evaluating growth opportunities, it is therefore essential for a company to understand whether it is able to use its strengths to generate economic profit above the industry average in the long term. 

928                                                                   Telecommunications Services         

875                                                                   Personal & Household Products & Services

622                                                                   Pharmaceuticals & Medical Research 

(...) 

 -47                                                                   Consumer Goods Conglomerates 

-101                                                                  Academic & Educational Services

-349                                                                  Real Estate 

* for full list see study report

The good news first: just as a successful sector does not guarantee entrepreneurial success, a challenging sector does not determine failure either. The scope for entrepreneurial activities is greatly underestimated. The detailed analysis shows that the top performers, who account for almost 80% of total entrepreneurial value creation, have outperformed their competitors mainly through their entrepreneurial activities. Location and sector development are rather supportive factors - in both directions. So it's on us! 

This leads us to the question: What can each company do to improve its own growth performance and maximize its value (measured in economic profit or revenue)? As part of our analysis, we have identified three central growth levers that are very significant in the overall data: Path, Power & People.

Almost a “classic” in growth planning: a well-thought-out growth path provides companies with a clear direction. It helps to focus on the right markets, products and customers and to set the right priorities. What and where are my target markets, my customers, my regions? Do I want to grow in the core business or beyond? In the best case: How can I optimize my image and differentiation, for example through my brand or unique products? To define this path, it is crucial to identify the opportunities from which a company can generate the highest economic profit. To follow this clearly defined path, you need the right power and the right people - both dimensions are often given too little or too half-hearted consideration in growth strategies. 

Growth needs power. Decision-makers must determine whether organic growth or acquisitions, vertical integration, outsourcing or collaborations are the right approach. Targeted access to and use of capital and resources are the decisive “fuel” in the growth engine. According to our analysis, five levers are particularly important and have an even greater impact when combined: straightforward M&A and clear divestments, R&D investments, cooperations and ecosystems, the reallocation of resources, and financial structure and productivity increases. 

It is important to ensure that ambitions exceed those of competitors. Instead of achieving a clear competitive edge as communicated at the planning stage, efficiency improvement programs often lead to keeping up with the competition, at best, because as we know, the competition never sleeps. Clear benchmarking of the individual factors as part of strategic initiative planning is therefore essential. 

In addition, the commitment of management to provide the necessary resources is crucial. However, instead of dynamically directing resources to growth topics, budgets are often allocated rigidly based on previous year's figures, which hinders real growth opportunities. Divestments at the right time can be a success booster and provide investment funds. Equally important are investments in research and development to achieve higher margins and a market advantage through innovation. 

Benchmarking against the competition, as well as tracking the implementation success, are essential in order to properly direct and utilize the power of growth. 

Only with the right team can you move mountains, as it requires the right skills and mindset. Yet more than 60 percent of the companies surveyed in our Horváth Growth Study report a lack of skills. Additionally, despite growth strategies being known and implemented, they often remain one-time measures or background noise. Less than half of the respondents believe that employees really understand the long-term development of the company and their own contribution to it. But growth starts in the mind! True growth champions have a strong growth mindset at all levels of the organization. They set clear goals and incentives, promote continuous learning and use new work concepts in which responsibility and personal growth are supported. 

The growth targets are there, and they are many: “gaining market share”, “strengthening innovative power” and “gaining technological advantage” were frequently mentioned in our Horváth Growth survey among top managers.  

On the way there, companies that want to grow sustainably and profitably must create a stable balance between the three factors of path, power, and people. And then the most important thing of all: boldly press “Play”.