What You Really Should Know About Growth

Thinking of “growth”, most people imagine an automatically running process like a growing plant. Once the right foundation has been laid and the conditions are right, growth is kicking off. But this is only true regarding nature. Corporate growth, in contrast, can and must be actively triggered if the right levers are pulled. It can be trained and established. So what does corporate growth really depend on?

Market environment does not determine your corporate success

Of course, there are many cases of companies struggling in difficult market conditions. However, there are also plenty of successful companies in industries that are currently undergoing massive transformations. And there are surprisingly unsuccessful companies in industries that are actually doing well. And these are not just isolated cases, as shown by a current Horváth analysis of the corporate development of more than 4,000 companies worldwide. Our survey of 160 international top managers confirms this too: The majority of managers sees (very) high growth potential both in the core business and in new business areas - across industries and countries (70 to 75 percent in each case). 

Innovative strength as number one growth driver

According to the respondents, the most important lever for gaining market share and realizing growth is “to increase innovative strength”. The realization that transformations can only be managed through change and new approaches seems to have been generally accepted. The second most common response is “driving technological progress”, as transformations go hand-in-hand with further digitalization. 

When asked which external conditions would have the greatest impact on their own company in terms of promoting growth, the most common answer was again: promoting innovation or investing in research and development. In the German manufacturing sector, “reducing bureaucracy” is also in the top 3. However, in line with the motto “focus on what you can control,” we recommend focusing on levers that the company can actually influence. 

Growth needs a “seat at the table”

In less than a third of companies in Germany, growth strategies and their implementation are an integral part of board meetings. In comparison: in the USA, it's more than two-thirds. Why is growth not systematically discussed? Probably because decision-makers know that there is still a gap between desire and reality. The biggest problem is that companies lack the necessary skills to actively kick-start growth. 

Growth skills are the real game changer

72 percent of top managers surveyed indicate that their companies do not have the necessary transformation and change competencies to foster growth. Conversely, this means that those who possess these competencies have a tremendous competitive advantage. They are the real game changers, “the new gold” of a company. They are also increasingly considered in financing and M&A evaluations, for example as part of human capital due diligence. Holistic transformational approaches are also incredibly valuable for companies. In large companies with at least 5,000 employees, this is the most challenging factor. 

Shifting investments in the right way

No matter how bold and enthusiastic the top management presents their growth plans - if investments are not allocated to the right areas or are insufficient, the desired growth will not occur. In Germany, 42 percent of total investments are currently allocated to new business areas. This CAPEX share is expected to increase by two percent over the next five years. U.S. companies are planning a stronger increase to 47 percent by 2029. To accommodate this balance, the necessary financial prerequisites must be met. 

Creating financial scope

Almost two-thirds of decision-makers indicate in our study that a lack of financial resources leads to growth stagnation in their companies. To prevent this, financial scope for necessary investments must be created in advance by optimizing the existing business. This includes checking optimization levers on the market side, such as portfolio optimization or pricing strategy, as well as classic cost levers in manufacturing and administrative costs. This creates financial freedom for necessary investments that will determine future success. 

With the knowledge of these interconnections, growth can be fostered and kick-started. When the focus is shifted from barely changeable framework conditions to factors that can be shaped, which are then consistently used and implemented, the path to growth is open. 

Svenja Stöveken, Principal at Horváth

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