Sustained growth: a challenge

We’ve noted before that strategy is about delivering earnings growth, not hitting ROIC ratios, but it seems that’s not easy. In Profit from the Core: A Return to Growth in Turbulent Times, Chris Zook and James Allen, coleaders of Bain’s global strategy practice, find that just 12% of companies grew revenues and profits more than 5.5% during 1998-2008. A few questions and issues arise:

  • This is further evidence that strategic management is not typically done well.
  • It would be interesting to know how much of this failure could be traced back to a mistaken focus on hitting short-term results and ROIC targets.
  • Don’t imagine that there is some kind of finite ‘profit pool’ in any sector that creates a zero-sum game making this kind of result inevitable – good strategic management deals with external competitive conditions as well as internal development. So industries with badly-managed participants are quite capable of destroying profitable growth that would otherwise have been possible.
  • We have seen other indications that focus and relentless driving-forward of the core business is the most common route to sustained profitable growth – so avoid over-extension, whether of product-range, market-segments served, opportunities pursued etc.
  • Don’t believe the message that we can’t keep pursuing economic growth without major environmental harm. Value-growth does not have to mean growth in quantity of resources consumed or quantity of harmful outputs – e.g. you can buy huge numbers of Kindle books, and generate huge financial results for the industry supplying you, for less environmental impact than buying a single physical book.

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