A Granular Approach to Business Growth

​Written by Sven Smit, Mehrdad Baghai, and Patrick Viguerie, The Granularity of Growth: How to Identify the Sources of Growth and Drive Enduring Company Performance focuses on overcoming the challenges that big businesses face in engineering expansion in highly competitive environments.

Published in 2008, the book presents a seemingly intractable problem in the preface: a hypothetical median $25 billion revenue Fortune Global 500 corporation that needs to generate incremental annual growth of $1.6 billion, simply to stay current with average GDP growth of 6.2 percent. This requires orchestrating growth that exceeds the total annual revenue of many established global brands.

At the same time, established companies face challenges associated with longevity and maturing markets. As once innovative products and concepts become widely recognized and imitated, returns gradually diminish. Another issue is that larger companies tend to focus on operating metrics and shareholder expectations, rather than meeting consumer needs, which leaves them vulnerable to new business models and competition.

Two of the book’s authors were partners at the consulting firm McKinsey & Company, and they base many of their insights on quantitative studies of corporate growth. One research finding is that 80 percent of growth differences between major companies has to do with choices in market segments to compete in, and how much M&A activity to employ in expanding market reach.

Making effective choices here requires breaking down revenue growth performance into a trio of granular elements: inorganic activities (M&A), organic share gain, and portfolio momentum. Unfortunately, many analyses of sectors, industries, and megatrends are at such a high level that they fail to provide actionable insight.

The granular perspective enables companies to identify hidden pockets of growth, even within markets that are seemingly mature. Corporate leaders allocate resources with maximal efficiency, where they can best attain growth. With a granular blueprint in place, organizational structures are designed that match market textures, with global scale balanced by local responsiveness.

Another element of this matrix is envisioning growth trajectory as a long-term proposition and providing the capital, talent, and resources necessary to achieve ambitious goals. This approach avoids the trap of watching every emerging metric and missed target, and engaging in morale-deflating cost cutting with each setback. This approach requires seamlessly transitioning from granular analysis to macro-level planning that incorporates accurate forecasts and trend analysis. The successful organization “needs to reflect the texture of the market and the set of opportunities it presents.”

Another point of emphasis is that growth alone does not drive results. Profit and operating performance are also key, and there are two basic strategies here. One involves sustaining high growth while maintaining margins, as with Walmart or Target, when they add locations, while keeping prices and distribution channels intact. Another viable pathway involves aiming for moderate growth while improving margins, often through restructuring and selling off non-core assets. An example involves Coca-Cola selling off bottling plants to focus on its core markets and competencies.

The authors argue that M&A are an oft misunderstood engine of growth that typically contribute to around a third of revenue growth. Acquisitions fulfill a multifaceted role of consolidating industries and building bridges to new markets and industries. The emphasis of successful M&A is not simply on financial metrics, but cross-organizational synergies and strategic fit. Affected business units are involved in planning mergers from the outset. In addition, acquisitions are balanced by timely divestments that keep the overall corporate portfolio focused and on a unified track.

Sean Unwin

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