Mastering three strategies of organic growth – McKinsey & Company

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There’s no single formula for delivering organic growth. In fact, the results from a new McKinsey Global Survey on the topic suggest that the companies that see the most growth follow diverse paths.

That insight has significant implications for a company’s health and performance. Organic growth could not be more important to companies’ survival. A look at the share-price performance of 550 US and European companies over 15 years revealed that, for all levels of revenue growth, companies with more organic growth generated higher shareholder returns than those whose growth relied more heavily on acquisitions.

We wanted to understand better how businesses consider and pursue growth along three strategies: investing in existing high-growth activities by reallocating funds from a variety of sources; creating new products, services, or business models; and performing better by constantly optimizing their core commercial capabilities, such as sales, pricing, and marketing.

According to respondents, most companies pursue just one of these strategies as their primary source of organic growth. But the executives reporting above-market growth at their companies—our “top-growth” firms—are more likely than others to say they are pursuing a diversified approach to growth. Compared with the others, respondents at the top-growth companies also report much stronger capabilities in several areas, such as analytics and product development.

A diversified approach to organic growth

Growth is top of mind at many companies, according to respondents: 93 percent say theirs have pursued at least one strategy to generate organic growth in the past three years, and nearly two-thirds agree or strongly agree that organic growth is at the top of their executive teams’ agendas. But regarding the three strategies of growth we explored (investing, creating, and performing), the responses suggest that there is no one-size-fits-all approach.

Nearly 60 percent of executives identify one primary strategy for generating organic growth, while the rest of those pursuing organic growth say their companies follow more than one (Exhibit 1). According to respondents, a diversified approach is more common at larger companies than at smaller ones. It is also reported more often in developed markets than in emerging markets, where reliance on the creating strategy is most common.

Looking ahead, though, the results suggest that companies must evolve how they grow. Of the three strategies, respondents say the largest share of their past growth came from investing in existing activities that are proven winners. Even at companies using multiple strategies, respondents say they have relied most on investing in recent years. But when asked which primary strategy their companies will pursue in the next three years to generate organic growth, just over half of respondents cite the creation of new products, services, or business models, while only 19 percent choose investing. In both developed and emerging markets, respondents are most likely to say that creating new products, services, or business models is where their companies will focus (Exhibit 2).

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