Sustained profitable growth is a nearly universal corporate goal, but it is an elusive one. Empirical research suggests that when inflation is taken into account, most companies barely grow at all.While external factors play a role, most companies’ growth problems are self-inflicted: Too many firms approach growth in a highly reactive, opportunistic manner.
Each of those decisions involves trade-offs that must be considered in concert with a company’s overall business strategy, its capabilities and culture, and external market dynamics. My rate-direction-method framework highlights the critical interdependencies between decisions that are all too often made separately. Using the framework to illuminate the trade-offs, companies can create a balanced growth strategy.The answer to this question seems obvious: as fast as possible.
With such a profitable and rigorous operating model, and seemingly unlimited demand in the United States for its products, a massive and lucrative expansion would appear to make sense. Yet the chain’s leadership recognizes that a unique aspect of its model places a limit on how fast it can grow: its obsession with quality. Pal’s has an extremely low rate of order errors: one error per 3,600 orders versus one error per 15 orders for the industry.
How should companies decide which path to take in their pursuit of growth? It is tempting to think about such choices as simply a matter of identifying and exploiting immature, unsaturated markets with rapid overall growth potential. While market dynamics matter, there are other factors to consider. For example, from 1980 to 2019 the average compound annual growth rate of the domestic U.S. travel market was a modest 5.3%. Southwest Airlines, however, enjoyed a brisk average CAGR of 15.3%.
Method decisions are tightly connected to choices about the rate and direction of growth. Consider the case of Virgin Group, which my colleague Elena Corsi and I studied. The company’s growth strategy is to expand into new markets and industries where the Virgin brand can drive customer acquisition. The company’s leaders consider the Virgin brand—along with fresh approaches to providing high-quality customer service—to be the firm’s critical resource.