A P R I L 2 0 11
s t r a t e g y p r a c t i c e
Drawing a new road
map for growth
Sumit Dora, Sven Smit, and Patrick Viguerie
New findings show how large and small companies grow—and reveal the startling performance
of emerging-market players.
In The Granularity of Growth,1
we used insights from a proprietary
database of large companies to
argue that executives need to pursue
growth in multiple ways. We disag-
gregated growth into three drivers:
portfolio momentum, or the
market growth of the segments in
a company’s portfolio; M&A; and
market share gains. The exercise
showed us that companies out-
performing their peers on two or
three of these drivers grow faster
and achieve better returns than those
that outperform on just one. Now,
three years later, we can reiterate our
advice with more assurance
because it’s clear that these multi-
faceted growers have withstood the
test of the financial crisis and the
economic downturn—and continued
to outperform.
That’s the first of three findings we
share in this research update,
which reflects the growth of our
database from some 400 com-
panies in 2007 to more than 700
today, as well as the addition of
a significant set of smaller companies
with annual revenues of less
than $3 billion. The second finding
is that companies from emerging
markets are outgrowing competitors
from developed ones at a startling
pace. The third is that the smallest

companies in our database, with
revenues of less than $1 billion, are
growing by increasing their market
share to a much greater extent
than larger companies are. For
the latter, the role of share gain is
marginal or even negative.
Companies that fared
better in the downturn grew
in multiple ways
The downturn had a dramatic
effect on the global GDP growth rate,
which swung from 10 percent in
2007–08 to –5 percent in 2008–09.
The global corporations in our
database had an even gloomier
experience: their average top-
line growth nosedived from 15 per-
cent in 2007–08 to –11 percent
in 2008–09. Corporate growth was
harder hit than GDP growth, in
part because government spending
increased, dampening the effects
of falling private investment and
consumption on GDP.
Amid the gloom and doom, the
top-quartile companies in our data-
base on two or more of the three
drivers of growth—portfolio momen-
tum, M&A, and market share gain—
stood out as relative winners.
2
Before the downturn, they enjoyed a
24-percentage-point differential
in their compound annual growth
rate (CAGR) against the poor
performers. During the downturn,
outperformers boasted a more
than 3-point advantage.
For companies defining their growth
ambitions, this consistent outper-
formance underscores the impor-
tance of examining how they are
doing on all three sources of growth
and how they can raise their game.
Companies from emerging
markets are growing
much faster
Revenues are increasing much
more quickly for companies
that have their headquarters in
emerging economies than for
their counterparts from developed
economies—overall, at home,
in advanced economies, and in
other emerging markets. The
difference in growth rates is most
startling in emerging economies
where both categories of companies
are off their home turf—30.7 per-
cent growth for business units
of those based in emerging markets,
compared with 12.6 percent for
 3

Q2 2011
GoG
Exhibit 1 of 3

Having multiple avenues to growth pays off during

good times and bad.
Having multiple avenues to growth pays off during downturns.

Companies’ performance1 on 3 Revenue growth, compound annual growth rate (CAGR), %

drivers of growth (portfolio momentum,
M&A, and market share gain) 1999–2007 2007–08 2008–09

Executed well on 2 or 3 (n = 66) 30.7 20.3 2.9

Executed well on 1 (n = 135) 16.9 14.9 1.3

Did not execute well on any and/or

6.5 3.8 –0.2
executed poorly on 1 to 3 (n = 391)

Difference between +24.2 +16.5 +3.1

top and bottom performers,
percentage points

1Based on growth decomposition analysis of 592 companies. Analysis spanned different time frames for some companies between

1999 and 2007. Data for 2010 not yet available for majority of companies analyzed.
Source: Bloomberg; McKinsey analysis

their counterparts from the developed
world. This wide gap suggests that
its companies should ask themselves
whether they are paying enough
attention to emerging markets and
allocating sufficient financial and
human resources to them. Chances
are the answer is no.
It’s less surprising that companies
based in advanced economies are
being outgrown by those in devel-
oping economies in their own home
market segments. Growth is, after
all, stronger in emerging markets.
And in advanced economies—
where companies from emerging
markets are growing twice as
fast as those from the advanced
economies themselves—these are
often attackers starting from a
small base and taking market share.
Indeed, across segments, part
of the outperformance may well
reflect the fact that companies based
in emerging markets are starting
from a smaller base. In our database,
the average revenue of business
units from companies headquartered
in developed economies was
$5.9 billion, three times larger than
the units from emerging econ-
omies. This relative size difference
held true in emerging markets
where both categories of companies
 4

Q2 2011
GoG
Exhibit 2 of 3

Across the board, emerging-market companies grow

faster than those from developed economies.
Across the board, emerging-market companies grow faster
than those from developed economies.
Revenue growth rates segmented by geographic market,1
compound annual growth rate (CAGR)

Overall growth Growth in home Growth in developed Growth in emerging

market markets (for developed, markets (for emerging,
By location of other than home) other than home)
company headquarters

Emerging-market
23.9% 17.9% 22.4% 30.7%
companies

–
Developed-economy
10.7% 7.5% 11.7% 12.6%
companies

=
Growth-rate advantage
13.2% 10.4% 10.7% 18.1%
in emerging markets

1 Based on growth-decomposition analysis of 2,229 market segments for 720 companies, spanning a number of time frames

between 1999 and 2008.

compete off their own turf. Still,
it’s clear in the numbers that players
from emerging markets are serious
competitors everywhere; their con-
tinued improvement will accentuate
the growth challenge for their rivals
from developed countries.
Smaller companies exhibit
different growth patterns
In The Granularity of Growth, we
emphasized that portfolio momentum,
coupled with M&A, was much
more important for corporate growth
than winning market share. This
advice still holds for large companies,
which usually have significant
share positions in reasonably mature
markets. For the smallest of
the new companies in our database
(those with less than $1 billion in
revenue), a different growth pattern
emerges. Share gain represents
almost four percentage points of
annual growth for them, compared
with a very small or negative role
for the growth of larger companies.
Intuitively, this should not come
as a big surprise. Smaller
companies usually grow faster
than their industries because they
are not constrained by size,
and their growth is often based on
a new business model they can
pursue without fear of cannibalizing
 5

Q2 2011
GoG
Exhibit 3 of 3

Smaller companies rely on market share gains and

momentum for growth.
Smaller companies rely on market share gains
and momentum for growth.
Average compound annual growth rate (CAGR),
1999–2008,1 %

Performance by
size of annual Revenue Inorganic Portfolio Organic market
revenues,2 $ billion growth3 growth momentum share gain

Smaller <1 (n = 133) 19.4 4.1 11.6 3.7

1–2.9 (n = 157) 13.2 4.8 8.3 0.2

3–4.9 (n = 75) 10.7 3.6 7.3 –0.2

5–9.9 (n = 109) 8.7 2.7 5.8 0.2

10–20 (n = 111) 7.6 2.7 5.4 –0.5

Larger >20 (n = 122) 8.4 2.1 6.2 0.1

1Includes companies analyzed between 1999 and 2008, spanning a number of time frames.
2Based on 2002 revenues in dollars.
3Based on 707 companies for which starting year of growth-decomposition analysis is 2002 or earlier.

1
revenues. Still, there may be a  ehrdad Baghai, Sven Smit, and Patrick
M
Viguerie, The Granularity of Growth,
lesson for large corporations: study
first published in 2007, by Cyan Books,
the action among smaller com- and in 2008, by Wiley.
panies and consider whether they
might be the right peer set for
benchmarking the growth drivers of Sumit Dora is a consultant in
your smaller divisions. Looking McKinsey’s Gurgaon Knowledge
through this new lens may help Center, Sven Smit is a director
leaders set targets that stretch their in the Amsterdam office, and
ambitions yet are still realistic. Patrick Viguerie is a director in
the Atlanta office.

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