Here’s how the best leaders can drive ‘outsized growth’ in times of crisis, according to McKinsey’s research
Even at the best of times, driving growth isn’t easy. Achieving it and sustaining it can feel elusive, and for many, it remains that way, as about a quarter of companies don’t grow at all.
Today’s volatility will feel even weightier for those looking to drive growth. While there were sobering predictions coming out of Davos of a possible worldwide recession arising from four interwoven crises (high inflation, an energy crisis, food poverty, and a climate crisis), there were also pockets of optimism.
There is no playbook yet for CEOs. No hindsight on how to grow in this post-COVID economy. Yet there are learnings from outperforming CEOs, who are breaking the powerful force of inertia with growth strategies that capture both near and long-term opportunities. They’re putting critical mass behind a set of well-defined timeless and timely growth bets. One in seven companies have achieved 10% annual growth in the last decade. One in ten have held steady in the S&P 500 with above-GDP growth for more than 30 years.
Our research of over 4,000 companies over the past 15 years shows that leaders have a steady, constant focus on four timeless growth imperatives: setting high aspirations with a strong growth mindset, growing the core, innovating into adjacencies, and igniting breakthrough growth opportunities. At the same time, they are nimble enough to drive timely actions to respond to rapidly changing customer, market, and economic conditions.
Here are the five key actions CEOs can take to catalyze growth in times of uncertainty:
Align your growth ambition and mindset with decisive action
Growth leaders—those who consistently outperform in terms of growth and profit—tend to do things differently. They are 80% more likely to communicate growth successes often, and 70% more likely to prioritize speed over perfection. They make multiple long-term growth bets and build a nuanced understanding of customer needs.
It’s not just enough to say you want profitable, sustainable growth. Every leader does. The leaders that attain it are willing to translate ambitions into concrete action through their words, deeds, and investment decisions.
Expand your core
Having a well-defined and differentiated core business is essential to growth. Our research shows that on average, around 80% of growth comes from your core business, so neglecting what’s considered to be your most critical growth driver is a surefire recipe for disaster.
Driving core growth depends on true customer obsession. Organizations with above-industry average customer satisfaction achieve four times better performance than their peers.
Innovate into adjacencies
While the bulk of growth may come from the core in the near term, outperformers drive 50% of growth five years out from parts of the business that don’t exist today.
This growth tends to come from new geographies and adjacent industry sub-sectors where innovation can extend existing core competencies to adapt offerings in a different way for a whole new segment of customers.
While these adjacencies can carry higher risk, outperformers know and manage that risk with gated investment, and check and adjust their plans to capture the bigger rewards.
Ignite breakout businesses
We have seen that downturns are often the times when those companies that make bold moves create such strategic distance from their peers, that they can’t ever really catch up. Many high-growth companies were founded during economic downturns, such as Hewlett-Packard, Burger King, Hyatt Hotels, Microsoft, and, Airbnb, to name a few.
Breakout growth bets come with higher risks than moving into natural adjacencies. Around 40% of breakout opportunities generate positive excess shareholder returns, but 60% do not. And yet outperformers have this as part of their growth strategies: Innovating into adjacencies and igniting breakthrough bets, in addition to focusing on expanding the core, increases the probability of outperforming peers on growth by 97%.
These breakthrough bets typically expand into new markets through new business building to unlock new opportunities. Done right, the rewards can be well worth the risk. Amazon’s breakthrough bet beyond its e-commerce business into public cloud services through Amazon Web Services is one well-known example. By leveraging its core competencies of brand and commercial strength, it built AWS into a $62-billion-revenue-generating business. Marcus by Goldman Sachs is another. Goldman launched this digital consumer business in 2016, allowing customers to bank from their phones. In four years, it has attracted millions of customers, accumulating deposits of $92 billion and making loans of seven billion dollars via a combination of organic growth, acquisitions, and partnerships with Apple and Amazon.
Take decisive action on timely disruptions
Growth outperformers execute against these timeless imperatives with timely adaptions to fast-moving trends. Consider McDonald’s prescient acceleration into delivery, ahead of the pandemic, to build a highly successful multi-billion dollar delivery business.
Growth leaders are unleashing their talent to address the four interwoven crises, rapidly adjusting their value propositions and pricing strategies to adjust to record 40-year-high inflation levels in key markets and strengthening their resilience to thrive in challenging times. They are not just surviving the Big Quit but developing a strategy to win the talent wars.
To be sure, growing profitably—and sustaining that growth over time—is not simple. The ability to operate with a view across all time horizons and put a growth mindset into action is what sets the frontrunners apart.
Greg Kelly and Jill Zucker are senior partners at McKinsey & Company. Rebecca Doherty is a partner at McKinsey & Company.
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