How Fast Should Your Company Really Grow?

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Strategy & Business Model Section | 1

How Fast Should Your Company Really Grow?

By Gary P. Pisano | Harvard Business Review Magazine | March–April 2024 Issue

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Perhaps no issue attracts more senior leadership attention than growth does. And for good reason.  Given the choice, most companies and their stakeholders would choose faster growth over slower growth.

While sustained profitable growth is a nearly universal goal, it is an elusive one for many companies. Over the past two decades, the author has tried to understand why some companies are more effective at sustaining growth and what senior leaders can do to navigate the organizational challenges it poses.

Sustaining profitable growth requires a delicate balance between the pursuit of market opportunities (demand) and the creation of the capabilities and capacity needed to exploit those opportunities (supply). To proactively manage that balance, companies need a growth strategy that explicitly addresses three interrelated decisions: how fast to grow (the target rate of growth); where to seek new sources of demand (the direction of growth); and how to amass the financial, human, and organizational resources needed to grow (the method of growth).

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.

Rate: What Is the Right Pace of Growth?  The answer to this question seems obvious: as fast as possible. But taking a strategic perspective means that companies choose a target growth rate that reflects their capacity to effectively exploit opportunities. The right strategy for many firms may be saying no to faster growth—even if the opportunities are tempting in the short term.

Direction of Growth: Scale, Scope, or Diversify?  How should companies decide which path to take in their pursuit of growth? The basic question that companies must address is: In which markets do our capabilities and other unique resources (such as brand, customer relationships, reputation, and so on) provide us with a competitive advantage? A scale-focused strategy will tend to revolve around deep, market-specific capabilities. Successful scope strategies, in contrast, require the development of broader, general-purpose capabilities and resources that can be leveraged across market segments and lines of business.  The analysis showed that the companies with the most general-purpose technological assets (those that could be applied across multiple industries) were the most likely to diversify.

Method of Growth: How to Grow?  All growth requires access to new resources: financial capital, people and talent, brand, distribution channels, and so on. But there are various ways companies can choose to obtain them. A classic choice leaders face is how much to focus on organic growth versus growth by acquisition. Companies must also make decisions about how to finance growth, whether to vertically integrate or outsource to or partner with other firms, and whether to franchise or build out company-owned operations.  Obtaining any growth-fueling resource—money, people, brand, access to capabilities, and so on—involves trade-offs.  Method decisions are tightly connected to choices about the rate and direction of growth.

3 key takaeaways from the article

1. Perhaps no issue attracts more senior leadership attention than growth does. And for good reason.  Given the choice, most companies and their stakeholders would choose faster growth over slower growth.  While sustained profitable growth is a nearly universal goal, it is an elusive one for many companies. 
2. Why some companies are more effective at sustaining growth and what senior leaders can do to navigate the organizational challenges it poses.
3. Sustaining profitable growth requires a delicate balance between the pursuit of market opportunities (demand) and the creation of the capabilities and capacity needed to exploit those opportunities (supply). To proactively manage that balance, companies need a growth strategy that explicitly addresses three interrelated decisions: how fast to grow (the target rate of growth); where to seek new sources of demand (the direction of growth); and how to amass the financial, human, and organizational resources needed to grow (the method of growth).

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Topics:  Strategy, Business Model, Growth