Among the pressing challenges for today’s CEO is the need to achieve the right balance between top-line and bottom-line growth and to determine the exact role that growth and profitability will play in the creation of shareholder value. To determine the right approaches, and the true relationship between growth and shareholder value, the authors analyzed 1,100 global companies. The sample included 223 Canadian companies, whose growth strategies are limited by being too complacent, Canada focused, and by being followers not leaders in innovating. However, CEOs who develop and adhere to a strong strategy, and promote innovation, expansion and risk taking will create superior shareholder value over the long term.

The clarion call to increase shareholder value—and the intesne scrutiny of investors and analysts—has compelled many companies to focus on quarterly earnings to the point of obsession. Unfortuantely, the temptation to downsize and cut costs can lull even the most astute managers into a profit trap that may generate respectable returns in the short run, but fail to exploit the company’s potential to generate shareholder value over the long term. At the other extreme, unbridled growth cannot be viewed as the sole key to creating value.

In this article, we present ideas on growth and value that are based on an analysis of over 1,100 global companies, including three key sectors of the Canadian economy—retail, communications and financial services. We begin with an explanation of the true relationship between growth and shareholder value. We then describe the four types of companies that emerged from our analysis, and explain the fundamental drivers of value-building growth. Finally, we discuss the unique challenges and issues of growth for Canadian companies.


An overriding issue for today’s CEO is strategic balance. What is the correct balance between top-line and bottom-line growth? What roles do growth and profitability play in the creation of shareholder value?

Recognizing this importance, A.T. Kearney launched a global initiative to investigate the characteristics of successful growth. We analyzed more than 1,100 companies (drawn from a database of more than 20,000 companies) worldwide over a 10-year period, covering 24 industries in 34 countries and including more than 80 in-depth case studies. In addition, our consultants interviewed more than 50 CEOs and senior executives of leading companies including Bayer, Ericsson, Federal Express, General Electric, Gehe, Mitsubishi Chemical, Norsk Hydro and Sprint (The Value Growers, A.T. Kearney, McGraw Hill, 2000).

Our final analysis challenges traditional thinking about the way top-line growth should be viewed and understood. In particular, it reveals an attractive kind of growth that we call value-building growth. The conscious pursuit of value-building growth has helped a select group of companies create levels of shareholder value above and beyond what conventional, complacent or bottom line-oriented companies in their industries generate. Between 1988 and 2000, these “value growers” significantly outperformed their peers in the growth of both revenue and shareholder value.

To claim that value growers merely emphasize growth over profit in their balance would oversimplify and misinterpret the point. We wanted more precise reasons: Why do value growers outperform other rapidly growing companies? Why do equity markets consistently prefer these companies to those that focus heavily on profit-oriented parameters, the so-called profit seekers? And what else does growth do for a company besides maximize shareholder returns?


For the purpose of this analysis, we define growth as each company’s revenue performance relative to industry averages. Four types of companies emerged when we compared companies according to relative performance in revenue growth against relative performance in shareholder value: value growers, profit seekers, simple growers and underperformers (see Exhibit 1).

Value growers represent approximately 20 percent of the companies analyzed in each region (Asia Pacific, Europe and North America). Across all regions and industries, during the decade under study, they achieved average annual revenue growth of 18 percent and average annual growth in shareholder value of 21.5 percent.

A cluster of German conglomerates, for example (Bayer and Hoechst), sits among the profit seekers. These companies (19 percent of companies studied) kept their sight on year-end results and grew only cautiously during the period studied, a strategy that resulted in below-average share price performance.

Korean chaebols may go down in history as the ultimate benchmark for simple growers. In an effort to push revenues ever higher, simple growers (14 percent of the companies) ran up relatively higher debt-to-equity ratios. The approach left them vulnerable to a whole range of financial and economic shocks—from the Asian currency crisis and the plunge in computer chip prices to the commoditization of plastic resins.

Finally, the underperformers quadrant is home base for a few Japanese carmakers and financial institutions. These companies did not necessarily fail to generate any revenue growth or shareholder value, but consistently lagged behind their peers in both areas and failed to break out into another growth quadrant.

In studying the characteristics and lessons learned from the companies in the four growth quadrants, we discovered that there are five fundamentals of value-building growth. The five may offer some guidance for CEOs who want to pursue value-building growth and strike a balance between growth and profitability.


1. Innovation, geographic expansion and risk-taking fuel value-building growth. Value growers push themselves to explore opportunities through all these strategic options, continuously redefining their markets and reinventing themselves, whether growing internally or through mergers and acquisitions.

Value growers focus on securing and stretching their core competencies. They stick to their knitting, avoid wide-scale diversification and draw the bulk of their revenues and profits from building their core businesses. Furthermore, they do not divert funds from a successful business until to bolster performance in other businesses.

This does not mean that value growers are a one-product or niche business. In fact, it is just the opposite. They build a range of products and services that rely both on breakthrough innovations and incremental improvements. This explains why value growers do not cut back on R&D even in tough times, but move forward, keenly aware that innovation and product improvement are essential for future growth. This, along with an appetite and eye for innovation, leads value growers to invest (on average) four times as much in “white space” opportunities as companies in other quadrants. (“White space” opportunities are new products/services that meet customers’ latent needs or those needs that have yet to be identified).

Value growers depend heavily on geographic reach for growth. Rather than focusing solely on exploiting growth in their home markets, value growers aggressively pursue geographic expansion. Over the past decade, they have been pioneers in realizing and capturing opportunities offered by globalization.

Value growers show no signs of preferring internal growth over growth through acquisitions. They do both well. What really matters is execution, which is where they excel. Put simply, value growers create opportunities and execute strategies that bottom line-oriented profit seekers and simple growers do not—and perhaps cannot—on a consistent basis.

2. Strong, stable growth is the decisive drive behind share price. This finding sheds new light on the importance of prevailing parameters such as year-end results, EVA (economic value added), EE (economic earnings) or CFROI (cash flow return on investment). We found a strong, long-term correlation across all companies in our database between revenue growth and growth in shareholder value. Although this may be the most compelling reason to shift the strategic balance, growth brings other tangible and intangible benefits to the company, including enhancing the firm’s ability to attract and retain key talent through “excitement at workplace” and “upside in financial returns.”

3. Strong, successful (value-building) growth is possible in any industry, in any region, and at any phase of a business cycle. A key fundamental of value-building growth is its universality. Companies in sluggish or smokestack industries often use these same labels as an excuse for below-average growth, risk-averse behaviour and a sort of “sit on our hands” mentality.

Yet our findings show that value-building growth is applicable to any company in any industry. Every industry has a significant range of performance that allows value growers to emerge and differentiate themselves, even in mature industries such as precious metals (North America’s Barrick Gold), construction (Ireland’s CRH), and food processing and production (Denmark’s Christian Hansen).

The flip side is also true. Contrary to the headlines generated by eBay and other dot-com pioneers, our research shows that entry into a “hot” sector, such as computer software, e-commerce or biotechnology, does not automatically bestow a licence on a company to print money for shareholders.

Value growers ride out economic downturns and the effects of other external influences, and do not claim to be immune to such developments. Instead, their balanced and conscious control over the process of value-building growth inoculates them, allowing them to respond more quickly and confidently to the effects of external development.

4. Growth is spiral-shaped, and not linear. In viewing growth over time, most companies migrate among the different quadrants. Only nine percent managed to sustain value-building growth for more than five years. Even the best companies fall back at some point; however, value growers showed regular migration from quadrant to quadrant. We found that the growth spiral is caused by consolidation periods.

In consolidation periods, value growers step back and view this downtime as an opportunity to realign their resources, establish a better understanding of market dynamics, and refine or redefine their strategies in preparation for the next wave of growth. Where do value growers go in the period of consolidation? Nearly 53 percent became simple growers, while less than 10 percent joined the profit seekers.

Value growers never slow their growth engine, even if it means sacrificing the bottom line for a certain period of time. They know that sinking into profit-seeker territory can make the eventual return to value growth both slower and more difficult. In fact, once the growth engine has been slowed, it takes twice as long to become a value grower again (three years) than it would from the simple-grower quadrant (1.5 years), where the growth momentum is still strong.

5. Value-building growth is highly linked to internal drivers. For example, value growers attribute nearly 90 percent of their growth to their ability to employ certain internal factors in a balanced way. Our study has revealed that there are eight major internal growth drivers across three broad categories of growth determination, stakeholder empathy, and an enabling business model. Exhibit 2 provides a closer look at these influencing factors.

A company that is not achieving value-building growth is prone to blaming external factors such as the economy or competition. In fact, the non-value-builders in our study attribute 44 percent of their revenue performance to external, environmental factors. Many blamed a changing market. A value grower, in contrast, is more likely to “change” itself rather than blame the market. IN other words, they believe that they control their own destiny.


Our analysis of 223 Canadian-owned companies revealed that the Canadian value-building growth profile is in line with our global findings; about 20 percent of the companies we analyzed in Canada are value-growers. Even more promising is that, on an aggregate level, Canada ranks among the value growers of the world economy (along with the U.S., the U.K., and others). Moreover, those Canadian companies skilled enough to manage themselves into the value-growers quadrant have raised the performance bar compared to the global averages. Canadian value growers showed 42 percent revenue growth and 29.3 percent value growth against 18 percent and 21.5 percent, respectively, on a global basis.

But while many executives are prone to quoting today’s difficult business climate and financial market jitters as compelling reasons for poor results, our study has demonstrated that value-building-growth is largely independent of external factors, such as an economic downturn, over the long term. There are no excuses for low growth; there are, however, challenges for achieving value-building growth in Canada.

In terms of the growth challenges, Canadian executives in the new millennium must face a new twist to the old question—“What business are we really in?” Certain Canadian companies are responding successfully to the global growth challenge in their industry sector. We look at three here: retail, communications and financial services.


From our sample of publicly traded retail companies in Canada, only Loblaws continues to demonstrate superior value-building growth characteristics. With a clear understanding of its core business—food retailing—Loblaws set out to become the best in one-stop shopping for everyday household needs including pharmacies, prepared foods, photo processing, dry cleaning, flower shops, travel and financial services. After first redefining the Canadian food industry through its launch of President’s Choice private label in the mid-‘80s, it began to produce a substantial portion of the extensive PC product line overseas. PC Products are now being licensed in countries as far away as Hong Kong and the Caribbean. Loblaws’s growth strategy has included the recent acquisitions of Provigo (Montreal) and Agora (Atlantic Canada) as well as numerous openings and dramatically new retail formats such as its Supercentres in Ontario. While Canadian department store retailers and do-it-yourselfers wage a costly battle for domestic market share with each other and formidable foreign foes such as Wal-Mart and Home Depot (also value growers), Loblaws continues to redefine itself on its own terms. Sobeys (a simple grower), the No. 2 food retailer in Canada, also has growth high on its agenda. With a strong vision, a detailed growth plan and new leadership, it seems poised to move towards the value-grower quadrant.

On an international level, the value-building growers are clear leaders in geographic expansion, innovation and risk-taking. At the beginning of the 1990s, Home Depot rode out an economic downturn by undertaking an aggressive expansion. As competitors responded to Home Depot’s re-definition of the market, the company responded in part through another wave of expansion, this time beyond U.S. borders to Canada and Europe.

Despite growth challenges in Europe and the United Kingdom, Wal-Mart continues to be a value-building grower because of its market and innovation leadership. Ahold, the Dutch supermarket giant, continues to stretch its presence in the U.S. and globally, based on over 10 years of continuous yet patient growth through acquisition.


Sample Canadian communications companies are not value growers. Despite having a comparative advantage in the plethora of new opportunities available in the sector itself, they have not taken advantage of these opportunities. Unlike some Canadian players, global value growers like Verizon and SBC have focused on significantly enhancing their consumer base through acquisitions. They have formed partnerships with other players to achieve market leadership, as demonstrated by Verizon and Vodafone’s partnership to create the No. 1 wireless operator in the United States. In another approach, Tele2, the pan-European telecom operator, provides fixed-line and mobile phone services, cable TV, data transactions, and Internet access to 12.9 million subscribers in 21 European countries. By focusing on the high-growth opportunity on their home turf, Canadian companies have not participated in the opening up of the telecom sector globally.

In the domestic market, low penetration and new 2.5 and 3G technology present growth opportunities. TO significantly grow value, however, Telus, Rogers AT&T and Bell Mobility will need to leverage their equity alliances to grow their respective subscriber bases. The lack of true scale in the Canadian market is an impediment to the growth of new services. The company that best leverages its global partners will have the best opportunity to enter the value-grower quadrant.


Based on our sample of the global financial services sector, Great-West Life is the only Canadian value grower. Our more traditional financial institutions have been relative underperformers compared to their global peers. These value growers have gained disproportionate global scale by focusing on product and market extension through cross-border mergers, acquisitions and alliances, so as to gain market share and pursue aggressive geographic expansion. Life has achieved a significant presence in Canada and the United States though large strategic acquisitions, especially London Insurance Group, and by strengthening its links with Power Financial, through Investors Group and the recently acquired Mackenzie Financial. Furthermore, it sold London Guarantee, the specialty property-liability insurance arm of London Life, as the business was not core to Great-West Life’s operations, a reasoning that is followed by value growers globally.

While Canadian banks have historically limited themselves to growing market share, we have seen a rise in cross-border expansions that could boost long-term growth prospects and value creation. For example:

• Royal Bank executing a North American strategy with U.S. acquisitions in banking (SFNB, Centura), mortgages (Prism), insurance (Liberty), and wealth management/investment banking (Dain Rauscher, Tucker Anthony Sutro)

• CIBC expanding into the U.S. with Amicus and its acquisition of Oppenheimer (investment banking)

• TD Bank acquiring Waterhouse and other discount brokerage operations globally

• Manulife’s recent acquisition in Japan.


At the risk of generalizing too greatly, but with consideration for the 223 Canadian companies sampled as part of our global study, we believe there are three significant gaps in the growth strategies of Canadian non-value-building growth companies:

1) Too Canada-focused. Perhaps because of Canada’s large territory, with its inherent and complex supply chain challenges and regional consumer preferences, Canadian companies are consumed with protecting their domestic markets. On the global stage, Canada is not a small market: 11th in the world based on 2000 GDP (between Mexico and Spain) and 10th based on 2000 GDP per capita (between Austria and Liechtenstein). But the gap in confidence that besets many Canadian companies can be based on the sheer magnitude of our neighbouring giant, the United States (first in total GDP and second in GDP per capita). Our research clearly shows that the markets reward those who pounce on market share and conquer new territories. Execution is critical. We must learn from out less-than-successful attempts of the past, the successes we have had, such as Bombardier’ international expansion through acquisitions and alliances, as well as those of foreign companies buying Canadian companies, the gap is in fact narrowing. Furthermore, the transaction value of foreign acquisitions of Canadian companies has skyrocketed in the last two years and is now 2.2 times the average value of Canadian companies acquiring abroad. This makes Canadian growth through acquisition increasingly expensive for sectors prone o foreign investment, and so, increasingly, scale advantage is moving to foreign companies.

2) Innovation followers, not leaders. Value growers not only dominate markets, they dominate industry white space with new ideas that fuel their growth engines. Non-value-building growth companies seem to participate in their marketplaces rather than consciously redefine them. Value growers are leaders at stretching their core brand. For example, Loblaws defined the private-label market in food retailing and became an early adopter of extended service offerings for everyday use; CVS Corporation captured white-space opportunities in pharmacy services and managed care drug programs.

At the macro level, Canada ranked lowest among the G8 countries on competitiveness, far behind the leader, the United States. The follower mentality is clearly demonstrated by Canada’s R&D expenditure. In 1998, Canada spent 1.6 percent of its GDP on R&D; the U.S. led the pack at 2.8 percent.

3) Complacency with the status quo. Growth is an all-encompassing passion that needs to flow through the bloodstream of an organization. It’s not an initiative or a purely financial objective, it’s the raison d’être of a company, the strategic imperative. We often hear CEOs speak with conviction about “improving customer service,” “squeezing additional cost savings” or “enhancing product profitability”—important tactics they wish their organizations would execute better, but which are hardly unique or strategic. Jack Welch even changed the now famous and very successful moniker for GE to emphasize growth as the new strategic paradigm: “Define your market in such a way that you have just 10 percent market share, then grow aggressively.” Value growers must constantly pressure top performance, maintain investment stamina, redefine their business and markets, and consciously push the envelope.

Today, top-performing Canadian companies must strike a proper balance between the top and bottom lines, emphasizing revenue growth and profitable execution as the optimal path to superior shareholder value. CEOs who consistently achieve value-building growth do so by adhering to a strong growth strategy and promoting innovation, geographic expansion and risk-taking. They nurture and build their core businesses while stretching to capture the growth potential of white-space opportunities. Relying on lessons learned from the value growers, Canadian companies can better ensure that their underlying growth dynamics outstrip their global industry peers over the long term.

About the Author

Dean Hillier is a Vice-President and leader of the Canadian Consumer Products and Retail Practice.

About the Author

Tim MacDonald is President of A.T. Kearney Ltd. and co-leader of the North American merger integration practice.

About the Author

Tim MacDonald is President of A.T. Kearney Ltd. and co-leader of the North American merger integration practice.