Profitable, sustainable growth is the closest thing the business sector has to nirvana—but achieving this state has proved particularly challenging in recent years. An insightful webinar highlights McKinsey & Company research into how companies can move the needle.
Bruno J. Navarro
Senior Editorial Strategist, Finance
Workday
Growth is the lifeblood of modern business: It drives everything from performance and culture to innovation and employee satisfaction.
But while most organizations aspire to expand, achieving profitable, sustainable growth has proven elusive for many. In fact, according to McKinsey & Company research, only 25% of companies grow sustainably over time. Those outliers, not surprisingly, flourish in the long run, generating seven percentage points more annual total shareholder returns than their peers.
What’s their secret?
McKinsey & Company has spent years studying the answer to that question—and shared what it learned in a webinar.
Companies that have the dry powder and capacity to grow, and that stick to their strategies even during economic downturns, wind up so far ahead of their peers that the competition can’t catch up, the research finds. These players have long-term aspirations. They may pull back in certain areas when the context changes, but they double down in areas that matter—be it digital capabilities, sales, or new growth markets.
These insights are relevant to any company looking to supercharge its results and impact—as well as to entire sectors and functions that are working to transform. Much of McKinsey’s own growth blueprint rests on how finance professionals can elevate their function and take a more active role in creating value.
“Companies that have the dry powder and capacity to grow, and that stick to their strategies even during economic downturns, wind up so far ahead of their peers that the competition can’t catch up.”
—McKinsey & Company
Read on to learn more about each of McKinsey’s pillars for continuous growth outperformance—and how they align with the mindsets and practices a CFO needs to succeed, according to the Finance Assessment Model for Effectiveness (FAME) competency framework.
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The companies that produce outsized results are laser-focused on putting innovation at the center of their business, McKinsey found. These organizations are so invested, in fact, that they talk about innovation on earnings calls at twice the rate of their peers, set clear targets, and foster an internal culture that is not afraid to take risks, according to McKinsey research.
Similarly, the FAME framework, created to help finance leaders capitalize on opportunities presented by automation, places a premium on innovation. At FAME’s highest echelon, called the Futurist level, CFOs are responsible for driving innovation and change across the organization, identifying and exploiting growth opportunities through the adoption of new technology and the integration of new capabilities.
While shrinking to grow has its strategic place, companies need to continuously expand their core businesses to be successful. Growth outperformers accelerate core growth through robust capability-building programs and devote more resources than their peers to boosting sales and marketing productivity via digital transformation, analytics, and AI.
To move beyond their traditional role as business partners and become business advisors, finance leaders must use data to forecast the future and then guide the organization to capitalize on it. They must architect a data-driven, cross-functional roadmap that charts a path forward while providing key insights that spur the business and maintain competitive advantage.
While the core remains the main priority, successful companies pursue adjacent and breakout business moves that can create multiple value streams, according to McKinsey’s research. Complacency can hamper growth, so companies need to aggressively pursue the “right-to-win” categories in which they already have unique capabilities, customers, and/or value chain connections.
In driving the development, review, and modification of organizational strategy, a Futurist CFO must play a key role in analyzing any expansion or M&A opportunity on the table.
The key is for companies to identify clear opportunities and pair them with areas in which they have a distinct competitive advantage. That advantage might be a technical or operational capability or a particular customer, McKinsey research shows. As an example, having preexisting customers means a company is already well acquainted with their pain points and can better adapt and develop new products to meet their needs.
In driving the development, review, and modification of organizational strategy, a Futurist CFO must play a key role in analyzing any expansion or M&A opportunity on the table.
For some businesses, the journey to exceeding growth standards might begin with getting smaller. For example, a company might elect to spin off a business because its fundamentals don’t complement the core business or the market dynamics suggest divesting. Thirty percent of companies in the growth outperformer set take the shrink-to-grow strategy, McKinsey research shows.
As part of their strategic leadership and value creation, effective finance leaders must also determine when and where to cut. The FAME model requires Futurist CFOs to make decisions and changes using data—so when something isn’t panning out, it’s finance’s job to end the project and reassign resources to higher-value work. Aside from providing financial benefits, these occasional divestitures also free up the organization’s human capital and leadership bandwidth for better use elsewhere.
This approach requires a disciplined execution to allocate resources and manage a successful transition. CFOs, then, should dynamically manage their organization’s portfolio and regularly assess whether they are the best owners of a business or assets.
Companies that grow beyond expectations do more than create the right strategies to determine the pathways with the greatest value potential. They also mobilize their teams and instill ownership in growth by investing in employees’ skills and deepening their functional expertise, McKinsey research shows.
Futurist CFOs must take an active role in fostering bold mindsets among their people and, when capabilities can’t be cultivated internally, oversee a plan to fill those gaps.
The companies that qualify as “innovative growers” go above and beyond to motivate employees. They frequently voice their commitment to investing more resources in talent and digital capabilities, and they’re almost three times more likely than their fast-growing but noninnovative peers to frame their efforts as a “transformation,” McKinsey research shows.
“This idea of courageous growth, and having a culture that embodies a growth mindset and innovative culture, is so important.”
—Julie Gonzalez, Senior Vice President, Finance, Workday
This approach particularly resonates with Workday SVP of Finance Julie Gonzalez.
“This idea of courageous growth, and having a culture that embodies a growth mindset and innovative culture, is so important,” Gonzalez says. “People have to choose to grow; they have to want to grow. I feel so fortunate to be part of a company like Workday that nurtures a growth and innovative mindset across the entire organization.”
To foster a growth mindset among her team and earlier-career Workmates, Gonzalez focuses on two behaviors: exhibiting curiosity and assessing risk. “Wanting to understand why and how something works or doesn’t work is critically important,” she says. “Continually learning is the key because you can’t keep doing things the way you’ve done them before. It’s just not going to work.”
To continue its own outperformance, Workday looks for new growth catalysts to maintain momentum. Potential growth areas include international markets such as Japan; the partner ecosystem to drive sales and innovation; the financial services market; mergers and acquisitions; and investments in AI.
Workday is using its own AI solutions to become more effective and efficient, create a seamless employee experience, and streamline processes.
The technology “helps us find insights and creates recommendations to drive more speed and agility in decision-making,” Gonzalez explains. This resource allocation and investment decision is an example of an “institutional superpower”—one that Workday leaders believe will help propel the company and its customers to the next level of growth beyond expectation.
Read the eBook Intelligent Finance: A New Framework for Finance Excellence.
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