Navigating a Path to Smart Growth

How fast should a company grow? This question is fundamental to managerial practice, and it is difficult to answer. On the one hand, companies need to grow to remain vital and competitive. On the other hand, growth creates a number of managerial challenges - and too much growth can lead to crises or even bankruptcy. Some researchers have suggested that growth is beneficial only up to a certain point, beyond which it destroys shareholder value.1 This raises a set of questions: Do companies have optimal growth rates? Can healthy growth be defined? And if so, how can managers determine the ideal growth rate for their organizations?
We have developed a model of a "growth corridor" that allows managers to determine how quickly their companies can safely grow. We tested this model using a large-scale empirical study of the growth paths of the Fortune Global 500 between 1995 and 2004.2 (See "About the Research," p. 67.) The results confirm the growth corridor's relevance for managerial practice: Companies that grew within the limits set by their growth corridor outperformed their peers that did not. So-called "smart growers" delivered an average return to shareholders of nearly double the rate of slower- or fastergrowing companies.