Strategy

Navigating a Path to Smart Growth

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What is the optimum growth rate to maximize total return to shareholders? This is a critical question facing both managers and investors. An answer is found in the concept of a company's growth corridor, which is set by the upper bounds of a financially sustainable growth rate and the lower bounds of the competitive growth rate.

Using data from Fortune Global 500 companies, the authors find that those companies that grow within their respective growth corridor create above average total shareholder returns. Drawing examples from companies such as AES, BMW, Marks & Spencer, Nestle‚ and Wal-Mart, they show how managers can identify their growth corridors, and how they can restore healthy and smart growth.

Sebastian Raisch is a senior lecturer in management at the University of St. Gallen in St. Gallen, Switzerland. Georg von Krogh is a professor of strategic management and innovation at ETH Zurich in Zurich. Comment on this article or contact the authors through smrfeedback@mit.edu.

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