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 faster-growing companies. These companies, including Dell, General Electric, Microsoft, Nestlé, Toyota and Wal-Mart, operated within the limits of their growth corridors. However, more than 75% of the overall group failed to operate within this zone and paid a price one way or another — in rising debt, declining profit margins or falling share prices. Drawing lessons from the smart growers, we have developed guidelines for how managers can use the growth corridor model in strategic planning.

The Growth Corridor

Many executives do not see rapid growth as a serious problem. After all, when companies are able to grow, they generally are offering customers what they want. However, in many cases there are significant costs, resulting in financial losses, market-share declines and even bankruptcy. Executives must balance a company’s need to grow with its ability to manage the growth. The growth corridor is the path companies can take toward smart growth, between their “minimum growth” and “maximum growth” rates.

Minimum Growth

Companies reap multiple benefits from growth. Increased size and market share often lead to more market power and better economies of scale and scope. Fast-growing companies are able to attract strong management talent and financial resources. In addition, growth can help