Growth Isn’t the Only Way for Companies to Create Value
By Ulrich Pidun, Valentín Szekasy, Barbora Havelková, and Adam Job
Harvard Business Review
The June edition of ‘The Hub’ is highlighting an Article titled ‘Growth Isn’t the Only Way for Companies to Create Value’ from Harvard Business Review which focus on alternative approach for corporate purpose i.e. stability over growth.
In an era where revenue growth is increasingly difficult due to demographic shifts, deglobalization, and rising sustainability consciousness, this article challenges the conventional belief that growth is the primary driver of value. It introduces a compelling alternative: companies can achieve comparable shareholder value—and often greater resilience—through strategic stability. Rather than chasing risky expansion, businesses can thrive by focusing on steady operations and optimizing internal levers.
Why Rethink Growth?
Traditional wisdom holds that consistent growth leads to success. However, forced growth can be counterproductive, often leading to misaligned investments, overextensions, and, ultimately, value destruction. In response, the authors analyzed 10,000 companies across North America, Europe, and Japan over two decades and identified 172 firms with stable, near-zero revenue growth. Surprisingly, these companies matched market average returns but with 12% less volatility, lower risk of catastrophic failure, and greater longevity—averaging nearly 100 years in operation.
Out of these, 57 stable firms even outperformed the market in total shareholder return (TSR). These outperformers shared certain strategic traits, such as avoiding high-risk acquisitions and maintaining owner-led governance structures. They succeeded not by growing revenues, but by optimizing four distinct value creation strategies.
1. The Asset-Light Service Strategy
Stable outperformers in asset-heavy or maturing industries transitioned to service-based, asset-light models to deepen customer relationships and boost margins. This move reduced capital intensity and operating costs, resulting in stronger EBIT margins and predictable cash flows. Siemens, for instance, shifted focus from traditional manufacturing to software-as-a-service and digital twin technologies. This pivot helped Siemens maintain a robust 12% annual TSR over the past decade.
2. The Premium Margin Strategy
Rather than cutting costs, some stable firms enhanced their product quality and moved upmarket to improve gross margins and pricing power. Morgan Advanced Materials exemplifies this approach. By developing specialized, high-performance materials, the company doubled its margins and surpassed the FTSE 100’s average returns—despite no real revenue growth. This model is particularly effective for companies operating in niche markets or offering premium, hard-to-replace products.
3. The Vertical Integration Strategy
Many outperformers expanded their control over the value chain, growing assets without increasing sales. Vertical integration enabled these companies to capture a larger profit pool, strengthen their competitive moat, and boost gross margins. Whitbread, owner of Premier Inn, chose to own and operate its hotels, manage bookings, and handle distribution—all internally. While this limited rapid expansion, it ensured consistent quality and long-term value, contributing to a 10% annualized TSR.
4. The Reliable Dividend Strategy
Some firms drove value by returning capital to shareholders through stable, predictable dividends. These companies didn’t promise high dividend growth, but instead offered “bond-like” stability that attracted investors seeking low-risk returns. GATX, a railcar leasing company, exemplifies this model. It has paid uninterrupted dividends since 1919 and maintained low volatility while achieving a 12% annualized TSR—powered almost entirely by cash flow.
Challenges of a Stability-Focused Strategy
Although the stable approach shows promise, it brings inherent challenges, particularly in attracting and retaining top talent. Growth traditionally offers employees career advancement and excitement. Companies with limited expansion must offer alternative value propositions—such as job security, horizontal mobility, and community-driven talent pipelines.
Several firms have tackled this creatively. UK home builder Persimmon launched a construction academy with local colleges, addressing labor shortages while building employee loyalty. Meanwhile, Mondel?z International’s “Match & Grow” internal talent marketplace allows employees to pursue cross-functional projects, enhancing engagement even without vertical advancement.
Maintaining innovation is another concern. Without a “growth imperative,” companies risk becoming complacent. However, stable outperformers often focus on incremental innovation, leveraging constraints as catalysts. Diageo’s innovation team, for instance, introduced AI-powered tools and sustainable packaging improvements that align with brand identity without requiring market disruption. Patagonia, though not part of the stable sample due to its growth, demonstrates how intentional constraints—like strict sustainability guidelines—can fuel innovation.
The research presented in this article redefines how businesses can think about value. Stability and disciplined management can rival or exceed the benefits of growth when applied strategically. However, the authors caution that even successful stability has limits. Margins cannot grow forever, and investor expectations evolve. Thus, while stability can be a long-term strategy, leaders must remain vigilant and opportunistic, ready to pivot to growth when conditions align.
The core message is clear: growth may be desirable, but it's not essential for value creation. Companies that prioritize quality, resilience, and financial discipline can create enduring value—even in a low-growth world.
Note: IICA duly acknowledges the ownership / authorship of the article and republishing the same only for educational purpose of Independent Directors.
