Reprint: R0803C
An abrupt and lasting drop in revenue growth is a crisis that can strike even the most exemplary organization. The authors’ comprehensive analysis of growth in
Fortune
100–size companies over the past half century revealed, in fact, that 87% of them had stalled out at least once. The record shows that if management cannot turn a company
around within a few years, the odds are that it will never again see healthy top-line growth.
Fortunately, Olson, van Bever, and Verry, of the Corporate Executive Board, have uncovered and categorized the most common causes of growth stalls. The majority of
these standstills are preventable because, according to the authors, they arise from management choices about strategy or organizational design; external factors, such as
regulatory actions or economic downturns, account for only 13%. Four categories predominate:
Premium-position captivity.
When a firm’s world-class offering has won the most demanding customers in the market, it often fails to respond effectively to new, low-cost competitive challenges or
shifts in customer valuation of product features.
Innovation management breakdown.
Because most large corporations generate sequential product innovations, any systemic inefficiency or dysfunction in the innovation chain can cause extremely serious
problems that last for years.
Premature core abandonment.
Managers may conclude too quickly that a core market is saturated. Or they may incorrectly interpret operational impediments in the core business as evidence that it’s time
to move into new competitive terrain.
Talent bench shortfall.
Insufficient capabilities—particularly at the executive level and typically in areas of acute and specialized need—will stop growth dead in its tracks.
The authors also identified a common culprit in detailed case studies of 50 stalled companies—failure to adapt the assumptions that drive company strategy to
changes in the external environment. Two tools can help managers avoid growth stalls: a self-test to diagnose impending stalls and a choice of practices to explicitly
identify strategic assumptions and test them for ongoing relevance.
