In turbulent times, go for growth
Awash with mixed signals, the U.S. economy is entering a new year on uncertain footing. In moments like this, the instinct is tempting for business leaders to hunker down, cut spending, and preserve cash. But there is a counterintuitive case to do the opposite.
To commit to profitable growth—now.
Investing in marketing, research and development, and mergers and acquisitions when the competition is doing the opposite can help position companies to pull ahead when the recovery starts. Further, growing companies attract talent, foster innovation, and create jobs. A virtuous cycle that can ripple across the economy.
In turbulent times, going for growth may sound like a tall order. But as the history of recent downturns demonstrates, it can be done, irrespective of industry or economic climate.
So, what characterizes those that get it right?
Fundamentally, growth leaders make an explicit choice: they are 70% more likely to make growth a top priority. Here are three specific actions that can help companies find profitable growth, in good times and in bad.
Make the right trade-offs
While all leaders face pressure to deliver short-term results, winners don’t sacrifice long-term growth in the process. Instead, they continually allocate resources to proven options or new initiatives that promise a better return. They also make more growth bets than their peers, improving their odds of success while diversifying risk.
A McKinsey analysis of 2,000 companies from 2007 through 2017 found that those that grew consistently cut spending in some areas, but raised it in others, even if that meant saying goodbye to beloved brands or products. “Shrink to grow” is a proven strategy.
Reallocation to less-cyclical parts of the business, or “strengthening the core,” can also be a sound approach. A company is unlikely to achieve profitable growth if its core isn’t flourishing.
There may also be a case for launching or expanding M&A. Buying new assets in times of uncertainty may seem counterintuitive, but these are moments where leaders might find good-value acquisitions in play.
And while it’s important to make the right deals, how the deals are done matters, too. Programmatic acquirers—those that did at least two small or medium-sized deals a year along the same theme—delivered about 2% more in excess total shareholder returns versus those who used organic, selective, or big-deal approaches.
Say yes to managing, no to micro-managing
Growth leaders commit to action, but they aren’t control freaks. Rather, they are explicit in delegating decision making.
Growth leaders in North America, for example, are much more comfortable than their peers in allowing middle managers and frontline employees to make important decisions. These leaders instead concentrate their efforts on breaking down silos, defusing turf battles, and securing the resources teams need to succeed.
Put customers first. Really
Everyone says they do this, but growth leaders walk the talk. They are 70% more likely to use both formal and informal methods—such as ethnography, in-store visits, surveys, and analytics—to understand the emerging needs of customers.
This level of understanding is crucial when looking for attractive adjacencies. But, importantly, these leaders don’t wait for perfect data. Instead, they use the information they have to make the best decision they can, pursue it vigorously, and reevaluate based on results.
Finally, growth leaders don’t punish missteps when they are made both thoughtfully and in line with strategic priorities.
In turbulent times, it’s understandable that many executives prefer to wait and watch. But for companies that want to thrive—not just survive—that isn’t enough. Now is the moment to make the intentional choice to grow, and then act on that basis.
This is not to underestimate the importance of cost. The point is simply not to tip so far in that direction that the pursuit of profitable growth is undermined.
Like a championship sports team, companies must pay attention to both offense and defense. It’s a balancing act. But research, experience, and history show that finding this balance is not only possible, but the best way forward.
Asutosh Padhi is McKinsey & Company’s North America managing partner and is based in Chicago. McKinsey is a partner of Fortune’s Global Forum.
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