Idea in Brief
Only a tiny percentage of large companies reliably grow the bottom line year after year. Those that do share certain characteristics.
On the one hand, they’re built for innovation.
They enter new markets before competitors do; they’re good at experimentation; they hold everyone accountable for new ideas; and they can move on a dime.
On the other hand, they’re extremely stable.
Chief executives have come up through the company; strategy and organizational structure stay consistent for long stretches; client retention is unusually high; and the corporate culture is strong and unchanging. Those characteristics may seem contradictory, but stability appears to be what makes innovation—and steady growth—possible.
Steady, predictable growth is what every big company strives for and what investors prize above all else. Recently some colleagues and I conducted research to find out just how difficult it is to achieve. To start, we asked a simple question: How many publicly traded companies with a market capitalization of at least US$1 billion grew by 5% each year for five years ending with 2009? We combed the enormous database of Capital IQ. (We selected the 5% threshold because global annual GDP growth averaged about 6% during that period. And note that we were looking for steady performance, not compound annual growth.) The answer surprised us: Only 8% of the 4,793 companies in our sample grew their revenues by at least 5% year after year, and only 4% achieved a net income growth of at least 5% in each of the five years.
