MANY ROADS LEAD TO THE TOP 50
Top-line growth is the holy grail in Corporate America, and times have never been better for achieving it. The cost of capital is low, global markets are opening everywhere (yes, Asia will come back), and real income is rising, thanks to higher wages and price disinflation. Opportunities to grow today are vast and varied. Yet myths about limits to corporate growth are deeply entrenched. They deserve a serious debunking.
Take the one about size. It used to be said that corporate behemoths could never grow as fast as startups. Maybe not. But as the BUSINESS WEEK 50 (page 76) shows, General Electric Co., weighing in at $91 billion in sales, managed to boost sales by 15% and net income by 13% in 1997, a performance that's the envy of companies small and large.
And the myth about mature markets? Supposedly, it's impossible to generate as much growth in older industries as in hot, new ones. A cursory look at the BW 50 appears at first glance to confirm that assumption, since the top five companies on the list come from the fast-growing New Economy--computers, chips, and software. But then there are all those other high performers--PACCAR, Alcoa, Gap, NationsBank, and Chrysler. Trucks, aluminum, retailing, banks, and autos are all Old Economy industries, yet somehow these companies can manage to wring out double-digit annual growth rates.
Our favorite myth is that there is only one right way to grow. Conventional wisdom says that growth by mergers and acquisitions usually fails while internal, organic growth succeeds. So "bootstrapping," or buying companies using high-priced stock, boosts earnings per share for the new, merged company. But, the argument goes, it's just dangerous math; the gain is illusory and doesn't last in the long run.
Not so in financial services. Sanford I. Weill's Travelers Group, No.16 in the BW 50 , uses acquisitions to improve distribution, go global, expand products, and increase efficiencies of scale to save on costs. Buying Salomon Brothers is just the latest move in his strategy of buy to grow. Morgan Stanley used the same playbook in merging with Dean Witter.
Excuses wear thin for CEOs who can't go for growth. Behind all the strategies, one secret appears to be clear: gun for efficiency. Dell Computer Corp., for example, uses information technology to customize each computer, cutting out armies of middlemen while reducing the size of inventories. PACCAR does the same for long-haul rigs. Corporations still in the grip of myths about the limits to growth can't conceive of doing this kind of thing. They will forever lag behind.