The largest, most successful companies would seem to be ideally positioned to create value for their shareholders through growth. After all, they command leading market and channel positions in multiple industries and geographies; they employ deep benches of top management talent utilizing proven management processes; and they often have healthy balance sheets to fund the investments most likely to produce growth.
Yet after years of impressive top- and bottom-line growth that propelled them to the top of their markets, these companies eventually find they can no longer sustain their pace. Indeed, over the past 40 years North America's largest companies—those, say, with more than about $25 billion in market capitalization—have consistently underperformed the S&P 500,1 with only two short-lived exceptions.
Talk to senior executives at these organizations, however, and it is difficult to find many willing to back off from ambitious growth programs that are typically intended to double their company's share price over three to five years. Yet in all but the rarest of cases such aggressive targets are unreasonable as a way to motivate growth programs that create value for shareholders—and may even be risky, tempting executives to scale back value creating organic growth initiatives that may...