311. Proven growth strategies from market leaders

0:01What distinguishes growth leaders is not foresight, but greater conviction. Investing when uncertainty is highest, building capabilities rather than chasing headlines, treating growth as something to be engineered for. The position isn't fixed. Even some of the lowest growth quartile performers have moved up to be the top quartile. We know it's hard. It takes courage. It takes discipline. It takes dedication. But it's available to those who choose it. From McKinsey & Company, I'm Sean Brown, and welcome to Inside the Strategy Room. That was our senior partner, David Schiff, who joins us with colleagues Kate Siegel and Simon Jones to share the latest insights from their research on how to drive business growth outperformance.

0:44The research focused on 61 companies across a range of sectors that were identified as top growth performers during the period from 2019 to 2024. These companies outperformed their peers by an average of 5 percentage points in revenue growth and 7 percentage points in profitability annually, despite an increasingly challenging environment during that same time frame. The burning question we'll address today is what did those companies do differently to drive these outstanding results? Drawing on a fascinating collection of case studies from market leaders including Walmart, JPMorgan Chase, Builders First Source, and Progressive Insurance, David and his colleagues will share three common moves that these outperformers make and unpack the practical actions that business leaders should be focusing on to achieve sustainable, profitable growth and outperform their peers.

1:40And now it's my pleasure to introduce our three guests. Simon Jones is a senior advisor to our banking practice based in London. He was previously chief customer officer for ClearBank, the first new clearing bank in the UK for more than 250 years. Simon has extensive experience in growing franchises from an early stage to hyper growth during a long career at J.P. Morgan, where he was the regional leader for the payments business in Asia Pacific and then EMEA. Simon, welcome to the podcast. Hi, Sean. Great to be with you today. And David Schiff is a senior partner based on our Austin, Texas office, where he leads our growth transformation practice in North America.

2:22David, thanks for joining us today. Thanks, Sean. Great to be here. And Kate Siegel is a partner in our Detroit office and a leader in our strategy and corporate finance practice. Kate, welcome. Thanks for having me. Kate, we've recently published a number of perspectives on growth, and we're looking forward to discussing your latest research today. So to kick off, what is new or different about this topic now? And why is it so relevant for executives at this particular moment? Yeah. So I would say we keep coming back to growth for one simple reason. It truly matters to long-term value creation.

2:59And for those that do love corporate finance, there's really only two fundamental drivers if you're a CEO today to create value for your shareholders. You're either trying to improve your return on invested capital or you are trying to grow. And as we've looked time after time again, it's much, much harder to grow over the long term. And so this challenge, I would say, is perennial. But then the ways that people have been adapting to this has been evolving. So we just keep looking at what our performers are doing to bring the best of the global economy to our listeners. And so what we've consistently found, just for those that are tuning in for the first time, is that growth will take courage, dedication, and discipline.

3:47You ask, you know, what's new? And we looked at the last five years in a post-COVID recovery. And I think what's new is we're seeing that outperformers are turbocharging this growth blueprint in a really different way. They're trying to manage a more volatile world. We're trying to think about how technology can give them scale and create a real flywheel. And so we wanted to bring to life what does it mean to outperform the market? And so we're really excited to share what we learned today. This sounds great, Kate. As I mentioned earlier, this latest research is based on growth outperformers. So what are some of the metrics you used to identify those outperformers and how hard is it really to become one?

4:29You know, the initial instinct for Moe's is to look at companies' revenue growth rates. For example, if you just take the last five years from 2019 to 2024, this was a period of COVID disruption and recovery, the rise of the Magnificent Seven, just the first offshoots of Gen AI. I, we looked at nearly 4 ,000 global public companies with revenues over a million dollars. And in that timeframe, what we saw is only 16 % were able to grow their revenues by double digits annually. That said, absolute revenue growth in isolation is a pretty incomplete way to identify who is a growth outperformer and who should we look to learn from.

5:12And so why is that? I think you would argue you have to look at each industry's market momentum and its profitability. And so what we typically do in this is leveraging the learnings of granularity of growth and other corporate finance practices. We have to find companies that were able to grow beyond our market momentum. So companies that improve their revenue growth rates above their peers. and we also wanted to find companies that were doing growth not at the expense of margin or long-term return. They weren't buying it in a way. And so we asked to find agroformers that had profitability above their pure.

5:52And what's interesting is in this time period, there were nine sub-industries, sub-sectors that we looked at where the majority of companies in those industries failed to grow profitably. And that's a pretty interesting finding and really hard if you were a CEO during that time. That said, we were able to identify 61 performers, really the top 15%, that were able to meet this criteria. They grew faster than their industry, and they did it more profitably. And so it's interesting, it is hard. It's only 15 % of companies, but it's really, really meaningful in terms of the economic gap they're able to create.

6:31So they beat their peers by an average of five percentage points in revenue growth. They had seven percentage points in profitability better than their peers. And frankly, their shareholder returns were above their peers by five points. So it's really hard to do. But if you were a shareholder, you were pretty excited about what these firms were able to do for you. And what about the split between organic and inorganic growth driven, say, by M &A? Yeah. And for this research, Nerventizer have tried to strip out those that have done M &A, but M &A is a really important lever. And we are seeing in this volatility, harnessing capabilities that other companies can give you is really, really important if you want to move fast.

7:17And so we do not, you know, take it out of this sample, if you will, but we do hold them to this profitability bar. You can't do M &A and then dilute your returns. And so we would say there is really good M &A in these outperformers, and we can talk a bit more about the stories today. And I think, Kate, to don't know what you're sharing, we'll talk about this later as we go into some details. There are some really interesting examples of some of these growth outperformers who did acquisition not to drive huge changes in revenue, but actually to bring in new capabilities, especially in areas of technology, data analytics, and AI.

7:52And those capabilities have really contributed to that increased growth rate, increased profitability that we observe. Walmart's a pretty interesting example, but we can maybe bring it to life later on. Thanks, David. And Simon, maybe you could share a practical example from your time at JP Morgan, where M &A played this kind of role? I think one of the key areas that I certainly saw, as David just said, around adding capabilities, some of the mergers that I saw at J.P. Morgan, for example, the investment bank on the West Coast, Tambricht and Crist, I'm going back quite a long time now, but it really transformed the relationships we had with big tech companies, for example.

8:32So the ability to bring the rest of the firm to those relationships was transformational and added major new aspects of growth into the customer portfolios, as an example. So we've talked about how hard this is, that you need to beat your industry trends and that it needs to be profitable and it can be inorganic as well. So David, maybe you can take us through at a high level the three behaviors that these outperformers engaged in to drive this exceptional growth? Yeah, absolutely. We try to understand how do our performers do it? You know, Kate talked about 61 out performers. And what we discovered was the pattern was pretty striking.

9:18What set our performers apart is not luck. It's not timing. It's truly how they commit to growth, how they develop growth engines, and how they accelerate with technology. We observed these three behaviors across very different industries. They're sort of A, or the first one is really they commit to growth as a priority. They do it with meaningful conviction, especially in times of uncertainty. They don't wait for perfect visibility. They don't wait for the clouds to part before they invest. You know, two, they make multiple growth bets. We often talk about one of the things that works for a growth outperformer, but the reality is they don't rely on one or two big swings and hope for the vaster hope for a grand slam, they truly build a portfolio of growth engines.

10:01They do this across what we call the core, where they are in the business today, adjacent. And many of the growth outperformers are actually looking at more breakout businesses and business areas that are further afield from where they are today. And they actively manage that growth portfolio holistically. You know, three, we really observe these outperformers accelerating with technology. The research period we looked at was 2019 to 2024. It was true then. It's even more true today, especially with AI. They don't treat tech as a productivity, as a side project. They truly wire it into their operating model.

10:36They turn it into business as usual. And so AI and technology amplifies everything else they're doing. I think the good news is that we saw even large, well-established companies can shift their performance. You know, the stat that really stuck with us when we did the research was 16 % of companies moved from the lowest quartile of growth to the top quartile of growth. So looking at sort of 2014 to 2019 to 2019 to 2020, 2024. And so the reality is that your position is not fixed. It takes real work, real commitment, but you can continue to improve even if you're not a growth leader today. So this is inspiring that you can actually move, that it's doable.

11:17You can, that there were folks who moved from the bottom to the top, but what's your perspective on what matters more for growth? Is it where or how you compete? In other words, is it about choosing your markets or choosing how you thrive in those markets? And I guess it's fine to say both. Yeah. Well, you know, as a consultant, I would say it depends. Sorry, bad joke for the audience. Look, it is both, truly. We saw there's two layers to it. First, where you choose to play really matters. We have this idea that our colleagues in the McKinsey Global Institute talked about called arenas, which is really about what are the small pockets that are going to generate the most amount of incremental revenue looking forward.

12:03Those are places like India and China and micro markets within the US. And then what we did observe, though, it's not just where you choose to play, it is actually how you build the portfolio and how you play. And we actually saw that mattered even more, this notion of how do you strengthen your core? How do you expand to close interjacencies? How do you test new sources of growth, allocate talent, allocate capital, and have real clear accountability and performance management against that portfolio or against those growth bets that you were making. And so we did observe that the tailwinds are helpful to these organizations, but actually how they execute, how they play the game mattered even more.

12:45Thank you, David. And choosing to invest in growth makes a lot of sense as a driver, but it also implies that there would be other investments that you might need to either reduce or reallocate from other areas that don't have the same growth prospects. So what are some of the biggest challenges when you set growth as your North Star and you want to invest in it, but you also have other businesses that maybe are slow and steady, perhaps they're not growing, but they're still supporting the business. So in your experience, how did the outperformers overcome that inertia and reallocate those resources?

13:23this? Yeah, I think there are a few things we saw, and then I'll invite my colleagues to add in, because I think we got a chance to see this across industries, across institutions. The first one is it takes real conviction from the CEO and from the senior leadership team to say, we're going to go after this. These are the bets we're going to make, and we're going to communicate them very clearly internally and externally. Two, you have to actually put aside real, I'll call it dollars and pools. It's resources and people, it's actual capital and investment to do it. It's in many cases, the scarce commodity of your best performers and your best technologists to actually go do these things.

14:03And three, not to sound like a broken record, but you really have to create the performance management against it and have a very clear view of where do we need to be by month, by quarter? What do we expect to see? just because you don't necessarily hit the results you were planning at the end of month one or month two, it doesn't mean you need to give up. But you do need to ask yourself the hard questions to say, what worked? If it didn't work, what do we learn? And how do we pivot as a result? We often see those growth outperformers are really doing those things. Many of the players that were in the lower growth quartiles, even the bottom quartile, made a commitment, said they were going to go do it, and then they just sort of revisit it three years later.

14:40And that's not the recipe for success. Thanks, David. And Kate, anything you'd like to add here, specifically any challenges that maybe you've seen at the CEO level in terms of building that initial conviction and then bringing the leadership team along, especially when there are real trade offs involved as far as reallocation is concerned. Yeah, happy to. I would just build on David's point. I think the hardest moment is often the CEO and the top team really stacking hands around essentially the internal winners and losers of that strategy. What I've seen excellent CEOs really do in that moment is thinking about, but growth should be fun.

15:21It is way more fun to grow than to do a cost-cutting program and harnessing that positive energy. Growth is abundance. And finding ways to take top talent and move them, inspire them, give them that next opportunity, I think can help get that spaghetti chart like more straightened out. But it is hard. There will be leaders on your top team that don't understand what's happening and why and just really investing and bringing them along. And then sometimes changing out parts of the team. We did see some real reshuffle rates in top teams for these leaders. They recognize maybe they need new capabilities, new executives.

16:03And I think that can also help the top team understand the potential of a new e-commerce platform or some of these other things, if they haven't seen it before, it's very hard for them to go explore that adjacency or break it area. Simon, I'd love to get your thoughts too. You live this. Yeah, I think the area I'd like to focus on is around geographic expansion. And David touched on it a little bit. One of the theses and one of the key philosophies of J.P. Morgan was you don't go into a new market unless you're going to go into it for the next hundred years. So that sort of mindset really takes out the short-termism and really makes you focus on investment for the long term.

16:48It doesn't mean you have to do a large amount of investment up front, but it means that you've set yourself and you've driven the data to give yourself a pathway to a long-term sustainable business model that's irrestrictly linked to the rest of your business. A couple of examples that I experienced was, for example, going into a country like New Zealand or going into Vietnam, for example. In my time in Asia, they're fairly small markets to start with, but the demand that we were getting from customers were these were gaps in your regional capabilities. And for us to take you seriously in the big countries, like a Japan or Australia or China or India, you needed to have these countries in your regional footprint for me to be able to do that, to support, to be able to do the banking with you for the region.

17:40And I think that's a very important point. And it's about bringing the rest of the bank along that journey. But sometimes you have to be the one, the line of business that takes the first step. Thanks. And in terms of these three key drivers, a committed growth strategy, multiple growth pathways, and a dedicated focus on technology and integrating it, how have you seen these evolve over time, especially as volatility from a macro perspective has also increased? Yeah, I would say some of it is genuinely new. Like, as we looked at the last five years versus, you know, 10 years ago on technology, that opportunity of how performers are really using it at a different scale and speed to allow them to do multiple bets is really unique and exciting.

18:31I think also the volatility that people started to feel in the last five years and that continues to this day has triggered a slight evolution of this growth blueprint. And that's really in two ways. One is, as David said, it used to be you would have these success stories where a company placed one bet and it just worked out like they could they could plan it. And it was beautiful. Outperformers today, even when we dug into their history of what did they do, they were placing many bets. Right. Maybe one of them is the story we celebrate, but we could observe a couple of noble failures or ones that just didn't reach a safe scale.

19:11But they were positioning themselves across a variety of scenarios. And then second, I just don't think it can be luck anymore. in this volatility. If you want to be an outperformer, you're going to have to engineer a growth journey that will have very uncomfortable moments. Every story we looked at, there was a moment where this executive team had said, here is what we want to go do. And there is a trough, you know, in the market cycle and all of their competitors were pulling back and they had to decide, you know, is our thesis still true? Is it still valid that we think this is a real tailwind in the long run?

19:45And can we make it through that cycle? And then what's interesting is, of course, when the cycle turns and these outperformers are really accelerating into that upswing, whereas you see their peers just kind of falling behind. Yeah, Kate, I love how you articulated that. You know, we had the chance as a group to look at what we called the growth leader mindsets a couple of years ago. You know, famous venture capitalists have said the culture eats strategy. And I think there's sort of three big things that we saw that continued forward as we did this latest round of research. You know, CEOs are really building the muscle behind growth.

20:23And we saw three big aspects of how they did that. Number one, they truly were rewarding, not punishing, this idea of experimentation and even failing. Now, failing doesn't mean we want to bet the farm and lose everything, but it does mean we need to take risks and we need to acknowledge that we're taking risks and reward accordingly. In many cases, we see large corporates unwilling to take that kind of mindset and approach. Number two, they truly are elevating their top performers into much more visible roles and acknowledging that they're taking on new challenges, entering new arenas, and it might not work.

21:03And it really connects back to this idea of rewarding experimentation and test and learn. And then three, and Kate hit on this a little bit in terms of talent, but they're looking for unconventional talent. That might mean bringing somebody into an industry that doesn't relate. You know, Simon's sharing some examples of financial services where we tend to hire from within, but maybe actually we should bring in a consumer retail leader who could help us really take on a new mindset, push uncomfortable conversations, and bring fresh thinking. Again, that's a bet a CEO is taking. Not all bets work and pay off, but it's taking on sort of this multifaceted approach to make sure that you're creating a culture of growth and a mindset of growth for the organization.

21:44Thanks, David. Simon, it would be great if you could share your perspective here. Was this also your experience when driving high-growth businesses? Yeah, let me share some experiences at ClearBank, which I think is very relevant to this and brings to life the points that Kate makes around making simultaneous bets, but also some things not necessarily going right. at ClearBank, you make your revenues on interest, interest income of money sitting in accounts, and you charge payment fees. ClearBank had been going for about three or four years, and then COVID hit. And all of a sudden, interest rates in the UK, which was the main part of their business, went from 2 or 3 % to 0.25 % overnight.

22:31Never have the UK interest rates gone so low. So all of a sudden, their business model was completely turned on its head. Now, we knew that we needed to diversify revenues into fee generating, adding more value around the payment and charging fees. But all of a sudden, it put it on steroids because we needed to basically keep the business growing and surviving for the future in that mindset. And that really enabled us to accelerate those extra bets on those extra capabilities to support the clients. But the good news was that as everybody was going digitally first, all of a sudden the transaction payments volumes were going to go through the roof.

23:22So adding those extra capabilities enabled us to grow very significantly. significantly. And actually, we went from doubling revenue every year to continue to doubling revenue every year, even during COVID. Wow. So David, if we can come back to you, how do you actually make these investments in growth, particularly as things get rough, as Simon had just described? Look, I think the headline is simple. It's hard to live by. Everyone says growth matters. I don't think you've ever heard a CEO on an earnings call say that growth doesn't matter, but how outperformers actually translate that into concrete, sustained commitments and how they act decisively is what actually matters to enable this.

24:09You know, I think number one, to have growth, you have to fuel it. We've talked a bit about some of these aspects, but it takes attention, talent, capital. What we saw in this five-year window, and I think Simon's example and story is a great one, is outperformers invested through downturns and through difficult moments. That means they continued to fund research and development, they launched new products, they built capabilities, they did all these things at multiples of what their peers were spending, almost at exactly the moments when their competitors in the industry were pulling back. That investment compounded into competitive advantage over time, And that's a competitive advantage that they never gave up.

24:52I think the other thing that we saw in the research was outperformers don't treat growth as a one-time plan. It's an ongoing process. It requires refreshing the portfolio, entering a new category, reallocating resources, and sort of pushing through the hard yards day by day. It sounds hard. I think it's actually much harder than it sounds. One of the research pieces, one of the surveys we ran in 2024 found that only about a third of organizations are consistently reallocating budget, people, talent from underperforming Unix to ones with real growth potential. And we know that has continued. And so even among companies that want to grow, almost less than a third are actually moving resources to make it happen.

25:44The outperformers, by contrast, are actually making that hard call again and again and again. And I would just come back to this idea of easy to say, very hard to do, but it is possible. And David, it's great to reallocate resources, but you also need to reallocate them to the right place, right? So what were some of the things that you saw the growth outperformers do to gain the insights necessary to have conviction in terms of where they were making those investments? Is it the portfolio approach that you were describing earlier where you know that not all the bets are going to work out, but you've got a reasonable assurance that a few of them could lead to outperformance?

26:26What's the secret here to making those reallocations the right ones? yeah i i like to shake the magic eight ball but i think the growth outperformers actually took on a much more deliberate approach um i think there's a few things that they did you know they went into this with a real analytically backed fact base understanding what are the trends taking place what do their end customers need if they have distribution partners what are they thinking and to then craft a series of bets. In many cases, those bets are not fully stacking upon one another, meaning they actually are able to cover a wide swath of ground as they think through what it takes to make sure that they're able actually to really monitor their signals as they start to execute.

27:16The second one is, and we've said this a few times today, but I would just keep coming back to it, is they actually went forward with the idea and the knowledge that not everything's going to work. And so given that, they were comfortable operating under a bit of uncertainty and making sure that they could literally monitor what's taking place. They stood up real performance management and they weren't afraid to say, hey, three months later, something has changed. A macroeconomic signaled something geopolitically. And so either this bet makes a lot more sense and let's triple down on it, or actually we have new information.

27:55Let's reassess what we're doing. And I think it's that sort of humility to the approach that they were taking. It's confidence, but humility that really allowed them to be successful as they thought through this. Thank you, David. And Kate, anything you'd add here from your work? Yeah. And I mean, I want to just share one of the examples that we found in the Outperformer set, which was BFS, right? So Builders First Source. They are a building products distributor, very far from banking, shipping, lumber in 2019. And I think if anyone was trying to build a house over the last five years, and you'll remember, there was a lot that happened in that market.

28:31So you had the COVID peak, you had then the crash and the supply chain shortages, the change in interest rates. And I think what they tried to do to this notion that David shared of how do we find the evergreen truths about our market of what are the pockets that could grow? And how do we get access to those? I mean, what they did over the last five years was thinking about what are higher margin product categories that we should be getting into? So what are more manufactured components? They saw some of the labor shortages. How do we get into installed services, perhaps, and other value-added solutions?

29:08And they ultimately built, you know, this scale that's amazing of how do they get into a homebuilder's workflow rather than just dropping off lumber? And so that ultimately over this time reduced their exposure to some of the commodity swings. But now what you see as we hit 2026 is they've got a really interesting foundation and scale to then enter even more categories and compete in their markets. And so, again, probably was not comfortable for the CEO of BFS at the time. But now I think on the other side, there are many other players in that space that are looking to emulate some of those learnings.

29:44Simon, you looked like you were going to add something. I'd love to hear your thoughts. I completely agree with David around the data and the measuring. But one of the things that I think was also very important, at JP Morgan, we'd measure ourselves against the market leaders in each market, in each country. And we would obsess about really understanding their performance against the market. So even if you didn't grow very much on a quarter, for example, but you grew more than your competitor, you knew that you were doing something right. Or if your competitor was growing faster that quarter, why was that?

30:22And what do you need to do to adapt your sales strategy, your go-to-market strategy, your product strategy in that particular market? So we were very obsessed, I would say, at a very granular level. So not just at a country level, but at a very granular level at making sure we understood that. And I think that's the extra area of data and measuring that I think was very critical. And so, David, I imagine that you might have some other examples to share. And is there one that really stands out for you in terms of an outperformer who successfully navigated uncertainty and placed those proper and winning bets, if you will?

31:03Yeah, I might just add one other one, which I think many of our listeners would know well, but is Walmart. You know, they, I think, I think to sort of Kate's example and to Simon, you know, they've been a strong performer for a while. You know, pre-pandemic, they were on a decade-long journey to really build new growth engines on top of their core. You know, COVID hit, e-commerce surged, inflation followed, And so many of their core customers, lower or middle income households, really felt squeezed. I think in many cases, the instinct of senior leaders would have been likely to pull back and protect the core business, even disregarding some of the bets that they had been making along the way in some of those years.

31:52I think what's fascinating is when you look outside in, it seems like they did the opposite. They kept investing organically. They actually made multiple inorganic acquisitions to bolster their capabilities. even when near-term returns were uncertain, even when the market was skeptical. And the result now is compelling. More than half of their operating income growth comes from these newer growth platforms, things like retail media, Marketplace, Walmart Plus. Those things more or less didn't exist or didn't exist materially a decade ago. And what they've publicly shared as Walmart Plus members spend almost twice as much as non-members.

32:29I think it's a really nice encapsulation of what consistent commitment gets you in terms of growth that you can create. In some of these cases, these bets may play out over multiple years. So how do you maintain the conviction over time to continue making these bets? And Simon, maybe you could share with us your experience in not only making that initial investment, but to keep it going in anticipation of the future growth that that's going to offer. I think it comes back to the research and the data that you've gone on and talking to your clients as well, making sure you bring them along for that journey as well.

33:12My experience is that that not only becomes your business model in the short to medium term, but actually becomes your North Star to guiding you for those longer years where you're going to have times that are going to be difficult and troubled. but it's about continuing to invest in that longer term you know the customers want this you know it's it's it's it's right by the data that you've got but not just the short-term data the medium term and the long-term data for the future and you have to keep re-analyzing the situation pivoting gently where you need to but not not starting and stopping you know being a consistent long-term investor because you know clients want that, you know the data proves that this will be sustainable in the longer term.

34:06And I think that data also provides you with the execution measures and roadmap for the future. So it's a boring point. Data is so key, but I certainly experienced that in my time. Thank you, Simon. And David, earlier you referred to the McKinsey Global Institute's work on arenas, those promising industries where outsized growth is expected to occur. Maybe you could share with us why in your mind and in your research arenas are so important and how companies that would like to outperform should be thinking about them in terms of driving their own growth strategy. Yeah, absolutely. And let me just connect it back to reground everyone in the fundamentals of the research that we did.

34:52You know, the second thing or the second big behavior that we found was really around diversifying pathways. You know, again, we talked about this earlier, but they didn't just rely on one or two big bets in strength of the fences. They built this portfolio of growth engines and they actually manage their portfolio. To drive that active management of the portfolio, where you choose to play does matter. We'll talk about how you play and, you know, we mentioned earlier how you play matters even more, but we can be honest. where you choose to play does matter and has significant variability in overall performance.

35:26What we found for outperformers was that they focus on sub-industries, micro-markets, and places that either have shown or they believe are going to demonstrate and show the steepest growth. Our colleagues at McKinsey Global Institute call these arenas. And we found about 18 future arenas that can generate up to$50 trillion of incremental revenue by 2040. There are places like India where you see the likely forecast of consumption growing by almost 4x by 2050, Greater China growing by 2x. Those are geographic examples, but they also exist even if you're just a US-only institution. And so being really deliberate about positioning yourself to take advantage of the tailwind and where you believe growth to come from.

36:16That's sort of part one. Part two on this is really about then how you build the portfolio against it and how you drive execution. I'll just reemphasize it's about strengthening the core, expanding into close adjacencies, testing new sources of growth. and allowing yourself to really make sure that it's active management of your portfolio. It's performance managing each engine, each bet very closely. It's doubling and tripling down on what's working. And it's really having the ability and the organizational muscle and nimbleness to be able to take a step back routinely and ask the hard questions on what's working and what's not working so you can make pivots.

37:01it's a very different muscle than what many organizations do. And it's really taking on much more of a technology-led approach in terms of monthly business reviews and quarterly business reviews to really manifest that into reality. We'll also include a link to the MGI arena's research in the episode description today. But I'd like to pivot a little now. As we think about this notion of multiple growth pathways, given that not every pathway necessarily leads to success, how do you reduce the potential stigma of failure? How do you build a culture where going hard after something that might not pan out is still celebrated?

37:42And how do you build confidence in the organization and the people in the organization to pursue innovation, even when it may be risky? Yeah, I think it's a fantastic question. It's really something that we observed. I also would add that while it might be hard to instill that kind of culture, it's a lot easier to do that than to watch your competitors outperform you and see your relative market share and market cap take a turn or your profitability. And I might just emphasize that and come back to this notion of we observe 16 % of companies that started in the lowest growth quartile that moved up.

38:24And so your position isn't fixed. And so I think that should give everyone, but especially those who feel like they're not currently outperforming, the confidence and the conviction that it is possible and that they can learn from what others have done. and then we'll come to this in a minute with technology, but actually leverage some of the latest in technology to accelerate their journey towards being a growth art performers. I think crucially, just to re-highlight a couple points from earlier, you can't stop investing when uncertainty is high. I think in many cases, these organizations have created the organizational muscles so that they can live with uncertainty.

39:06In many cases, we see the best, and some of our colleagues have spoken about this in previous webinars, but to really work through a set of scenarios. We know not all other scenarios are going to be correct. Some will be very close in and feel very obtainable. Some might be a bit far out and outlandish. But through the notion of creating these scenarios, continuous monitoring, wargaming your moves, and then actually tweaking and evolving your operating model to really allow for flexibility, we think companies are able to prounce when the opportunity strikes. I think also, Sean, to your question, this notion of mindsets, we think this idea of having clear stage gates, so everyone is committing to what they're trying to deliver by certain points, is really critical.

39:55It's not then leveraging a scenario to say, oh, let me have an excuse to wait. It's actually saying, I'm going to go after this with full force, with the full weight of the organization behind me, and using that to fuel what you do next. Thank you, David. And Simon, it looks like you have something you'd like to add here. Yeah, if I could add to that, I think, you know, coming from a big bank and then going to a fintech, you're kind of going from both ends of the spectrum around testing and celebrating innovation. You know, big banks have invested a lot in creating a much more innovation culture, but it is still difficult.

40:32You know, you go out on a limb and something is not successful, Yes, big banks are getting better at celebrating innovation culture, but, you know, there are still fingers pointed, etc. You go into a fintech environment and it's completely the opposite. It's all about testing and learning and innovating. And if you're successful, celebrating that, learning from the success. But equally, if you're not successful, learning from that, sharing that. It's not a bad thing. And then pivoting quickly. All right. And that's really, you know, where where where pivoting is probably most famous is is within fintechs.

41:15But it's been a fascinating learning going from an organization that was embracing innovation to an organization where it was the main focus in the technology and innovation was the hub of the organization at Clearbank. So how did you personally feel about that change in environment when you came to ClearBank and how did you adapt to it? It's a great question. And you do, you do have to adapt to it because you come from, you know, whether it be a bank or whether it be a fintech, you come from a highly regulated environment. So you're used to doing things carefully, you know, within legal and compliance, et cetera, concerns.

42:00I think I probably found it easier to adapt because I had innovated. I had implemented into new markets in emerging markets. So I had a fairly innovative bent, I suppose, within it. But it was a big change. It was a big change. The biggest change, I think, inside ClearBank was that the technology innovation organization was actually the leader in the bank. And you had to learn to embrace that, learn to channel that to make it as productive as possible. I think that's probably one of my major learnings, but it is difficult. Thank you, Simon. And Kate, you spoke earlier about the research showing this shift from technology or AI as a side project to something that's really wired into the operating model for these outperformers.

42:52Maybe you could talk now a little bit about how you're seeing these outperformers take technology to its full potential as a driver of growth. Yeah. I mean, it's rightly so that it's getting so much attention now that AI is upon us all. The time period we were looking at was 2019 to 2024. So at least for the stories that we have, you know, this was just the beginning of Gen AI. But what is interesting is in that time, and then I'll talk about today, in that time, they weren't just using technology as a tool. They were thinking about it as a foundation that ultimately would accelerate, you know, whatever pathway they were choosing.

43:30And so they, at that time and even today, are thinking about what are the interesting data sets, both proprietary and open, that we can start ingesting to help our commercial teams? What is the tooling that we need to give senior leaders, frontline leaders to make sure that they're making the right decision day to day? And then we talked about all of this performance management, bringing those insights into strategy, into operations and into just decision making at large. I think we saw that in the last five years. Now to today. So for AI, you know, the specific opportunities and fantastic AI use cases are often industry specific.

44:11But I think what we would argue, and I know our colleagues with Rewire would argue, is that if you today still have a portfolio of individual disconnected use cases for your technology and AI roadmap, you're probably not on your way to growth outperformance. Like that is an old kind of nascent piloting way to use technology. And today what we are seeing and we saw this first bloom in players like the JP Morgan story and Walmart is how do we redesign what are often cross-functional workflows and find a way to get data into them to improve speed and precision with predictive AI. but also, you know, in the case of customer outreach, generative AI, and then use that to find new business opportunities and then go after them.

45:05You know, what's cool about AI is it can change the cost of making a bet, of entering a market, of doing a test. And though we didn't see it in the last five years, I think as David and I and others are excited to publish our next article, I think it's going to be a lot about that, is how you can use AI to enter new spaces. Well, we'll certainly look forward to that new article and research coming out and look forward to having you back on the podcast when it does. And Kate, for companies that are doing this well, how are they building the AI capabilities in their people to rethink the way that the organization operates with the existence of these new capabilities and technologies?

45:47Yeah. I mean, I'll have Simon share, you know, the AI native, you know, version of this. But I think for many institutions, even those I've looked at, you know, they were already a billion in revenues. They were not, you know, digital first. I think for those institutions, it can be really important to think about, first, what is, you know, the strategy at large? What are the most valuable areas? We think that we need a technology and AI foundation. But then you kind of have to go through each piece of the puzzle. In many cases, you don't have the right talent. You just don't. You frankly may not have the data scientists, the UX.

46:26There's a number of roles that you might need to build and acquire. Some use M &A to acquire entities that might be more digitally native to acquire that talent. Others are just hiring it. But then what I will say is they need to build a new operating model. I'd be curious on technology first, but often you need a business translation for technologists to bring it to life. And so thinking about how do we bring those that experience customers and experience the market to technology, I think that's the magic. So there is some reinvention of how that comes together. And then there is a ton of work for CIOs.

47:00And, you know, what does our tech stack look like? What are the data feeds? Are they safe? Are they secure? Are they trusted? You know, over time, I think people are getting concerned about what is reliable in the world and trying to make sure that we're not going to spend billions of dollars on data, you know, by accident. So there are some real realities, but you kind of have to take each piece to build your technology and AI strategy to support your growth. So maybe Simon, I'd love your thoughts because you've seen both sides. You've seen both sides. And I would say my experience at ClearBank was that they built the bank entirely from scratch, entirely cloud native, API first, in a way that no other bank had ever done in the world.

47:47So it takes it to the extreme. Inside of JP Morgan, we were gradually transforming a lot of the capabilities into cloud-first microservices-based architecture. So not necessarily changing the whole bank, but doing it in digestible chunks over time. what what struck me is that the clear bank model of having a brand new digitally first infrastructure gives you a tremendous amount of flexibility as technology evolves and as ai capabilities come in because your foundation is rock solid and is used to dealing in that type of capabilities. But I think the other key point that you bring up, Cade, is around people and talent to leverage that technology.

48:41One of the stories I can share from a Clearbank perspective was that actually some of the technologists that we hired came from the food delivery industry, right? Because that was a part of the industry that was growing extremely fast and had to scale very quickly. So actually, a lot of the technologists and innovators in that area were very relevant to payments in the banking industry. So very interesting that you don't need to necessarily look within your industry. It's about bringing talent, bringing people that have used the new technology potentially in different fields, but can massively benefit your particular field that you're working in.

49:28It's very interesting to think about this digital native versus bringing the technology capability in. And David, do you have any examples you can share on that from your research? Yeah, I love that story, Simon. Maybe I'll highlight an example that we featured in the research in the article, which is progressive insurance. I know not everyone thinks of insurance as the fastest growing or sexiest industry, but it's actually a fascinating story and it really shows what discipline execution and sort of commitment to technology and analytics can deliver. You know, when we look at this time period that we analyzed, 2019 to 2024, we saw growth in the property and casualty insurance sector was mostly driven by price increases or people call taking rate, less about serving more customers.

50:16Rising claims costs were really compressing profitability. When you look, progressive stands above everyone else in that time period. They grew their revenues at almost 14 % annually, three times their peers. And this goes back to Simon's point of measuring against a competition. They grew three times their peers and maintained profitability while others were actually becoming less profitable. We saw them do this in sort of a few fundamental ways. they had been investing in what's called telematics or analytics enabled insurance to really think about how do they better price you know they really continue to enhance their operating model how do they integrate data and analytics and ai across the entire organization it's not just a coe somewhere it's actually how do they do that in pricing in underwriting in claims, in marketing, and at the time using machine learning models to actually get much better at things like fraud detection and granular pricing.

51:17And this combination of sort of the product-led approach with telematics and the operating model and the investments in technology and AI really allowed them to be faster and more nimble than the rest of the industry to fuel both growth and profitability. And I think it really sort of showcases the research in a very nice way in terms of what it takes to do this very well. The other thing I would add, which wasn't in the research, is, you know, there's good news for many of you listening in right now, which is you don't need multiple years of investment necessarily because of what the latest in technology and agentic AI can do for you.

51:56And so we actually see folks not just leveraging agentic AI and those capabilities to take out costs, but actually to fundamentally reimagine the domains that matter most for growth. Things like sales, sales support, marketing, some of the back office operations that enable all of this. And really investing into those and making very fast changes to allow a much more increased growth rate. And so we just encourage all of you to coming out of this to feel excitement of what's possible in such a short amount of time and that the pace of change has never been faster. Thank you, David. It's great to hear these insights on the technology challenge.

52:38And now I'd like to zoom out a little bit. As you think about high growth markets, how and when do outperformers spread their bets? And how do you balance those new investments with also maintaining performance in core markets? It's a great question. I think what we fundamentally observed is there's not one singular heuristic that lets organizations say, do this and don't do this or invest two here and five here. and I'm sorry, I apologize if that's not a fulfilling answer for our listeners. I think the reality is it comes back to what is the aspiration that we have as an organization? How have we split that out across the various markets, business units, products, and channels that we operate in?

53:26And thus then, what are the growth expectations that we have? There's a more attainable growth expectations. And as we talked about in sort of the scenario planning concept, the more outlandish growth expectations or really aspirations that I want to set. And thus, then we have to look at it and say, okay, what is our right to win in these channels, in these markets? What's natural momentum going to take versus what would an acceleration look like? And then how do we make sure that we're actually allocating our resources, not in sort of a peanut butter or spread approach, but actually relative to what we've fundamentally believed the return can look like?

54:01and then again it really comes back to this idea of really robust not real-time but close to real-time performance management to say am i getting the returns that i expect and if not why and being able to more nimbly allocate you know when i was in asia i had a chance to work with players who were in 20 or 25 markets and they had to take a much different approach to performance management than a fly into operates in the u.s takes where you sort of have one very large uh a bit more similar in nature market where they can run it accordingly. And so it does take a difference in how you really set up that operating structure to execute accordingly.

54:40Thank you, David. So as we come to the end of the episode, I'd love to just summarize the three strategies that outperformers focus on to drive profitable growth. The first is to set that bold aspiration and invest consistently. The second is activating multiple growth pathways. And the third is executing with tech and AI at the core, hardwired into the operating model, if you will. But now, before we close out, I'd love to hear any final thoughts or points of emphasis that you'd like to share. Maybe, Kate, you could kick us off. Yeah. I mean, I do. I have two. So I think the first is, have you set an aspiration at minimum to outperforming your market?

55:22Like, I'm shocked at the number of teams that, you know, it's not actually clear that they're measuring themselves against their markets and holding themselves accountable. So one, make sure you have that. But then to David's point, is it beyond that? Is it bolder? You know, should you look outside your market if your market is not growing? And then the second is how many different independent growth engines do you have? Do you only have one ideal and is it in your core business? We would say that that's probably also a really risky way to set yourself up for that performance in the current moment.

55:56And so just taking a hard look, if it's not going to help you add a whole 1 % of revenue growth rate or two each bet, I'm not big enough to move the needle. So really just take a look at what bets have you placed, if any. So as I'm right. Thank you, Kate. Simon. I'm going to go for the first one and focus again on geography, but then also an additional one as well. And it really brought it to life what David just talked about around geographic growth. So So my experience of China and India at the very early stages, you could see those economies were going to become huge. The population growth, the amount of manufacturing that was going on, the exporting, the foreign direct investment, all of these provided very key data to this was going to be where the next 10 or 20 years is.

56:44And I say at the moment, and I have experience in starting to do more in these regions, is Africa is heading very similar, very similar sort of drivers as I saw in Asia 20 years ago. So I think it's about having that really long term growth mindset, but following the data, following the customers into these markets and being bold about it in a long term, in a long term view. And the final point is, as I'd like to put, is my experience around technology. Execution of the technology, innovating with it may actually surprise you with the cost structure that is very different to what you've seen in the past.

57:27So when you build your business model and when you build your business plan, you can potentially transform it by having a very different technology structure with the use of AI, with the use of cloud computing, etc. That completely turns the business model on its head and gives you a very differentiated position versus your competitors. And I think then executing that superbly, measuring and programming management that very intensely with technology again is key to the execution to very high quality. Super. Thank you, Simon. And David, you get the last word. A lot of pressure, the last word. Look, I think as we shared, our performers continuously refresh their growth capabilities.

58:18They treat it as something to engineer, not hope for. I think we see this most acutely with AI. It's really about where can AI, especially agentic AI, help us build our competitive advantages and grow. That also is a nice reminder to all of our listeners that our newest piece of research that we're working on focuses squarely on how to drive growth with AI. You know, look, I think if we had to leave you with a closing thought, it literally comes from the article and from the research. What distinguishes growth leaders is not foresight, but greater conviction. Investing when uncertainty is highest, building capabilities rather than chasing headlines, treating growth as something to be engineered for.

58:56The position isn't fixed. Even some of the lowest growth quartile performers have moved up to be the top quartile. We know it's hard. It takes courage. It takes discipline. It takes dedication. But it's available to those who choose it. Kate, Simon, David, thanks so much for sharing your insights with us today. Thank you. Great discussion. Thanks, John, Kate, David. Thanks, everyone. And thank you to all of our listeners for joining us. We hope you enjoyed the conversation. And we welcome your feedback and ideas for future podcasts. Just email us at itsr at mckenzie.com for inside the strategy room.

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