Beating GDP growth no longer enough for Indian firms: McKinsey

livemint.com:

₹750 crore in FY22. The top quintile (one-fifth) of this set of companies reported a compound annual growth rate (CAGR) of 15% or higher in revenue, while India’s nominal gross domestic product (GDP) growth rate averaged around 10%, McKinsey said. Based on the findings, McKinsey analysts said companies need to set aggressive growth targets to outperform both peers and the economy.

“The biggest top-level insight we got from the analysis is that it is no longer enough for a company to say that they will grow faster than the GDP," Jaidit Brar, senior partner at McKinsey & Co, said in an interview. “Companies must start with high aspiration and seek to grow 2-3 times faster than their industry." Moreover, there is no trade-off between growth rate and profitability, he said. Firms might not need to choose between investing capital for growth or booking profits, he said.

This observation stemmed from a strong correlation between revenue growth and profits. “In fact, companies that didn’t grow as fast during the study period actually saw profit erosion." Brar said companies must prioritize cost efficiencies and reinvest the surplus accrued. “The biggest growth lever for managements is how thoughtful you are in resource allocation and reallocation." While agile resource management is one of the seven levers for high growth in India, others include utilizing digital technologies, enhancing leadership capabilities, pursuing adjacent opportunities, creating new breakout businesses, exports, and engaging in mergers and acquisitions, the report said.