Co-authors on this white paper were Frank Mattes & Ramin J. Imani. Frank is the founder and CEO of Lean Scaleup, and advises companies on creating new growth by leveraging their capabilities. Ramin advises corporates and investment entities on the strategic topics around Investments, M&A and Corporate strategy.
Growth isn’t just about size – it’s about choosing the right path. In this white paper, we introduce Balanced Corporate Growth: A framework that empowers companies to expand profitably beyond their core by blending building, sourcing, investing, and acquiring. At Knowit, we see this approach as essential for helping clients turn disruption into opportunity, harmonize innovation with strategy, and drive sustainable success. Explore a brief excerpt from the white paper below.
From the perspective of corporate finance, companies exist to meet customer needs in away that translates into reliable returns for investors. They create value by investing capital from investors to generate future cash flows at rates of return exceeding the cost of that capital.
However, not all growth creates value. Tim Koller’s book “Valuation: Measuring and Managing the Value of Companies” – which to many is a standard on the topic – points out that the challenge for leaders isn’t simply to grow, but to grow profitably and strategically.
This White Paper has two objectives:
The debate about what is the best approach to grow beyond the existing business has long captivated the business world. Acquisition-led and innovation-led growth approaches are often pitted against each other in boardrooms and business schools alike.
On one side of the debate, there are executives who view acquisitions as the fast track to growth. Take, for example, Cisco Systems in the late 1990s and early 2000s. Under the leadership of John Chambers, Cisco snapped up 70 companies in just over five years. This strategy allowed Cisco to rapidly expand its product portfolio and maintain its dominance in the networking equipment market.
The allure of such swift expansion is undeniable – new markets, technologies, and customer bases can be accessed almost overnight. However, the acquisition path is not without its pitfalls. The potential for value destruction is large when deals are over-priced or poorly executed.
The tale of AOL’s merger with Time Warner serves as a stark reminder. What was hailed as a transformative deal quickly unraveled into one of the most disastrous mergers incorporate history. Integration challenges led to billions in losses and eventually, a divorce between the two companies.
On the other side of the debate, we find passionate advocates for innovation-led growth. They point to companies like Amazon, which built its empire largely through business model innovation. These companies have a growth mindset which enables them to become the leader in their established markets and to grow into new markets at the same time.
Yet, innovation-led growth has its limitations and pitfalls as well. In mature or highly competitive markets, companies may struggle to gain significant market share through internal efforts alone. If the Amazon story, many competing traditional retailers found that their organic growth strategies were insufficient to withstand the disruptor.
As the debate rages on, a new perspective is emerging – one that recognizes the value of a balanced approach. This view acknowledges that the most effective growth strategy often lies in finding the right mix of acquisition-led and innovation-led growth, tailored to a company’s unique circumstances and goals.
One shining example for the power of a balanced approach is Microsoft’s resurgence under Satya Nadella’s leadership. While continuing to invest and innovate heavily in its core products and cloud services, the company has also made strategic acquisitions like LinkedIn and GitHub to expand its reach and capabilities. This combination has propelled Microsoft to new heights, both in terms of market value and technological relevance.
The takeaway from these examples is that there is no one-size-fits-all solution when it comes to growth strategies.