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S.Afr.J.Bus.Manage.2012,43(3) 79
Strategies for sustainable growth in JSE-listed companies
C. Eitzen and K. Sartorius*
School of Accountancy, University of the Witwatersrand,
Johannesburg, Republic of South Africa
Kurt.Sartorius@wits.ac.za
Received June 2011
Achieving high growth that is sustainable is an elusive goal for all but a few great companies. Despite the relative
importance of this topic, limited research has been performed to explain this phenomenon, especially in a South African
context. This paper adopts an exploratory approach to investigate some of the variables that influence company growth,
as well as their choice of strategy. A mixed method incorporating descriptive statistics, regression analysis and
qualitative evaluation, was used to test the research questions. A sample of 202 JSE companies indicated 28% were
high growth entities, 39% medium growth and 33% achieved growth of less than 10%. A further survey of 30 Chief
Executive Officers (CEO) indicated that they believed the top five growth drivers were acquisitions, managerial talent,
operational efficiency, an entrepreneurial flair (low growth companies excluded) and the development of networks and
partnerships. The respondents, however, ranked the number and importance of these growth drivers very differently
with high growth companies citing a broader range of growth drivers than the other respondents. Quite surprisingly, the
respondents appear to have underestimated the importance of industry and economy effects. Furthermore, high growth
companies appeared to develop a broader spectrum of strategies that were more likely to be linked to their choice of
growth driver. Interestingly, high growth companies were the only respondents to develop formal partnership and
incentive strategies. In conclusion, the results re-enforce the impression that successful organizations develop a
multiplicity of strategies that are always underpinned by operational efficiency.
*To whom all correspondence should be addressed.
Introduction
Sustaining business growth is one of the key challenges that
business leaders face (McGrath & MacMillan, 2005; Smit,
Thompson, & Viguerie, 2005; Zook, 2004; Rijamampianina,
Abratt & February, 2003; Gertz & Baptista, 1995). In recent
years there has been increased interest in growth as a
performance variable (Moreno & Casillas, 2008; Salojarvi,
Furu & Sveiby, 2005; Covin, Slevin, & Covin, 1990). Jeff
Immelt has especially raised the critical importance of
growth since he has taken over the reins of General Electric
from Jack Welch. He told GE’s top managers at an annual
meeting in Boca Raton, Florida that: “Another decade of 4%
growth and GE will cease to be a great company. But if we
can spur our growth rate without losing our productivity
edge, GE will keep being the most admired company into
the next century.” (Stewart, 2006: 60).
Sustainable high growth is the difference between an
average company and a great one, yet, the achievement of
this phenomenon is arguably one of the most difficult
business challenges (Joachimsthaler, 2007; Harvard
Management Update, 1996). Gertz and Baptista (1995)
report that from 1983 to 1993 only 30% of Fortune 1000
companies managed 10% compound annual growth in
revenues. The difficulty of achieving high growth is further
underlined by the performance of the Fortune 500
Industrials and Service that only grew at an inflation-
adjusted compound annual growth rate (“CAGR”) of -
0,33% and 2,2% respectively compared to the U.S. economy
as a whole which grew at 2,8% (Gertz & Baptista, 1995).
Despite both the importance and difficulty of achieving
sustainable growth, there is little guidance in the academic
literature in terms of the identification of specific business
practices, competitive tactics and strategies associated with
the achievement of growth over the long-term (Covin et al.,
1990). In fact, growth constitutes one of the least studied
dimensions of performance within the field of management,
as compared to other performance variables such as
profitability (Moreno & Casillas, 2008; Porter, 1990,
Rumelt, 1984). There is even less academic literature about
growth in a South African context. There is, however,
consensus that growth is not a random or chance event, but
is associated with specific firm attributes and behaviours
(Perren, 1999a & 1999b).
The objective of the study is to contribute to a better
understanding of the variables that promote sustained
company growth. In particular, this study aims to expand the
understanding of growth in a South African context by
examining the growth drivers, strategies and sources of
growth for a sample of JSE-listed companies who have
achieved a range of growth rates over a sustained period.
80 S.Afr.J.Bus.Manage.2012,43(3)
More specifically the following research problems will be
investigated:
1. What was the ratio of high growth companies to low
growth companies on the JSE on an industry basis
during the period 2000-2006?
2. Do specific variables characterise high growth JSE-listed
firms?
3. Do high growth JSE-listed firms have different strategies
to low growth JSE-listed firms?
The importance of understanding the drivers of company
growth has been pursued in the literature for a number of
decades (Harvard Management Update, 1996). In this
regard, the paper makes a contribution in a South African
and developing country context. The remainder of this
article is set out as follows: In Section 2, the drivers of
growth are discussed. In Section 3, the method and data are
outlined. Section 4 and 5 present and discuss the results.
Finally, in Section 6, the paper is concluded and some
recommendations are suggested.
Drivers of growth
The growth of a business is assumed as an obvious goal in
most corporate finance literature (Poulos, 2006), and is
recognised as one of the key challenges business leaders
face (McGrath & MacMillan, 2005; Rijamampianina et al.,
2003). A study conducted by Kroeger, Traem and
Rockenhaeuser (2000) asked over 640 CEO’s (mainly from
Europe) to explain “Why should a company grow?” The
results were as follows:
Achieve superior brand recognition:
0%
Improve cost position:
0%
Attract strong alliance partners:
3%
Gain better access to capital:
3%
Attract superior people:
3%
Raise profits:
12%
Obtain a superior strategic position:
30%
Generate superior value:
49%
100%
Some of the significant benefits of growth include obtaining
superior strategic positioning and generating superior value.
This is consistent with research which claims that there is a
premium placed on companies that demonstrate an ability to
deliver on superior, sustainable growth expectations
(Stewart, 2006; Jonash, 2005). While it is not disputed that
growth provides many benefits, the source or driver of this
growth is not well understood. The remainder of this
section, illustrated by Figure 1, examines a series of
endogenous and exogenous drivers of growth. In this regard,
the endogenous drivers of growth include resources,
motivation and strategy whilst the exogenous drivers
incorporate industry and economy level effects that
influence demand and supply.
Resources
Endogenous
Motivation
Strategy
Company Growth
Exogenous
Demand
Supply
Figure 1: The drivers of growth
Endogenous
The endogenous drivers of growth include the resources of a
company, its level of motivation to achieve sustained growth
and its choice and execution of strategy.
Resources
The resource based view of the firm proposes that sustained
competitive advantage is created by the unique resources
and capabilities of a firm in its environment (Barney, 1995).
According to this paradigm, the microeconomic equilibrium
where homogenous firms make zero profit can be overcome
if the following two conditions are met (Rumelt, 1984),
firstly the firm holds superior resources and secondly these
resources are not easily diffused throughout the industry.
This idea can be likened to Porter’s (1990) concept of
barriers to entry. Applying these ideas in the context of
growth, suggests that superior or unique resources will act
as an effective driver of sustainable growth. The key
resources to support sustainable growth include; strategic
assets, managerial talent, a talent incubator, happy people
and networks/key strategic relationships.
Hamel (2000) identified strategic assets as one of the three
foundations necessary for competitive advantage. In this
regard, his definition of strategic assets included physical
assets, brands and customer relationships that are unique and
which provide a competitive advantage over the company’s
rivals. In addition, it is crucial to have the right people in the
right roles to lead and grow the business especially during
the periodic upheavals which all businesses are likely to
encounter (Cohn, Khurana & Reeves, 2005). Managerial
talent was identified by Edith Penrose (1959) and many
other writers (Slater, 1980; Barringer & Jones, 2004) as the
most significant limitation on a firm’s growth. Ultimately, a
firm’s growth is constrained by its ability to find, train a nd
absorb new management of sufficient quality who can
administer and accommodate its growth (Slater, 1980;
Barringer & Jones, 2004). Furthermore, talent encompasses
the skills, knowledge, technical know-how and ability that
resides in people. As managerial talent is a scarce resource,
successful companies need to ensure that they have a
reliable supply of talent in order to ensure long-term growth.
An effective talent development programme provides a
company with a long-term competitive edge which is more
cheaply sourced inside the company than outside. In this
regard, an inspired business model and well-aligned
business processes will not compensate for an absence of
adequate human capabilities (Diong & Choo, 2008).
A happy, motivated and engaged workforce is also believed
to be a powerful driver of growth. Although, the linkage
S.Afr.J.Bus.Manage.2012,43(3) 81
between staff morale and motivation and the success of the
firm is one which appears logical, it is difficult to measure
and quantify (Pugh, Dietz, Wiley & Brooks, 1993). A
further growth driver appears to be the careful cultivation of
strategic alliances and networks that can be used to leverage
management capacity and firm resources (Barringer, Jones
& Lewis, 1998). The use of networks refers to the conscious
effort by growth-seeking firms to establish long-term
relationships with other firms in order to obtain and sustain
a competitive advantage (Jarillo 1989). Growth-seeking
firms, therefore, use networks to leverage the resources of
their network partners in order to pursue opportunities that
would normally not be possible due to their own limitations
(Jarillo, 1989).
Motivation
The specific motivation to grow is an essential precursor to
growth. It is this motivation to be great which sets
companies apart from their competitors and is posited to be
a valuable driver of growth. (Penrose, 1959; Barringer &
Jones, 2004) In this regard, there is an argument that
suggests that the ideal rate at which a firm should grow is
often compromised by lack of motivation. Furthermore,
empirical evidence indicates that rapid-growth firms
emphasised a “commitment to growth” as compared to
normal or low growth firms. Rapid-growth firms were also
found to highlight their continued growth intentions, while
this was not done by comparable slower growing firms.
While, this motivation to grow can manifest itself in a
number of ways, it is, however, vital that a “focus on
growth” is maintained by the company’s leaders (Laurie,
Doz & Sheer, 2006; Barringer & Jones, 2004). In addition,
the leadership of this growth focus is an important driver of
growth (Collins, 2001) that needs to be communicated and
instilled in all staff throughout the company. Arguably the
most effective way of communicating the importance of
growth is through an effective performance measurement
system (Kaplan & Norton, 1992; 2007) that identifies what
needs to be done to grow. Relentlessly doing these things is
also key to growth (Collins, 2001).
Strategy
Strategy aligns the motivation of a firm with the deployment
of its resources. In this context, strategy determines the path
chosen to create growth. Within the context of strategy,
executives need to make a choice of strategic focus which
could either be on market penetration, product development,
market development, diversification or a combination of
these proposed four alternatives (Ansoff, 1968). Within each
of the four strategic choices, companies can achieve growth
organically, by means of acquisition or a combination
approach. Six specific strategies are identified that could
influence sustained company growth. The first strategy
involves increasing value through select customers
(McGrath & MacMillan, 2005; Mascarenhas,
Kumaraswarny & Baveja, 2002; Harvard Management
Update, 1996; Gertz & Baptista, 1995). This strategy
involves knowing everything about the base of carefully
selected customers and their needs. The company focuses on
serving those needs with intense dedication in order to
transform the customer experience (Reichheld, 2003; Zook
& Allen, 2003), as well as increasing customer demand
which is strongly linked to company growth (Iudanov,
2007). The second strategy focuses on becoming
exceptionally effective at developing large numbers of new
products that offer superior value to customers (McGrath &
MacMillan, 2005; Zook & Allen, 2003; Mascarenhas et al.,
2002; Harvard Management Update, 1996; Gertz &
Baptista, 1995). This strategy necessitates the development
of the people and processes to enable the rapid development
of new, value-adding products. Innovation is a powerful
driver of growth. The innovation of new products and
processes is even more powerful when it is extended to
families or platforms of related new products and services.
This paradigm helps identify all the synergies and related
benefits of a new idea (Diong & Choo, 2008; Kelley &
Littman, 2006; Jonash, 2005; Kanter, 2006; Stewart, 2006).
In fact Kelly and Litman (2006:3) comment that “Innovation
is now recognised as the single most important ingredient in
any modern economy”.
The third strategy attempts distribution innovation
(Mascarenhas et al., 2002; Harvard Management Update,
1996; Gertz & Baptista, 1995). This strategy focuses on
finding and developing the most effective ways to connect
customers with the company’s products and services. The
fourth strategy involves monopoly/first-mover advantage
(Zook & Allen, 2003; Mascarenhas et al., 2002; Harvard
Management Update, 1996). This strategy involves
establishing control of a market and then growing as it
grows. Control of the market may be established as a result
of first-mover advantage or through anti-competitive means.
This strategy is unlikely to be effective in markets where
there are not extreme barriers to entry or where there are
vigilant competition authorities. The fifth strategy is growth
by means of acquisitions (Mascarenhas et al., 2002). The
acquisition strategy involves acquiring and consolidating
firms in order to increase market share and growth. The
sixth strategy, an “adjacent space strategy” (Zook, 2004;
Zook & Allen, 2003), encompasses many of the ideas
above, and involves pushing out the boundaries of a
company’s core business into an adjacent space. The
adjacent space referred to can encompass expanding along
the value chain, growing new products and services, using
new distribution channels and entering new geographies.
Finally, this strategy could involve addressing new customer
segments, often by modifying a proven product or
technology or moving into the “white space” with a new
business built around a strong capability (Zook & Allen,
2003).
Organic versus acquisition
Organic and acquisition growth have both been widely used
by companies who have demonstrated superior growth.
However, organic growth is perceived to be superior to
acquisitive growth, and past research by Jonash (2005) has
demonstrated a strong positive correlation between a
company’s effective focus on organic growth and future
shareholder returns. In contrast, a great deal of research
indicates that acquisitions destroy value in the majority of
transactions (Laurie et al., 2006), although this conclusion is
refuted by other researchers such as Bruner (2002).
82 S.Afr.J.Bus.Manage.2012,43(3)
A simple captivating business model
A simple captivating business model has also been
identified as a means to achieve sustainable growth. While
an effective, and carefully designed business model is
critical for success and growth (Diong & Choo, 2008), Hess
(2007) discovered in his comprehensive study on organic
growth that it was companies with simple, easy to
understand and captivating business models that
significantly outperformed their competitors. The execution
of company strategy is also vital to secure sustainable
growth. Many firms have impressive plans setting out the
firm’s strategy, yet very few execute their strategy
effectively. “The high …growth companies generally do
not have unique strategies, products or services, nor are they
market leading innovators. But they are execution
champions – day after day, they have figured out how to get
consistent high-quality performance from their people”
(Hess, 2007:161).
Repeatable strategy
Expertise in creating repeatable growth processes is also an
important means to ensure sustainable growth. Zook and
Allen (2003) conducted a five-year study of corporate
growth involving 1,850 companies. One of their key
findings was that companies who consistently outgrow their
rivals do so by developing processes in order to grow in
predictable, repeatable ways. By formalising the growth
process into a repeatable formula, companies can achieve
higher success rates in what is normally a complex,
experimental and chaotic process. The repeatability of the
process allows companies to systematize the growth and
take advantage of learning-curve effects (Zook & Allen,
2003).
Entrepreneurship
Entrepreneurship is important in creating demand and has
been defined as being primarily motivated by the pursuit of
opportunities, as opposed to those managers exclusively
concerned with the efficient management of resources
already controlled by the firm (Stevenson & Jarillo, 1990).
As a result of this pursuit of opportunity, high growth tends
to be associated with a firm’s entrepreneurial behaviour
(Brown, Davidson & Wiklund, 2001; Stevenson & Jarillo,
1990; Jarillo, 1989). In fact, growth is considered a logical
consequence of innovative, proactive and risk-taking
behaviour on the part of the firm, as these are dimensions
which define entrepreneurship (Gertz & Baptista, 1995;
Moreno & Casillas, 2008).
Exogenous variables
This section examines exogenous influences on demand and
supply.
Demand
Demand is intricately linked to the economy and industry in
which a company operates. If the country or industry a
company operates in is growing, the company is likely to
grow. In fact, historically, it was thought that growth was
the preserve of companies operating in growth industries
(Mascarenhas et al., 2002; Gertz & Baptista, 1995). For
example, a study by Smit et al. (2005), which examined the
performance of the 100 largest companies in the United
States over the period 1994 - 2003, found a
disproportionately large number of high growth companies
concentrated in four sectors: financial services, health care,
high tech and retailing. Smit et al. (2005) conclude that this
concentration is logical considering that these sectors or
markets, and segments within them, offer favourable growth
environments supported by established trends: aging
populations, rapid product or format innovation,
deregulation and consolidation (Smit et al., 2005).
Supply
Jack Welch once said that the 1980’s would be a “white-
knuckle” decade of intensifying industrial competition and
that the 1990’s would be tougher still. The former General
Electric chairman was proved right, and the new millennium
has seen competition intensify even further. The rate at
which companies lose their leadership positions doubled in
the 20 years prior to the mid-1990’s. This new intense level
of competition is characterised by new technologies which
have eclipsed long-established industry champions, and
nimbler competitors with sharper value propositions and
lower costs (Huyett & Viguerie, 2005). Porter (2001) shows
how intense competition reduces industry attractiveness and
suggests an inverse relationship between the level of
competition and the growth rate in a specific industry.
Data and method
A combination of methods have been used to test the
research questions. In this regard, descriptive analysis is
used to test the first research questions. A combination of
descriptive analysis and a multiple regression model is used
to test the second research question and qualitative analysis
is used to test the third research question.
The first research question
The data for the first research question, namely what is the
ratio of high growth companies to low growth companies on
the JSE on an industry basis for the period 2000 - 2006, was
obtained from the BFA McGregor Blink (“Blink”) database.
Details of company revenue, earnings attributable to
shareholders, as well as industry, super sector and subsector
was extracted from the database for the period 2000 – 2006.
This study only focused on companies listed on the main
board of the JSE and excluded AltX-listed companies, as
well as companies listed on the Development Capital and
Venture Capital boards. Companies which were not listed on
the JSE for the full period 2000 – 2006 or for which data
was not available on the Blink database were excluded from
the sample. This resulted in a sample of 202 companies,
after excluding 120 companies for the reasons described
above. Growth for the purposes of this study was defined as:
Growth =
n 1 n 1
ac
( 1) ( 1)
bd
2
where:
S.Afr.J.Bus.Manage.2012,43(3) 83
a = Revenue in 2006
b = Revenue in 2000
c = Earnings attributable to ordinary shareholders in 2006
d = Earnings attributable to ordinary shareholders in 2000
n = Number of data points i.e. 2000 to 2006 = 7 (n – 1 = 6)
Companies which achieved an Average Growth Rate in
excess of 25% were classified as high growth companies,
while companies which achieved an Average Growth Rate
of 10% and less were classified as low growth companies.
Average growth companies were defined as those
companies which achieved Average Growth Rates between
10% and 25%. A ranked summary of the average industry
subsector growth rates was presented. A count of the
number of high growth, average growth, low growth and
excluded companies was developed for each industry
subsector of the JSE.
The second research question
The second research question investigated a range of
variables that could be linked to company growth? For the
purposes of collecting data a survey and interview process
was undertaken. A random sample of companies, with
varying levels of revenue and earnings growth, was selected
from the total population of 202 companies identified in the
first research question. The CEO’s of each of the companies
forming part of the random sample were identified by
perusing the company’s website. The executives of these
companies were contacted telephonically in order to
establish whether they would be willing to participate in the
research study. Those executives who were unwilling to
participate were eliminated from the sample. A final sample
of 30 executives agreed to participate in the research study
by completing a survey and participating in an interview.
Although the sample size of 30 is limited, the reliability is
increased because only the opinions of experts were
recorded (Lenth, 2001; Leedy & Ormrod, 2001). A
summary of the sample companies and their industry
subsector is provided in Appendix 1.
In order to amplify the choice of growth variables included
in the survey, preliminary interviews were conducted with a
small sample of JSE-listed company executives. The
findings of the preliminary interviews, together with the
evidence provided by the literature, were used to finalize the
survey variables. In this regard, the executives of the sample
companies were requested to allocate 100 points between
the 23 identified growth variables, as well as any other
growth drivers identified by the executives who they believe
contributed to the growth of their company during the
survey period. Descriptive analysis was then used to
determine the relative importance of the growth drivers. A
pilot test was performed to increase the success of the study
(Pirow, 1990).
In order to validate the allocation of the 100 points in the
survey, a secondary check was used to correlate executives’
choice of rating using a Likert scale or other appropriate
measure. The information on these proxy variables was
obtained through: additional questions posed to the
executives; information from the Blink database; as well as
information obtained from the companies’ annual reports.
This second method of quantifying the importance of
growth drivers used a multiple regression model as the basis
for determining significant predictors. .
The third research question
The information for the third research question, namely
whether high growth JSE-listed firms have different
strategies to low growth JSE-listed firms, was obtained from
interviews with executives from the sample companies as
described above. Detailed interviews were also undertaken
to obtain additional information relating to the choice of
growth variables and company strategy. The Interviews
were used as a complement to the survey because of the
complex nature of company growth and strategy formulation
(Leedy & Ormrod, 2001). Detailed notes were taken during
the interviews and, with the interviewee’s permission, the
interviews were recorded and transcribed. The transcripts of
the interviews with the sample company executives were
examined and analysed to identify key themes regarding the
various growth drivers and their importance in the context of
sustainable company growth. The analysis into key themes
was performed on the transcribed data using content
analysis that was used to identify patterns and themes in
open ended data (Leedy & Ormrod, 2001). This method
allowed the study to explore a wide range of variables which
contributed to strategy selection. In addition, the third
research question was investigated through the evaluation of
secondary data including press articles and annual reports
during the period 2000 -2006. A combination of data was
therefore assembled and investigated using descriptive
statistics and qualitative reasoning to investigate whether
there was a difference in the strategies adopted by high,
average and low growth firms.
The limitations of the study include an exploratory,
subjective approach that raises as many questions as it
answers. The findings, moreover, are influenced by the
opinions and perspectives of the current executives rather
than those who may have been responsible during the stated
study period. In addition, the research only investigates the
growth drivers and strategies of limited sample of JSE-listed
companies.
Results
In this section, the results for the three research questions
are presented and discussed. These questions include the
ratio of high growth to low growth JSE-listed companies,
whether specific variables characterize high growth JSE-
listed firms and whether different strategies are adopted by
high growth JSE-listed firms from low growth JSE-listed
firms.
Ratio of high growth to low growth companies
The proportion of high growth, medium growth and low
growth companies is illustrated in Table 1 below. A more
detailed analysis of the average CAGR per industry is
summarised in Appendix 2.
84 S.Afr.J.Bus.Manage.2012,43(3)
Table 1: Proportion of high growth, average growth and low growth JSE-listed companies
Description
Growth Range
Number of JSE-listed
Companies
Proportion of Total
Companies
Low Growth Companies
Below 10%
67
33,20%
Average Growth Companies
10% - 25%
78
38,60%
High Growth Companies
Above 25%
57
28,20%
Total Companies
202
100%
Further analysis of industry growth, illustrated in Figure 2,
summarises the annual real growth rates, contribution to
GDP and the size of the various industries over the period
2000 - 2006. In this regard, the construction industry grew
the fastest at 14.37% per annum, followed by finance, real
estate and business services (8.55%) and transport, storage
and communication, while agriculture, forestry and fishing
recorded the slowest growth at 0.04%. These growth rates
are reflected in the industry subsector growth rates. For
example, banks grew in nominal terms at an average of
13.9% which is close to the average shown in Figure 2 for
the finance, real estate and business services industry, after
being adjusted for inflation. The excellent growth of the
Transport, Storage and Communication industries is
reflected in the growth of the Marine Transportation,
Trucking and Transportation Services subsectors. The listed
Farming and Fishing subsector far outperformed the
industry as a whole which may reflect that the quality of
listed agricultural players are generally higher than non-
listed players and, as a result, are able to grow in excess of
the industry growth rate.
The growth rates of many subsectors appear logical and
consistent with perceptions of how industries performed
over the study period. For example, it is no surprise that the
Steel and General Mining subsectors performed well
considering the recent commodity super-cycle.
Furthermore the high growth of the Marine Transportation
subsector (which consists only of Grindrod) is consistent
with the global consumer and commodity boom over the
later years of the study period which were significant drivers
of increased shipping activity.
The subsector which achieved the highest growth, namely
Equity Investment Instruments, consists of HCI, Brimstone
and Eureka. While Eureka experienced fairly disappointing
growth, it is only a minor contributor to the performance of
the subsector as compared with HCI and Brimstone which
both enjoyed phenomenal growth. These two entities also
attest to the wealth that has been created in some BEE
investment companies which have made successful
investments. Finally, the poor growth performance of the
Brewers and Travel & Tourism subsectors was unexpected,
however, this may not reflect the industry as a whole
because the performance of only two companies in each of
these subsectors have been reflected.
Source: Department of Agriculture and Land Reform; 2008:2
Figure 2: Average size and growth of sectors within the SA economy
S.Afr.J.Bus.Manage.2012,43(3) 85
Growth drivers
The most important drivers of company growth are ranked
and summarised in Table 2. In this regard, the mean score
for 24 growth drivers indicates high and low growth
companies rated certain drivers significantly differently. For
example, High growth companies rated entrepreneurship as
an important growth variable whereas low growth
companies were much less enthusiastic. Conversely, low
growth companies rated excellent strategy execution much
higher than medium and high growth companies.
Interestingly, high and medium growth companies also
appeared to include a formal focus on growth compared to
the low growth companies. Exogenous influences like the
GDP growth rate, the level of competition and regulation
were regarded across the board as being less important than
a wide range of endogenous variables.
The mean score for each growth driver for high, average and
low growth companies is further illustrated in Figure 3. It is
interesting to note low growth companies placed far greater
reliance on acquisitions, excellent execution and managerial
talent than their higher growth counterparts.
Conversely, higher growth companies placed more emphasis
on a happy workforce, a simple captivating strategic plan
and the incubation of talent. The executives of high growth
companies ranked strategy, acquisitions and
entrepreneurship as the most significant drivers of growth;
average growth companies ranked managerial talent,
innovation and strategy highest, while low growth company
executives emphasise excellent execution, acquisitions and
managerial talent as the critical growth drivers. It is
interesting to note that amongst high growth companies, the
100 points are more dispersed with most of the growth
drivers receiving a sizable allocation of the points. In
contrast, the low growth companies allocated most of the
100 points to a limited number of the growth drivers (the top
3 growth drivers received 40% of the points), and many
other growth drivers received an insignificant allocation.
This is perhaps an indication that high growth companies are
more likely to identify and recognize the complex web of
drivers influencing their firms and industries.
Table 2: Ranked summary of growth drivers per mean score
Growth Drivers
All Companies
High growth
companies
Average growth
companies
Low growth
companies
Acquisitions
Strategy
Managerial Talent
Excellent execution
Entrepreneurship
Key Strategic Relationships
Leadership
Access to capital
Innovation
Focus on growth
Happy people
Simple, captivating business model
Knowledge of customers
Customer enthusiasm
Discipline
Geographical expansion
Effective performance measurement
Talent incubator
Industry growth
GDP growth
Repeatable growth processes
Level of competition
Regulation
Other (Massmart-Leadership position)
8,67
8,27
7,53
7,35
5,93
5,65
5,63
5,52
5,40
5,10
3,92
3,61
3,55
3,12
3,03
2,95
2,85
2,83
2,80
2,28
1,87
0,98
0,77
0,42
8,44
8,97
6,16
6,74
7,25
6,09
5,75
4,88
3,82
6,53
4,41
3,96
3,38
3,21
2,97
2,50
2,82
2,41
2,82
2,41
2,26
0,94
0,53
0,74
5,94
7,19
8,13
4,13
5,06
4,75
6,25
5,81
7,25
5,13
4,69
3,63
3,00
3,75
3,44
4,13
3,06
5,25
3,13
1,31
2,06
1,31
1,63
-
13,80
7,60
11,20
14,60
2,80
5,60
4,20
7,20
7,80
0,20
1,00
2,40
5,00
1,80
2,60
2,60
2,60
0,40
2,20
3,40
0,20
0,60
0,20
-
86 S.Afr.J.Bus.Manage.2012,43(3)
-
2
4
6
8
10
12
14
16
Access to capital
Acquisitions
Customer enthusiasm
Discipline
Effective networks/key strategic
relationships
Effective performance measurement
systems
Entrepreneurship
Excellent execution
Focus on growth
GDP growth
Geographical expansion
Happy people
Industry growth
Innovation
Knowledge of customers
Leadership
Level of competition
Managerial talent
Regulation
Learning to make growth repeatable
Simple, captivating business model
Strategy
Talent incubator
Other (defined by Massmart as
"Leadership position")
High growth companies Average growth companies Low growth companies
Figure 3: Mean score per growth driver for high, average and low growth companies
Conversely, low growth companies may have less ability to
analyse the environment and its inter-relationships with their
firm’s resources and, therefore, oversimplify it. The second
method of quantifying the importance of growth drivers
used a multiple regression model to test for significant
relationships. In a sense, this model, illustrated in Table 3,
was created to support the findings of the survey and ask
some further questions relating to variables influencing
company growth. The results indicated a significant
relationship between growth and the number of years that
budget expectations were achieved, as well as between
growth and market share growth. The variable, “number of
years that budget expectations were achieved”, was
incorporated in the analysis as a proxy for discipline,
possibly underling the importance of operational fitness and
its relationships with translating growth opportunities. On
the other hand, market share growth was included to further
test the importance of this variable and its relationship with
industry conditions. Furthermore, companies which achieve
market share growth are likely to achieve growth in revenue
and earnings.
It would be expected that the performance of the industry
subsectors would be linked to company growth rates,
however, they were largely ignored by executives. It appears
that executives place little emphasis on the growth trend of
their particular industry subsector. Perhaps this is a factor of
subsectors consisting of firms which are not strictly
comparable. Alternatively, it could attest to the fact that
executives wish to believe that the growth destiny of their
company is more influenced by other factors which they can
control, rather than the mere structural characteristics of
their particular industry. While the top ranked growth
drivers are relatively unsurprising, it is interesting to see the
low importance that executives attributed to GDP growth
and Industry growth as sustainable growth drivers,
particularly in the context of plummeting company growth
rates following the global financial crisis and recession
which occurred in South Africa in 2008/9. In hindsight these
events suggest that companies are more dependent on a
buoyant economy than most of the surveyed executives
indicated.
S.Afr.J.Bus.Manage.2012,43(3) 87
Table 3: Growth variables
Covariate
Coef.
Std. Err.
t
p-value
n
market_share_2000
-0,28
0,20
-1,42
0,170
25
market_share_2006
0,07
0,26
0,27
0,789
26
market share difference
1,08
0,34
3,21
0,004
25
revenue_acquisitions
0,18
0,20
0,87
0,391
30
understand_bm
-0,0002
0,002
-0,10
0,918
30
growth_forums
0,01
0,09
0,11
0,917
30
pms_growth_focus
-0,03
0,03
-0,86
0,397
30
management_levels
-0,004
0,04
-0,13
0,898
30
Innovation
0,01
0,17
0,03
0,975
29
years_budget_exp_achieved
0,06
0,02
2,79
0,009
30
staff_turn_over_2000
0,15
0,55
0,27
0,787
29
staff_turn_over_2006
-0,005
0,57
-0,01
0,993
29
talent_dev_sys
0,10
0,10
0,99
0,331
30
talent_dev_eff
0,03
0,07
0,47
0,643
24
exco_meetings_growth
0,12
0,13
0,88
0,385
30
results_diff_ceo_exco
0,03
0,03
0,72
0,479
30
strategic_partners_dep
-0,03
0,03
-0,96
0,346
30
co_key_cust_und
0,03
0,04
0,72
0,477
30
perc_customer_referrals
---
---
---
---
25
None
---
---
---
---
7
Few
0,12
0,14
0,83
0,417
6
Some
0,01
0,14
0,07
0,946
6
Most
0,16
0,14
1,14
0,269
6
turnover_outside_sa_2000
-0,002
0,23
-0,01
0,995
30
turnover_outside_sa_2006
0,13
0,22
0,60
0,553
30
ease_access_capital
-0,02
0,04
-0,61
0,545
30
Regulations
0,01
0,04
0,13
0,897
30
Strategies
Six primary growth strategies, identified in the literature
review, were amplified by a further eleven growth strategies
highlighted by the CEOs of the respondent firms. These 17
growth strategies, illustrated in Table 4, are disaggregated to
compare the strategies of high, average and low growth
companies. The results suggest high growth companies did
not formally develop product development strategies
compared to medium and low growth firms. It would also
appear as though low growth firms were less likely to
develop market intelligence and differentiation strategies.
Only high growth companies appeared to formally develop
partnership or networks type strategies, as well as specific
strategies to align and incentivise the organization for
growth. The most common strategies employed across the
three groups appeared to be customer-centric, acquisition,
adjacent space and fitness strategies. The differential
development and use of strategy, illustrated in Figures 4-6,
suggests high growth companies might have focused on
different strategies compared to their medium and low
growth counterparts. High growth companies, for instance,
appeared to most commonly incorporate some form of
acquisition, adjacent space or fitness strategy followed by
some form of partnership and alignment-incentive strategy.
Other commonly cited strategies included market
intelligence, differentiation or customer centric long term
plans.
Medium growth companies, however, most commonly cited
the use of adjacent space, product development and fitness
strategies followed by acquisition, market intelligence and
customer centric strategies.
Finally, low growth companies also cited adjacent space
strategies as being the most common followed by
acquisition, market intelligence and customer centric
strategies. In this regard, their choice of strategy was closer
to the medium growth companies than their high growth
counterparts.
88 S.Afr.J.Bus.Manage.2012,43(3)
Table 4 – Count of growth strategies amongst high, average and low growth companies
Growth Strategy
High Growth
Average Growth
Low Growth
1. Customer-centric
2. Product development
3. Distribution
4. First mover
5. Acquisition
6. Adjacent space
7. Market intelligence
8. Differentiation
9. Fitness
10.Vertical/backward integration
11.Partnerships
12.Cost leadership
13.Constant re-investment
14.Risk management
15.Strong balance sheet
16.People
17.Alignment/incentivize growth
Total
4
-
1
1
6
8
4
4
8
1
5
1
2
1
1
1
5
53
2
3
2
-
2
4
2
-
3
1
-
1
1
-
-
-
-
21
2
1
-
-
3
4
-
-
2
-
-
-
-
1
1
-
-
14
High growth
0.2
-
0.1
0.1
0.4
0.5
0.2
0.2
0.5
0.1
0.3
0.1
0.1
0.1
0.1
0.1
0.3
Customer-centric strategy
Product development strategy
Distribution strategy
First mover strategy
Acquisition strategy
Adjacent space strategy
Market intelligence strategy
Differentiation strategy
Fitness strategy
Vertical/backward integration strategy
Partnerships strategy
Cost leadership strategy
Strategy of constant re-investment for growth
Risk management strategy
Strong balance sheet for growth
People strategy
Alignment and incentivisation for growth
Figure 4 – Incidence of growth strategies amongst high growth companies
Average growth
0.3
0.4
0.3
-
0.3
0.5
0.3
-
0.4
0.1
-
0.1
0.1
----
Customer-centric strategy
Product development strategy
Distribution strategy
First mover strategy
Acquisition strategy
Adjacent space strategy
Market intelligence strategy
Differentiation strategy
Fitness strategy
Vertical/backward integration strategy
Partnerships strategy
Cost leadership strategy
Strategy of constant re-investment for growth
Risk management strategy
Strong balance sheet for growth
People strategy
Alignment and incentivisation for growth
Figure 5 – Incidence of growth strategies amongst average growth companies
S.Afr.J.Bus.Manage.2012,43(3) 89
Low growth
0.4
0.2
-
-
0.6
0.8
-
-
0.4
-
-
-
-
0.2
0.2
-
-
Customer-centric strategy
Product development strategy
Distribution strategy
First mover strategy
Acquisition strategy
Adjacent space strategy
Market intelligence strategy
Differentiation strategy
Fitness strategy
Vertical/backward integration strategy
Partnerships strategy
Cost leadership strategy
Strategy of constant re-investment for growth
Risk management strategy
Strong balance sheet for growth
People strategy
Alignment and incentivisation for growth
Figure 6 – Incidence of growth strategies amongst low growth companies
The results suggest that high growth companies appear to
have adopted a larger variety of strategies than average and
low growth companies. In fact, amongst high growth
companies, a product development strategy is the only
strategy which does not feature, while amongst average
growth and low growth companies there are 7 and 10
different strategies respectively which are not mentioned.
High growth companies also appear to have adopted
strategies that were largely ignored by their medium and low
growth counterparts. These observations may be a function
of the small sample sizes. They do, however, suggest that
more successful companies have formally adopted some
different, as well as more multi-faceted plans than medium
and low growth firms.
Discussion
The results suggest high growth companies cited more
growth variables, as well as adopted a wider range of formal
strategies than their less successful rivals indicating a
superior understanding of complex competitive
environments and the need to formally plan for variables
that influence growth. High growth companies, for example,
not only appear to cite partnerships as a major growth
variable, but also develop formal plans to cultivate these
arrangements. By contrast, medium and low-growth
companies may cite partnerships as an important growth
variable but do not necessarily develop formal plans to
optimise these arrangements. Porter (1990; 2001) cites an
organization’s relationship with suppliers as a vital
component of competitive advantage and developing
partnerships essentially reduces upstream costs, as well as
access to other opportunities. Kroeger et al. (2000) also
indicate that potential partners are attracted by growth
suggesting that the formation of partnerships and networks
are multi-faceted. Similarly, only high growth companies
cite the importance of a happy workforce, managerial talent
and talent incubation, as well as develop strategies to align
and incentivise management and employees. Conversely,
medium growth companies stress the importance of happy
people and talent incubation but do not necessarily develop
formal plans to achieve this goal. Low growth companies,
by contrast, did not rate talent incubation and the presence
of happy staff very highly as a growth variable, thus
appearing to ignore these resources as a strategic asset that
provides a competitive advantage (Slater, 1980; Hamel,
2000; Barringer & Jones, 2004; Diong & Choo, 2008).
By contrast, innovation was rated very highly as a growth
variable by medium and low growth firms, as well as
formally incorporated as a formal strategy. Quite
surprisingly, high growth firms rated it as a less important
growth variable and did not develop formal innovation
strategies contradicting Kelly and Litman (2006) who regard
innovation as the “most important ingredient in any modern
economy”. According to Kaplan and Norton (1992, 2004,
2007), product development and innovation may be a longer
term indicator of performance. The relatively short study
period in this research may explain why this strategy is not
more closely associated with high growth companies.
Acquisitions were cited across the board as a very important
growth variable, as well as an important strategy by all the
respondents (Hay & Liu, 1998; Bruner, 2001; Mascarenhas
et al., 2002). Empirical evidence, however, indicates
acquisitions can both create, as well as destroy wealth. Low
growth companies, in particular, cited acquisitions as a key
growth variable/strategy, possibly underlining the dangers of
acquisitions and/or the poor management thereof (Laurie et
al., 2006). Quite surprisingly, none of the respondents cited
organic growth as a formal strategy despite its superior
ability to achieve growth (Jonash, 2005). The central
importance of creating an entrepreneurial organization
culture was also not articulated as a formal strategy despite
its importance being recognized by high and medium
growth companies (Zook 2004; Moreno & Casillas, 2008).
Low growth companies neither ranked entrepreneurship as
especially important nor developed specific strategies to
incubate this talent.
The importance of operational efficiency and strategy
execution was highly cited as both a growth variable and a
90 S.Afr.J.Bus.Manage.2012,43(3)
fitness strategy. Low growth companies, however, appeared
to ignore the relationship between efficiency and a specific
strategy to promote alignment and incentives, thus possibly
ignoring the important need to communicate growth
programs via a performance measurement system (Kaplan &
Norton, 1992; 2007). A fitness strategy, however, entailing
the promotion of operational efficiency was cited across the
three categories and may be the most obvious strategy in a
modern competitive environment that requires growth in an
efficiency context. As a result, it is a strategy which is
commonly referred to, but is questionable whether many
firms achieve the flexibility and resilience that should be
associated with the effective implementation of this strategy.
Conclusion
The paper developed a practical conceptual framework that
outlined the categories of growth driver and strategy that
could influence sustainable growth. This framework guided
a survey of JSE listed companies that followed an inductive
type of approach to explore the causality of growth. The
results of the research questions confirm the complex nature
of this phenomenon, as well as provide a number of useful
insights into growth drivers and strategies for growth.
The first research question investigated the ratio of high
growth companies to low growth companies over the study
period. The results indicated that 28,2% of companies
achieved an average CAGR in excess of 25%, 38,6% of
companies achieved an average CAGR of between 10% and
25% and 33,2% achieved growth of less than 10%. In
general, therefore, a very high proportion of JSE-listed
companies achieved high growth over the study period
(2000-2006) that was one of the contributing factors to the
bull market enjoyed on the JSE until the end of 2007. One of
the key features of the study period is that it represented a
time of economic growth, strong stock market performance
and, especially in the latter part of the study, a period of
growing consumer spending. The increase in consumer
spending was, in part, attributable to increasing levels of
disposable incomes, but was also a factor of easily available
credit, which enabled consumers to increase consumption
ahead of their increases in disposable income. The study
period saw the continued commodity super-cycle, and
generally strong economic growth globally, but especially in
developing markets.
The second research question examined whether specific
variables (growth drivers) characterised high growth JSE-
listed companies. The most highly ranked variables across
all the growth categories included acquisitions, managerial
talent, operational efficiency, entrepreneurial flair and
excellent partnerships. While no conclusive statistical
relationships were established, high and low growth
companies appeared to rank a number of growth variables
very differently. These included the importance of
managerial talent, the importance of operational efficiency,
the level of entrepreneurial focus, innovation, a happy
workforce and a formal focus on growth. High growth
companies, moreover, cited a wider range of growth
variables than low growth companies, however, all company
CEO’s seemed to ignore the impact of exogenous variables
like the buoyancy of the economy and industry wide effects
influencing supply and demand. In this regard, they appear
to have overstated the ability of a firm to manage its growth
path independent of this influence.
The third research question enquired whether high growth
companies had different strategies to low growth companies.
The results indicated some similarities with the second
research question underling the fact that high growth firms
appeared to favour a greater range of strategies than low
growth firms. Furthermore, high growth firms were more
likely to have developed a strategy that directly supported
their ranking of a range of growth variables. For example,
only high growth firms developed strategies to align and
incentivise the organization in support of their contention
that managerial talent, an effective performance
measurement system and a happy workforce were vital
ingredients of sustained growth. High growth companies,
moreover, were the only respondents to stress the
importance of partnerships, as well as develop specific
partnership strategies. The results also support the
contention that acquisitions can create, as well as destroy
wealth. Finally, the results suggest that the development of
strategy is a complex exercise and that high growth
companies appear to develop a more extensive suite of
strategies that are built around operational efficiency. .
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Appendix 1 – Sample companies
Company
Subsector
AdVTechol
Specialised Consumer Services
Afrox
Specialty Chemicals
Argent
Diversified Industrials
Aspen
Pharmaceuticals
Bell
Commercial Vehicles & Trucks
Bidvest
Business Support Services
Cadiz
Investment Services
Cashbuild
Home Improvement Retailers
Comair
Airlines
Dawn
Building Materials & Fixtures
Digicore
Electronic Equipment
Ellerines
Home Improvement Retailers
EOH
Computer Services
Excellerate
Business Support Services
Grindrod
Marine Transportation
Iliad
Industrial Suppliers
Imperial
Transportation Services
Jasco
Electrical Components & Equipment
JD Group
Home Improvement Retailers
Massmart
Broadline Retailers
Merchant Industrial Property
Real Estate Holding & Development
Metorex
General Mining
Murray & Roberts
Heavy Construction
Netcare
Health Care Providers
Omnia
Specialty Chemicals
Spescom
Computer Services
Trencor
Transportation Services
UCS
Software
Verimark
Broadline Retailers
WBHO
Heavy Construction
94 S.Afr.J.Bus.Manage.2012,43(3)
Appendix 2 – Average subsector CAGR
AVERAGE SUBSECTOR GROWTH RATES
SUBSECTOR
CAGR -
REVENUE
CAGR -
EARNINGS
AVERAGE
REVENUE &
EARNINGS
CAGR
NUMBER OF
HIGH
GROWTH
COMPANIES
NUMBER OF
AVERAGE
GROWTH
COMPANIES
NUMBER OF
LOW
GROWTH
COMPANIES
NUMBER OF
EXCLUDED
COMPANIES
Equity Investment Instruments 74.1% 69.2% 71.7% 3 - 1 6
Marine Transportation 43.2% 56.0% 49 6% 1 - - -
Steel 9.1% 70.0% 39 6% 2 - - -
Home Improvement Retailers 22.2% 50.4% 36 3% 3 1 - 1
General Mining 24.9% 42.6% 33 8% 6 3 1 7
Furnishings 38.4% 28.4% 33.4% 1 - - -
Business Support Services 14.1% 52.1% 33.1% 3 - - 2
Pharmaceuticals 23.2% 40.9% 32.1% 1 - - 1
Computer Hardware 18.0% 38.1% 28.1% 1 1 - -
Commercial Vehicles & Trucks 8.5% 44.4% 26.4% 1 1 - -
Electronic Equipment 15.3% 36.3% 25 8% 1 1 1 2
Software 34.4% 17.1% 25.7% 1 - - -
Real Estate Holding & Development 15.2% 35.6% 25.4% 5 3 6 18
Specialty Retailers 17.8% 31.8% 24 8% 1 1 - 1
Life Insurance 16.7% 25.6% 23 6% - 3 1 3
Trucking 3.3% 43.1% 23 2% - 1 - -
Mobile Telecommunications 27.6% 18.4% 23 0% 1 1 - -
Consumer Electronics 18.6% 27.0% 22 8% 1 1 - -
Specialty Chemicals 7.7% 37.1% 22.4% 1 1 2 -
Health Care Providers 21.6% 22.7% 22.1% 1 1 - -
Transportation Services 18.5% 25.5% 22 0% 2 2 - 1
Gambling 16.4% 27.1% 21.7% - 2 - 1
Broadline Retailers 18.9% 24.1% 21 5% 2 2 2 -
Industrial Suppliers 22.3% 20.3% 21 3% 1 1 1 -
Industrial Machinery 18.6% 23.6% 21.1% 1 3 - 1
Apparel Retailers 9.6% 30.3% 19 9% 1 2 2 -
Asset Managers 20.8% 18.2% 19 5% - 1 - 2
Integrated Oil & Gas 21.4% 17.2% 19 3% - 1 - -
Building Materials & Fixtures 13.6% 23.8% 18.7% 1 4 1 3
Property & Casualty Insurance 15.9% 21.2% 18 6% 1 2 - -
Containers & Packaging 15.9% 19.1% 17 5% 2 1 1 -
Distillers & Vintners 20.9% 14.1% 17 5% - 1 - 1
Waste & Disposal Services 14.4% 18.5% 16.4% - 1 - 1
Food Retailers & Wholesalers 13.7% 18.9% 16 3% - 2 - 2
Farming & Fishing 12.7% 15.6% 14 2% 2 1 5 3
Banks 13.1% 14.7% 13 9% 2 2 2 2
Nonferrous Metals 14.7% 12.0% 13.4% - 1 - 4
Auto Parts 3.3% 23.1% 13 2% - 3 - -
Broadcasting & Entertainment 8.8% 17.2% 13 0% 1 1 1 -
Consumer Finance 8.9% 16.9% 12 9% - 1 - 2
Platinum & Precious Metals 15.3% 10.0% 12 6% - 4 - 6
Diversified Industrials 14.5% 9.9% 12 2% 1 1 2 1
Electrical Components & Equipment 3.2% 20.7% 11 9% - 2 2 1
Publishing (1.4%) 22.2% 10.4% 1 - 1 1
Hotels 9.7% 8.8% 9 3% - 1 1 1
Restaurants & Bars 8.5% 8.7% 8 6% - 1 2 -
Food Products 5.9% 10.8% 8 3% - 2 2 -
Heavy Construction 8.1% 7.2% 7 6% 1 3 2 5
Investment Services (1.1%) 10.4% 7 6% 1 1 3 8
Forestry & Paper 17.4% (4.1%) 6.7% 1 - 1 3
Gold Mining 19.0% (7.6%) 5.7% - 3 2 10
Airlines 12.4% (5.5%) 3 5% - - 1 -
Specialty Finance 16.1% (13.6%) 1 3% 1 - 1 3
Computer Services 4.2% (1.8%) 1 2% 1 4 9 1
Clothing & Accessories (11.1%) 10.8% (0 2%) - 1 4 -
Business Training & Employment Agencies 8.2% (9.6%) (0.7%) - 1 1 1
Diamonds & Gemstones (16.5%) 11.8% (2.4%) - 1 2 3
Travel & Tourism (2.0%) (3.3%) (2.7%) - - 2 -
Brewers (23.6%) (26.2%) (24.9%) - - 2 -
Coal Insufficient information - - - 2
Recreational Services Insufficient information - - - 1
Real Estate Investment Trusts Insufficient information - - - 5
Insurance Brokers Insufficient information - - - 1
Automobiles Insufficient information - - - 1
Financial Administration Insufficient information - - - 1
Fixed Line Telecommunications Insufficient information - - - 1
TOTALS 57 78 67 120
