By Steven Chai

As it is spring, temperatures are rising, leaves are appearing, and the green shoots of a new season are all around us. These changes inspire optimism.

Many observers see reasons for optimism in the global economy as well. So what of the recent developments ― the green shoots that some commentators see? That is the question that many corporate leaders and economists are asking. In order to answer this not-so-easy question, we released our recent report, “Collateral Damage Series: Succeeding in Uncertain Times.” For several years, we have made the same argument: Western economies will mostly experience low growth.


In a low-growth environment, growth cannot come simply from surfing a rising market; rather, it requires real share gain in domestic markets or the realization of opportunity in vigorously competed fast-growing markets. Broken business models get found out and those who sit and wait will be left behind by those who write their own destiny. What has been and will continue to be important is the ability to adapt to the current crisis, the courage to confront the crisis, leadership and strategies.

Let’s look at Europe. Here the main source of hope has been Europe’s long-term refinancing operation (LTRO), which was greeted as a masterstroke. It averted a looming banking disaster (by injecting more than €1 trillion of liquidity) and eased the pressure on sovereign debt. As time passes, it is increasingly being seen for what it really is ― an exercise in kicking the can down the road. But it is certainly buying time, as banks in Italy and Spain use the liquidity provided to invest in government debt ― something it was not supposed to do, as the European Central Bank’s (ECB) new president, Mario Draghi, has noted.

What banks aren’t doing is increasing lending to companies and households; loans to households were flat in February, while loans to nonfinancial companies fell by €3 billion. Recent poor bond sales and rising yields in some “Club Med” countries demonstrate that the pressure is still on.

Beyond the LTRO and weak lending data, European unemployment data continue to trend unfavorably pretty much everywhere except Germany, with youth unemployment (22.1 percent across the EU) being a real concern.

Bank balance sheets are still being repaired, with regulators seeing considerable need for banks to supplement their core Tier 1 capital by another €115 billion (with a foreseeable knock-on effect on lending). Consumer confidence remains poor in most countries, with the European Commission’s consumer confidence indicator remaining significantly below the long-term average. Recent Purchasing Managers’ Indices (PMIs) have been trending unfavorably, and even Germany is showing signs of slowing. In short, Europe is still a very big economy, but it’s just not going to be a fast-growing economy.

Companies should accept that we face tough economic headwinds in the West, obsess less about short-term indicators, recognize that low growth is very different from contraction, and grasp the initiative. Sustained value-creating growth is difficult to achieve, and there is no single prescription that will deliver success. Each company’s growth path requires engaging on the specifics of its starting position — not only its market environment, but also the internal barriers to growth that constrain risk taking and create an inward focus. A review of companies that have grown in the recent recession suggests three factors that contribute to beating the odds.

At first, companies need to focus on a handful of potentially significant growth opportunities. Typically these opportunities are market spaces where change of some kind is taking place that facilitates the capture of market position. The nature of the change and the opportunities that result can originate from the demand side (the rise of the middle class in emerging markets, the massive urbanization of populations, or increasingly value-conscious consumers) or from the supply side (company-level innovations, technology shifts such as analog to digital, or market structure shifts such as local to national). The winners concentrate resources on a few discrete pockets, going where the growth will be.

They invest to create one or a few successful new positions—positions that will matter if they succeed and that offer a combination of margins and capital intensity such that each dollar invested for growth pays back more than a dollar of value over time. In other words, they prioritize efforts not only around revenue growth, but also around value growth — where they can leverage scale, brand, technology, and capabilities to ensure attractive and sustainable economics.

Focusing on market-changing innovation that produces tangible value for end customers is important, too. Prioritizing opportunities is helpful, but the harder part is to win them competitively, which requires a powerful value proposition. Fulfilling unmet and important customer needs is the best way to grow — and to expand margins while growing. The winners keep a strong external focus, relentlessly engaging on how to competitively differentiate the offer and create value for customers. This external focus is often reinforced by metrics and processes to prioritize efforts around the issues that matter.

They do not chase broad trends with a me-too offering, but rather create a differentiated offering to win greater business. Every problem is an opportunity: these companies embrace insights about where customers are not fully satisfied and where there are weaknesses in the purchase cycle (trial, adoption, penetration, and retention). Where relevant, they are quick to experiment with and embrace new technologies and new business models to create new offerings.

For the last point, companies should make consistent leadership choices to cultivate a disciplined growth culture. Growth takes persistence, investment, a willingness to try new things, and the opportunity to learn from mistakes. And changing markets reward speed, both speed in decision making and speed in correcting course. Successful companies often do not frame their goal as growth per se — they do not target a certain revenue growth rate and “find some things to close the growth gap.”

Instead, they work backward from unmet customer and market needs, feeding a culture of obsession about customer behavior. Entrepreneurs understand that often you don’t get the formula perfectly right the first time you try. The autobiography of Tadashi Yanai, founder and CEO of Fast Retailing which owns the Uniqlo chain, is titled One Win, Nine Losses. The examples of success reflect a clear leadership commitment, not to a particular financial outcome but to success in the marketplace.

Steve Chai is a senior partner at The Boston Consulting Group. He is the co-head of the BCG Seoul office.