BCG Henderson Institute

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Growth is critical to long-term value creation: Our analysis of the total shareholder return (TSR) of over 2,000 large companies reveals that over a five-year period more than half of it can be attributed to sales growth — with investor expectations, cost reductions, and changes in operating margin making up the rest. Over a 10-year horizon, nearly three-quarters of TSR are driven by sales growth.

In times of high aggregate growth, companies can grow by merely positioning themselves to participate in the upswing. But the present is not one of those periods. Increased costs of capital make investment in growth options more costly and drive investors to seek short-term payoffs. To complicate matters, the globalization premium is stalling with the decay of rules-based trade: Companies can no longer find growth as easily by expanding to new locations, or expanding demand through low-cost single point sourcing. Instead, they find themselves increasingly needing to withdraw from some markets (China, for example) due to geopolitical tensions or to diversify their lean — and increasingly vulnerable — supply chains. Finally, the ecological pressures on our planet are potentially further limiting growth potential.

In this challenging context, companies seeking growth must develop innovative offerings to expand demand. These offerings are, essentially, products of imagination — conceiving of and realizing new possibilities. And every great company is built on an act of imagination — from James Dyson imagining a bagless vacuum (inspired by a visit to a local sawmill, where he observed that sawdust was spun from the air with a conical separator), to Charles Merrill imagining the modern retail bank that offered a range of transparently priced products to everyday Americans (inspired by his prior position at supermarket chain Safeway).

The trouble is that large companies are apt to forget their imaginative origins. As they grow, they become inwardly focused, prioritizing optimization of existing products and business models over the creation of new ones. This is accompanied by subdivision and specialization and the growth of complexity, which can impede the spread of new ideas. And financial success leads to complacency and risk aversion, with leaders becoming wary of challenging the mental models that underpinned their past success.

So how can companies recover their imagination? Our research at the BCG Henderson Institute suggests that imagination can be harnessed systematically through a six-step cycle that is at the foundation of a corporate “imagination machine.”

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