The clarion call to increase shareholder value combined with the intense scrutiny of investors and analysts has compelled many companies to focus on quarterly earnings to the point of obsession. Unfortunately, this short-term focus can be terminal. The temptation of downsizing and cost-cutting measures can lull even the most astute managers into a profit trap that may generate respectable shareholder returns in the short run, but fail to exploit the company's potential to generate long-term shareholder value.

At the other extreme, unbridled growth cannot be viewed as the key to value creation. The largest of the Korean chaebols-including Hyundai and Daewoo (before the breakup)-were active in countless industries in their pursuit of unparalleled growth. Revenues grew steadily, but shareholder value did not. Some companies (like Bayer) have tried both approaches and have learned that neither simple revenue growth nor an aggressive profit focus optimises shareholder value in and of itself.

The key word is balance. When companies find the right balance between profit and growth as strategic co-objectives, they achieve what we at A.T. Kearney refer to as "value building growth".

By outperforming their peers in terms of growth while keeping an eye on the bottom line, "value builders" create the greatest sustainable shareholder value over the long term. And that is what counts, both in today's and tomorrow's world.

Regardless of any regional differences or specific circumstances within their industry, how companies chart their courses in steering their ships towards the port has much in common with merchant sea captains.

Profit seekers: These profit-oriented captains shuttle between safe, known ports and earn money by optimising their payloads and exerting tight control over their expenditures on crew and equipment. They sometimes behave as if they have no need to change their compass settings. They see no new ports to sail toward, no frontiers to conquer, and no new worlds to discover, explore and map. They keep trying to make the same thing better.

Simple growers: Some captains, in contrast, see new ports everywhere they look. They pay less attention to the size and makeup of the load or to the state of their crew than to simply keep the fleet of ships sailing to as many harbours as possible. "More" is the watchword, not "better".

Underperformers: Then, of course, many captains make it to the port either too late, with too little on board, or with second-rate crews. They may turn a small profit, but they never have the best places to dock, the best access to shipping lanes, or the highest quality connections in the right places. Neither more nor better works consistently.

Value builders: A fourth group of captains, however, decides to strike an uncompromising balance on all fronts. They secure the right payloads from the best customers, manage their crews, and constantly adjust their mix of old, established ports and new ports with high potential. They combine more with better.

Recognising the importance of this issue, A.T. Kearney undertook a global initiative to investigate the characteristics of successful growth. Our analysis examined more than 1,100 companies worldwide over a 10-year period, covering 24 industries in 34 countries and including more than 80 in-depth case studies. In addition, over 50 interviews were conducted with CEOs and senior executives of leading companies including Bayer, Ericsson, Federal Express, General Electric, Coca-Cola, Mitsubishi Chemical, Sprint, Norsk Hydro and RWE.

The final analysis challenges traditional thinking about the way top-line growth should be viewed and understood. To gain new insights about value-building growth, we developed a matrix showing four distinct growth types. Companies were categorised by their performance relative to industry average in terms of both revenue and shareholder value growth.

The value builders achieve both above-average revenue growth and above-average growth in shareholder value over a long period. These companies constantly try to extend their advantage and push themselves further into the upper right, trying to put as much distance as possible between themselves and the centre. They do this by consistently finding ways to stay ahead of their peers in the competition for growth opportunities, capital and talent.

The profit seekers show revenue growth rates below their industry average, although they still create significant shareholder value. The simple growers manage to outperform their peers in generating revenue, but over time the once anticipated profit fails to follow. Thus, the companies rank below their industry average in creating shareholder value. The underperformers are below average on both counts: revenue growth and shareholder value creation, and move in exactly the opposite direction as the value builders.

The Fundamentals Of Value-building Growth

Since growth is a complex phenomenon, we found a wide variety of growth strategies, some of them, of course, specific to the particular cultures and companies under study. Nevertheless, we could identify certain basic concepts that seem to hold true regardless of geography, industry or company situation. In particular, we found five fundamentals of "Value-building" growth that synthesise our findings. For CEOs who want to pursue the alternative of value-building growth and strike a balance between growth and profitability, this may offer some guidance.

1. Strong, successful (value-building growth) is possible in any industry, in any region and at any phase of a business cycle

2. Strong, stable growth is the decisive driver behind share prices

3. Innovation, geographic expansion and risk-taking fuel value-building growth

4. Growth is spiral shaped, not linear

5. Value-building growth follows a specific pattern and can be learned

The A.T. Kearney-Business Today Study Of India's Best Managed Company

Last year Business Today and A.T. Kearney collaborated on this model in the Indian context to understand what makes Indian companies tick. We expanded on the original Value Building Growth Model using a series of filters, and thus the A.T. Kearney-Business Today study of India's Best Managed Company was born. Thirteen Indian companies across sectors were identified as India's best-managed companies across various quantitative and qualitative parameters backed by a stamp of approval from an eminent panel of industry experts. As we march towards the second A.T. Kearney-Business Today study of India's Best Managed Company, this is merely to lay the context.

We continue with this series in the next edition, which will highlight the improvements we have made together for the second edition of this path breaking study for India Inc. I am certain that our learnings and improvements will be of great value.