Investors reward high-performing companies that shift their strategic focus prudently, even if that means lower returns or slower growth.
Authors: Jiang, Bin; Koller, Timothy
Source: McKinsey Quarterly
One key to creating value is understanding how to manage the subtle balance between growth and returns on invested capital. Empirical evidence suggests that companies enjoying strong ROIC can afford to let it decline over the short term to pursue growth—and that companies with low returns are better off improving ROIC than emphasizing growth.