Sustainability of profitable growth of firms

Abstract

This project intends to study the strategies, actions and initiatives of companies which are maintaining profitable growth in a sustained manner. It has chosen the Staircase to growth as applicable framework and establishes whether it is applicable in the Indian growth story or not. This framework argues that a company on a profitable growth path maintains its focus on 3 different aspects at any point of time and takes series of small actions and initiatives in short term to realize its long term vision and dream. Profitable growth has been defined as growth in both Sales and Net profit which is more than the real GDP growth rate and the return on Capital Employed (ROCE) is more than the cost of capital (Assumed as 10%). It is called sustainable if a company has maintained such performance over a period of 10 years or more. Further, economy in emerging market such as India is expected to be more cyclic and therefore if a particular company which has performed better than its competitor in any specific sector has also been considered for studying the growth story. Considering above criterion, BSE 100 companies were analyzed in terms of growth trend and then 22 companies were shortlisted. Out of these, 9 companies were picked for the details study along with HCC which made the total number to 10. These were chosen in pair from 5 different sectors. Detail study and performance analysis of these firms over a period of 1999-2009 using the frameworks mentioned has given few important insights: *Companies which are on profitable growth path in sustained manner focus on all the different parameters on 3 Horizon model. *These companies focus on the operational efficiency to strengthen the present business, extend their current strength to expand into different market or new products based on different strategic degrees of freedom and drive new strategic initiatives to continue the growth story in future. *Companies which have readily available new technology or products tend to focus more on 1st and 2nd Horizon and less on 3rd.