Chris Bradley, Rebecca Doherty

If you can achieve consistent growth, that’s the surest ticket to outperformance, but only 10 percent of companies manage to do that over a decade. Those that can’t should consider a strategy we call “shrink to grow.” This is like pruning back and then growing from there. Over a ten-year period, you may have one or two major dips in your growth that represent large divestitures, but in the other years, you grow. Fourteen percent of companies in our sample did that and they posted 4 percent TSR outperformance. This rule goes against the idea that growth and scale are synonymous. They are not. A CEO’s objective should be for the company to grow, which is not the same as remaining a big company. Companies can use the funds from divestitures, spin-offs, or carve-outs to invest behind some of the other [growth] rules, such as “Grow where you know” and “Make the trend your friend.”

Aside from financial benefits, divesting to grow also frees up human capital and management bandwidth. The calories that senior management were spending trying to manage the divested business they can now spend on other areas, and likewise talent can be redeployed to work on other priorities.

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