Ketil Gjerstad, managing director and senior partner of the Oslo office at Boston Consulting Group (BCG), said this about growth strategies for large corporations in a low-growth era. It is hard to secure sustained growth merely by pouring large sums into new businesses such as artificial intelligence (AI) or future mobility; corporations must build organizational capabilities that can create growth again in already scaled core businesses.
Gjerstad called this corporations' "growth vitality (Vitality)." Vitality means a corporation's ability to generate future growth through innovation, not its current performance. He drew attention to LG Energy Solution(373220) among Korean corporations.
LG Energy Solution is one of the 25 global vitality leaders selected by BCG this year. Gjerstad said, "It is a case that shows that sustained growth can be created even in manufacturing, where it is traditionally difficult to raise vitality." The following is a Q&A with Gjerstad.
—Many large corporations in Korea are continuing large-scale investments in AI, semiconductors, and future mobility. But investment alone does not guarantee sustained growth. At what point should CEOs shift their thinking from investing in new businesses to reinventing corporations' growth engines themselves?
"I think that time is now. According to BCG's analysis, corporations that achieved long-term growth over the past five years did not generate results simply by investing in new areas of growth; they focused on continuously reinventing their existing core businesses. To do this, a starting point can be to objectively diagnose where the corporation currently stands on the 15 core indicators that make up vitality.
Looking at Korean corporations, their research and development (R&D) momentum is somewhat lower than the Asia-Pacific (APAC) average. This means they need to further expand investment in core innovation organizations. There is also room for improvement in lean management (management that minimizes waste), so excessive management layers could slow the execution speed of innovation."
—In Korea recently, revisions to the Commercial Act have amplified demands for corporate value and shareholder returns. In this environment, how should CEOs balance short-term shareholder expectations with long-term growth investments?
"This is one of the most difficult challenges facing every CEO. Corporations with high vitality commonly and continually explain a clear growth vision and goals to the market and investors and build consensus. When investors fully understand and trust a corporation's growth strategy, long-term investments can also gain support.
Korean corporations showed somewhat lower scores than not only the global average but also the APAC average on the growth vision and goals (Growth Ambition) indicator. This means management has room to present long-term growth strategies more clearly and communicate more actively with the market. By contrast, Korean corporations are ahead of the APAC average in digital and AI capabilities and in securing innovative talent. The task ahead is to clearly present a credible growth vision to win the understanding and support of investors and management."
—Many corporations devote significant resources to finding new growth engines, but struggle to continuously reinvent their existing core businesses. What sets apart corporations that successfully innovate their core businesses?
"The biggest differences are clear ownership and focus. In successful corporations, one member of the top management team—such as the CEO, chief strategy officer (CSO), or chief financial officer (CFO)—oversees the growth agenda. Rather than changing all areas at once, they focus on the two or three areas most lacking compared with competitors. For example, L'Oréal lifted its vitality ranking within the industry by 26 percentage points by concentrating investment in research and development and digital innovation."
—When growth slows, it is easy to blame external factors such as the economy or industry conditions. In reality, what are the most common obstacles within corporations that block growth?
"Corporations whose growth has stopped commonly have low vitality. There are several causes. Growth goals may be unclear, or R&D momentum may falter. The innovation organization may fail to generate new ideas, or the management organization may become bloated and slow down decision-making.
One of the strongest signals in particular is "talent mobility." Employees in corporations with fewer opportunities to take on new roles within the organization or to grow through promotions are more likely to have lower vitality. Korean corporations are at the APAC average on this indicator. But APAC as a whole is below the global average. Therefore, if Korean corporations increase internal talent mobility, they can secure competitiveness above the regional average."
—Do CEOs of corporations that grow consistently differ in how they manage their organizations?
"It is important that they do not wait to respond until after financial performance deteriorates. They continuously check leading indicators such as R&D momentum, the retention period of innovation talent, and the level of organizational bureaucracy. These internal organizational changes often take two to three years to show up in actual financial performance. By then, it is much harder to reverse course."
—Even when CEOs stress innovation, over time it often ends up as just another one-off project. What is needed to embed innovation as a way of operating for corporations?
"Growth goals, innovative talent, and a growth-oriented culture must be connected as a single operating system, not as separate programs. Only then will innovation not stop at a one-off project but actually translate into business performance."
—Korean corporations have grown on the back of strong execution and manufacturing competitiveness. What is the first thing Korean CEOs should change going forward?
"The higher a corporation's vitality, the more it can maintain stronger competitiveness amid technological change and geopolitical shifts. Therefore, the first thing a CEO should do is build vitality that can continuously generate growth within the organization.
Korean corporations are already above the APAC average in organization-wide use of AI and in engineers' digital and AI capabilities. Now it is more important to build clear growth goals and capital allocation, along with the right talent and organizational systems, on top of these technological strengths.
A good example is LG Energy Solution. LG Energy Solution was selected this year as one of the 25 global vitality leaders by BCG. It is a case that shows that sustained growth can be created even in manufacturing, where it is traditionally difficult to raise vitality."
—What capabilities are most important for Korean corporations to remain global growth leaders over the next five years?
"There are three most important tasks. First is the ability to convey the growth strategy credibly to the capital markets. This should be used to strengthen capital competitiveness. Korean corporations scored lower than the APAC average on this part.
Second is to build a talent mobility system that allows innovative talent to grow by experiencing multiple businesses within the organization. This is also an area APAC corporations commonly need to improve. Third is to continue strengthening AI utilization and digital capabilities. Korea is already ahead of the APAC average and close to the global average, so it needs to expand this strength further.
What is interesting is that the strengths of Korean corporations are not limited to AI. The proportion of innovation-related roles and the level of actively recruiting talent from high-growth corporations are also above the global average. AI competitiveness is already drawing much attention, but the strengths in innovative talent are relatively undervalued. Going forward, Korean corporations need to make more active use of this talent competitiveness."