| Title: |
How efficient growth can fuel enduring value creation in software. |
| Authors: |
Gnanasambandam, Chandra (AUTHOR), Schneider, Jeremy (AUTHOR), Arutyunyan, Suren (AUTHOR) |
| Source: |
McKinsey Insights. 7/29/2024, pN.PAG-N.PAG. 1p. |
| Subject Terms: |
*Computer software industry, *Free cash flow, *Information technology spending, *Digital transformation, Marketing software |
| Abstract: |
A recent analysis by McKinsey reveals that software companies have been prioritizing margins over growth, resulting in missed opportunities for value creation. The study found that between 2021 and 2023, software companies experienced a decline in growth efficiency, with each incremental dollar of growth investment yielding less than a dollar of new recurring revenue. The focus on margins was driven by the need to protect valuations in a challenging market, but the analysis suggests that companies could have expanded their businesses more by striking a balance between growth and margins. McKinsey estimates that if software companies had followed their optimal growth-to-margin ratio, they could have unleashed an additional $500 billion in incremental value. The study recommends that software companies adopt an approach called "efficient growth" that maximizes growth while maintaining healthy margins. By doing so, companies can create long-term value and better serve their customers. [Extracted from the article] |
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| Database: |
Business Source Complete |
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