The Economic Principle determines the primary goal of a company as long-term maximization of value creation, resulting from sustainable competitive advantage in differentiation, customer value, and performance/cost efficiency. When these criteria are met, the company experiences above-average growth compared to the industry average, achieving higher revenue and better cost structures, leading to increased profitability. As the company grows, the per-unit costs decrease, supporting the potential for value creation through growth. According to the Experience Curve Model, with the doubling of cumulative experience measured in production quantity, inflation-adjusted unit costs decrease by -20% to -30%.
The forces of the experience curve operate throughout the entire company, following their own path of development in different time frames and cycles on the basis of learning, specialization, automation, expansion as well as quantity-induced optimizing the leverage of overheads, infrastructure and procurement costs. More a company grows above its competitors more it widens the profitability gap to its rivals, market driven and internal cost driven. In this sense, superior growth in competition …
- leads to profitability advantages to e.g. intensify market-oriented actions such as intensifying sales efforts for acceleration of market developments or allocating increased budgets for product, brand, innovation, and assortment initiatives. Further on internal capabilities and competencies of the company can be ramped up, from the implementation of overall technological advancements or higher sophisticated machines to hiring better qualified personnel, which all together supports further optimization and expansion of its competitive as well as strategic and financial position;
- offers stability in price-aggressive competitive ousting because of cost structure superiority;
- increases the value of the company: Long-term oriented growth is the strongest driver for the development of corporate value and is five times more effective in increasing a company’s value compared than cost efficiency.
In conclusion, growth is an essential postulate for successful company development, both in terms of profitability and the value development. No company should waive growth advantages in competition that lead to economic superiority and long-term entrepreneurial value. Failing to pursue growth opportunities allows competitors to benefit from untapped market potential and capitalize on the resulting value creation advantages against those competitors, who stayed behind.