Is there a 'growth trap'?: a preliminary analysis of profit and revenue data for Canadian companies

Abstract

Michael Porter (1996) has argued that managers frequently fall into a ‘growth trap’, focusing on growing revenues at the expense of a weakened strategy and reduced profits. Research by others offers mixed support for Porter’s argument. This study reports preliminary results from analyzing data on revenue and profits for two years from 1,000 large Canadian companies. It shows that the relationship between revenue and profits is weaker than one might expect, but it is a positive relationship. Thus Porter’s conclusion may be valid but only to a limited extent.