The management mantra of the 1990s has been cost reduction. A combination of recession in Western markets and increasing international competition has kept the focus of most European and US companies on containment rather than expansion. But the mood is changing. Companies unable to trim their fat have been pushed aside by rivals, while those that have achieved the required cost base are wondering how best to apply their new-found strength.

Companies that enjoy a competitive cost structure will have to look for further profit increases from growth. Strategic or geographic growth—expansion into new or related businesses through acquisitions, partnerships, or start-ups at home and abroad—is an obvious route forward that can deliver rapid returns. Eastern Europe, Southeast Asia, and multimedia are all highly publicized areas to which revenue-hungry managers have flocked. But what these managers are in danger of overlooking are the lower-risk opportunities of operational growth that lie much closer to home.

Operational growth—achieved by improving volumes and margins in existing businesses—is an area over which managers have seemed hesitant to take control. "It all depends on market conditions and what our competitors are up to," is a...