Research & Surveys
January/February 2010, eSide Supply Management Vol. 3, No. 1
A new study spotlights 25 companies that have outperformed their competition by far — despite a very difficult economic climate.
Global management consulting firm A.T. Kearney has identified 25 international companies that have done exceptional jobs of combining long-range strategic planning with nimble execution to outperform their competition in the past five years — even in the midst of a very difficult economic climate.
According to a report compiled by A.T. Kearney Partner and Vice President of Global Business Norbert Jorek and consultants Michelle Battat and Vijay Rajendran, the 25 Global Champions 2009 were chosen from the world's 2,500 largest companies. "They dramatically outperformed their peers during the five years ending with the stock market crash," the authors explain. "At the end of 2008, while global stock markets were trading at levels well below those at the end of 2004, this select group of companies was bucking the trend."
Specifically, these 25 companies — whose manufacturing practices ranged from chemicals, to electronics, to heavy equipment — averaged nearly 15 percent growth annually from 2004 through 2008. Meanwhile, the average for the entire sample was an 8 percent loss.
Additionally, the Global Champions 2009 recorded about US$700 billion in sales and were valued at nearly $1 trillion in market capitalization at the end of 2008.
A.T. Kearney's research identified five common characteristics among the Global Champions 2009:
1) Their leaders "go the distance." Many companies on the list shared leadership continuity as a success factor. Some of their charismatic leaders founded the companies; others are family-owned and operated.
Although these are unique leadership structures today, given how often company status or corporate governance standards forced leaders out of power, it appears Global Champions 2009 have largely benefited from their leaders' wealth of experience and knowledge. In many cases, this background has provided stability and direction in turbulent economic times. In others, significant shareholdings held by the founders or their families have shielded the companies from hostile takeovers and allowed them to focus on a long-term strategy.
2) Size is irrelevant. About half the Global Champions 2009 have annual revenues of less than US$20 billion. As A.T. Kearney Chairman and Managing Officer Paul Laudicina points out, this shows that neither size nor market position is a necessary precondition for superior growth or a protection against market turbulence.
In fact, size might actually have been a hindrance to the Global Champions 2009. Despite having vast resources and assets, the report authors conjecture that a company's large size can breed satisfaction with the status quo, arrogance and a lack of vision. "This is what allows agile competitors to outperform the giants," they contend.
3) They quickly changed gears. In the past five years, some Global Champions 2009 were forced to shelve merger and acquisition plans due to deteriorating market conditions and lack of available funding. Others were pressured to reduce their financial leverage and shed assets when they were unable to refinance some of their debt. This forced them to divest businesses which were, in recent years, considered integral to their long-term goals.
4) They stayed focused. Even during the financial crisis, the Global Champions 2009 focused on organic growth fueled by technology, innovation and customer intimacy. Many are knowledge- and brand-intensive, equipped with strong balance sheets and a rich pipeline of new and innovative products. As the authors explain, even though these companies' shares took hits like everyone else — up to 50 percent in some cases — investors still recognized the strength of their business models.
5) They have seized crisis as opportunity. While the companies on the list weren't immune to the effects of the financial crisis, it has forced many to restructuring in an effort to contain cash flow, curb costs and reduce capital investments. "In fact, many have used the crisis as an opportunity to position their companies for future growth," the authors report. "Adjusting capacity, streamlining organizational structures, and reconfiguring supply chains will make them leaner and better prepared to take advantage of improving economic conditions."
The top three Global Champions reflect the culmination of these strengths perhaps best of all.
No. 1: Nintendo — A.T. Kearney Chairman Paul Laudicina credits video game console developer Nintendo's domination of the 2009 list with its ability to align a disciplined, growth-oriented strategy to a transformed economic landscape.
Strategically, Nintendo focuses on innovation, spending about 2.5 percent of net sales on research and development. It also prioritizes global market share domination (just short of 50 percent at the end of 2008), which is sustained almost exclusively by organic growth. The results included the development of the Nintendo DS and Wii, among other innovative products.
No. 2: Google — According to the authors, Google's second-place position on the list is due in large part to its expansion into Web browsers and operating systems with Google Chrome. Although Chrome is only the fourth largest Internet Web browser, with around 3 percent of the market, Google has invested nearly 13 percent of total revenues in R&D in an effort to one day compete with Microsoft's operating system, they add.
No. 3: Apple — As with Nintendo, Laudicina praises Apple's alignment of a disciplined, growth-oriented strategy with a very different economic landscape than five years ago, and as consumers increasingly demand products that support a simpler lifestyle. "Incidentally, this is a trend we picked up precrisis," he says. "It's manifesting itself in the demand for technologically sophisticated, yet simple to use, products."
One such innovation is Apple's iPhone, which, as the authors point out, plays no small part in the company's continual top-performer status. (Apple ranked No. 2 on the Global Champions 2008 list.) The iPhone controls nearly 50 percent of the U.S. smartphone market.
Interestingly, one in five Global Champions 2009 are on the World Dow Jones Sustainability Index, and 40 percent have signed the U.N. Global Compact. As the authors explain, this trend indicates that top-performing companies are pursuing growth strategies that balance the economy, the environment and society.
Laudicina agrees with this hypothesis, and says this year's list is proof that sustainability is not in conflict with — or independent of — business success. "Rather, a focus on sustainability is a sign that the company is looking well beyond the horizon," he adds.
Details of all 25 Global Champions 2009 are available on the A.T. Kearney Web site.
RaeAnn Slaybaugh is a writer for the Institute for supply Management™. To contact this author, please send an e-mail to email@example.com.
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