Four lessons to learn from high-performing companies worldwide
During the past five years, companies have faced credit crunches, fragmentation of markets into niches, flagging consumer confidence and smaller profit margins. An Ernst & Young report examines how some businesses handled these challenges better than others.
Based on five years of research and a survey with about 1,500 senior executives, board directors and senior managers worldwide, E&Y identified commonalities among high performers in four key areas: customer reach, operational agility, cost competitiveness and stakeholder confidence.
“What distinguishes high performers from others,” the report says, “is the recognition that focus, innovation, cost and execution are no longer distinct choices for competitive advantage, but must all co-exist as critical elements. … That recognition is based on having deeper understanding of the drivers of value in their specific markets, the imagination to think differently and the courage to translate those thoughts into action.”
The survey results showed differences in what high-performing and low-performing companies focused on to increase sales, profitability and flexibility and to meet increased demand for information and how many took action.
Targeting and satisfying customer demand. High performers are more outward looking and focused on the market.
Fifty-eight per cent of high performers developed new geographic markets for existing products and services. Only 39% of the low performers did so. High performers also pushed harder to broaden their existing range of products and services to get into new customer segments (51% compared with 39% among low performers) and more bought competitors to increase market share (35% compared with 25% among low performers).
The most popular action among low performers was to introduce new products and services (49%); 57% of high performers did the same. The only action that low performers took more aggressively was to cut prices (21% compared with 13% among high performers).
The actions high performers took generated more sales – not only from new products and services they developed, but also from new markets they entered, according to the E&Y survey results.
Thirty-eight per cent of high performers said they generate in excess of 10% of their sales from new products and services developed in the past three years, compared with 21% of low performers. And about one-third of high performers generate more than 10% of their sales in markets they entered in the past three years, compared with 13% of low performers.
Looking ahead five years, high performers are most excited about the US (51%) and China (43%) as markets for their products and services.
Also, high performers were more excited about Indonesia, the United Arab Emirates and Brazil than low performers were. Low performers favoured Germany, Russia and Saudi Arabia more than high performers did.
Being fast is more important than being first. High performers respond smartly to change, but, more importantly, they respond quickly.
DuPont is one high-performing example the report mentions. The US-based chemicals company increased net sales by 45% and doubled profit from 2009 to 2011, according to filings with the US Securities and Exchange Commission. DuPont’s stock is worth more than twice what it was three years ago.
DuPont’s turnaround came fast and followed the arrival of a new chief executive at the beginning of 2009. To adjust to an unprecedented decline in business that happened within a few months, management assessed the situation and quickly decided to restructure, including to cut jobs, layers of leadership and business lines.
The kind of flexibility DuPont demonstrated is crucial to respond quickly to a volatile and complex world, results of the E&Y survey indicate.
High performers were much more aggressive in taking action to boost flexibility, including increasing the use of technology (49% compared with 37% among low performers), enlarging their product and service portfolio (45% compared with 27% among low performers) and decentralising decision-making (33% compared with 23% among low performers).
Maximising efficiencies effectively. High performers have a better understanding of what drives cost and what drives value. The E&Y survey showed significant differences in how high performers eliminated waste, understood their customers and determined pricing strategies.
Forty-five per cent of high performers increased their profitability through process innovation and technological advances, compared with 31% of low performers. And 42% of high performers revised their customer segmentation and profitability analysis compared with 34% of low performers. Thirty-six per cent of high performers changed their pricing policy compared with 25% of low performers.
High performers were also more aggressive than low performers in reducing the cost of non-frontline activities and implementing efficiency initiatives. Low performers focused more on reducing headcount and tax liabilities and were more likely to move operations to lower-cost locations.
Making the value visible. The economic crisis has increased demand for financial information and for information on risk management and business planning. High performers engage more with stakeholders and unleash their talent.
Fifty-four per cent of high performers said they do more business planning for the investment community, regulators, commentators and customers, compared with 50% of low performers. Low performers focus more on information on the human capital situation and expected future developments (21% compared with 17% among high performers) and new channels of reporting (15% compared with 11% among high performers).
Related CGMA Magazine content:
“How Corporate Expansion Strategies Can Target Emerging-Growth Powerhouses”: Rather than zeroing in on specific countries as they devise a strategy, companies should focus on cities – in particular the 440 cities in emerging markets projected to grow at double the global economic growth rate by 2025.
“How to Avoid Enterprise-Risk Surprises”: Researchers at North Carolina State University and speakers at the American Institute of CPAs CFO Conference explain enterprise risk management and share best practices of how to prepare for risks that can cost you your business.
“As Role Evolves, CFOs Must Brush Up on Communication Skills and Strategic Thinking”: CFOs of multinational companies say their roles are evolving beyond the finance function. As a result, finance chiefs need to develop more skills centred on strategy and communication.
—Sabine Vollmer (firstname.lastname@example.org) is a CGMA Magazine senior editor.