What makes one company more successful than the other? McKinsey advisers Chris Bradley, Martin Hirt and Sven Smit carried out no less than 10 years of research into this. The trio involved the 2,400 largest companies in the world in their research. They incorporated all the insights and experiences they had gathered into the book ‘Strategy Beyond the Hockey Stick.’ What is the key to success? And how can you also do business ‘beyond the hockey stick’?
Doing business ‘beyond the hockey stick’
What makes one company more successful than the other? McKinsey advisers Chris Bradley, Martin Hirt and Sven Smit carried out no less than 10 years of research into this. They incorporated all the insights and experiences they had gathered into the book ‘Strategy Beyond the Hockey Stick.’ What is the key to success? And how can you also do business ‘beyond the hockey stick’?
After analysing thousands of companies, Bradley, Hirt and Smit concluded that there are three groups of companies. The first group, around 20%, makes losses. And heavy ones too sometimes. Then there is a large group, 60% in total, that makes very little profit. Then there is 20% over. These are the top-performing companies that do create a lot of value. This was the ideal group of companies to scrutinize more closely. Because what is it that makes them perform in such an excellent way? Bradley, Hirt and Smit found a number of recurring success factors.
Well-thought-out M&A policy
The top 20 best-performing companies pursue a well-thought-out M&A policy (mergers and acquisitions), focusing a great deal of attention on strategy, organisation and culture. The closer the connection between these elements, the higher the return on a merger or acquisition.
Dynamic use of resources
Allocate money, talent and attention where these can create or add the most value. It sounds so logical, but it is the top 20 best-performing companies who know that this makes all the difference.
- Avoid averages. Just take a good look at the differences in each location or department. And adjust allocations accordingly.
- Focus on value creation Use the right tools to assess where the resources are going. For example, the expected profit can be divided by the financial means that you need to create the profit.
- Facts and logic. It can be difficult to improve performance. And it is even more difficult to pull the plug on something. But sometimes this is the beginning of success. So always base allocations on facts and logic and not on hope or trust.
- Be dynamic. Adjust resources continually in order to respond in the best conceivable way to changing circumstances.
The research by Bradley, Hirt and Smit also showed that the top 20 best-performing companies invest substantially more than companies that perform less well. This doesn’t just involve investments in material goods such as machines, but also in intangible assets. This might include, for example, investments in staff and customer relationships and socially responsible investments.
More efficient production
This success factor also appears to be an open door. And yet the top 20 best-performing companies also appear to excel in this area. By continually improving efficiency, the cost price can be reduced and less working capital is required. This means that the return on the total amount of invested capital increases again.
Differentiation of the organisation
Should you acquire more of the same or would it be better to differentiate? It is abundantly clear that the top 20 best-performing companies opt for the latter. This means that in the course of time they will spread their risks and achieve a greater return.
Bradley, Hirt and Smit’s final and important conclusion is that average and underperforming companies largely have an ‘inside view.’ However, the danger of an inward focus is that this is often subjective and not well-founded. This manifests itself in risk-avoiding behaviour and unclear goals and prospects. By contrast, the top 20 best-performing companies generally take an ‘outside view’ and look to see what added value they can offer acquired companies. This means that acting and thinking ‘inside out’ is of strategic added value.
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