McKinsey’s 2 Secrets of ‘Market Outperformers’

Fans of Jim Collins’ books Good to Great and Built to Last identifying top performing companies and examining their characteristics might remember that before authoring these works, Collins was a consultant with McKinsey & Company.

McKinsey & Company Consulting have recently released their own research paper along the same lines as Collins’ books, analysing companies that outperformed their competitors on both growth and revenue for over a decade. Starting from a database of 20,000 companies (presumably McKinsey customers) in 17 industries across 32 countries, this was narrowed down to 1,077 companies with revenues exceeding $5B, and from that list 9 companies were identified as demonstrating competitive advantage in both growth and revenue. Having identified 9 companies that met these criteria, McKinsey then asked what factors set these companies aside from the rest?

The result is that McKinsey identified 2 ‘secrets’ of market outperformers:

  1. Performers had considerably higher rations of Market Capitalisation to Book Value than the comparison companies, suggesting that these companies rely on intangible assets more than the others do.
  2. Performers preferred organic growth to growth through merge and acquisition – acquisition and divestiture activity was modest and manageable. Over the 11 year period, performers avoided ‘transformational’ deals, in which value exceeded 30% of companies capitalisation in the year before the deal.

The valuation of intangibles – from organisational characteristics such culture to knowledge to capabilities to resources through to intellectual property, patents and brands – is a complex and fascinating area. For those of us involved with working with intangibles such as culture, knowledge, brands, or intellectual property, it is terrific to see companies such as McKinsey highlighting the value of managing and leveraging intangibles.

The bottom line?

  • Intangibles are pivotally important to performance and the bottom line.
  • Be modest and sensible in your approach to acquisitions and divestitures. Think carefully about the value proposition before embarking on ‘transformational’ deals.

The full article is available from McKinsey.

One Response to McKinsey’s 2 Secrets of ‘Market Outperformers’
  1. performance management
    July 13, 2011 | 4:21 PM

    These could be an informative article that has been posted.

    by:performance management

McKinsey’s 2 Secrets of ‘Market Outperformers’

Fans of Jim Collins’ books Good to Great and Built to Last identifying top performing companies and examining their characteristics might remember that before authoring these works, Collins was a consultant with McKinsey & Company.

McKinsey & Company Consulting have recently released their own research paper along the same lines as Collins’ books, analysing companies that outperformed their competitors on both growth and revenue for over a decade. Starting from a database of 20,000 companies (presumably McKinsey customers) in 17 industries across 32 countries, this was narrowed down to 1,077 companies with revenues exceeding $5B, and from that list 9 companies were identified as demonstrating competitive advantage in both growth and revenue. Having identified 9 companies that met these criteria, McKinsey then asked what factors set these companies aside from the rest?

The result is that McKinsey identified 2 ‘secrets’ of market outperformers:

  1. Performers had considerably higher rations of Market Capitalisation to Book Value than the comparison companies, suggesting that these companies rely on intangible assets more than the others do.
  2. Performers preferred organic growth to growth through merge and acquisition – acquisition and divestiture activity was modest and manageable. Over the 11 year period, performers avoided ‘transformational’ deals, in which value exceeded 30% of companies capitalisation in the year before the deal.

The valuation of intangibles – from organisational characteristics such culture to knowledge to capabilities to resources through to intellectual property, patents and brands – is a complex and fascinating area. For those of us involved with working with intangibles such as culture, knowledge, brands, or intellectual property, it is terrific to see companies such as McKinsey highlighting the value of managing and leveraging intangibles.

The bottom line?

  • Intangibles are pivotally important to performance and the bottom line.
  • Be modest and sensible in your approach to acquisitions and divestitures. Think carefully about the value proposition before embarking on ‘transformational’ deals.

The full article is available from McKinsey.

One Response to McKinsey’s 2 Secrets of ‘Market Outperformers’
  1. performance management
    July 13, 2011 | 4:21 PM

    These could be an informative article that has been posted.

    by:performance management