Resetting to new normal is hard.
As per McKinsey’s research, only 8% of companies consistently add economic value beyond their cost of capital (~4%-15%). The ones that do so, do it through 5 big moves.
In this video, I share those 5 big moves. As you go through each one, ask yourself a question ‘What do I need to do, right now?’
There are discontinuous shifts all around us and to leverage growth opportunities, as a business executive, you need to build your appetite for big moves to make strides.
Following the financial economic crisis, many businesses experienced negative profit impact. But Mckinsey and associates identified 5 big moves that successful businesses implemented to come out stronger following this period of time.
Merger and Acquisitions
Successful businesses actively looked for the right companies to add to their portfolio to increase their market capitalisation.
By merging and acquiring with the right businesses, companies can build on the successes and opportunities held by other businesses. This may be within the same sector (potentially reducing the number of competitors) or expanding into new sectors which prove to be profitable.
The companies you choose to bond with should possess a quality or asset your company doesn’t currently have access to. This may be a different way of operating, equipement/resources you do not possess or a market/customers you wish to gain access to.
These businesses also reallocated 50% of their business capital over the course of the next decade. They would identify the areas that were delivering the best results and put the money there to bring more profit.
For example, a company whose main sector is finance, may experience an uptake in profit within the consumable sector. This reallocation will allow you to focus your investment in the newly profitable sector, without the need for your successful sectors having to suffer.
It is this bold move in reallocation of capital that will allow you to reach the full potential of your business and make moves for the long term future of your company.
3. Capital Expenditure
These companies also had a good level of capital expenditure. They were in the top 20% of their sectors and instead of focusing on the short term, they would also prepare for the medium term and long term.
Following on from the point above, this move relates to making bold decisions, spending more amounts of capital. We have all heard the phrase ‘it takes money to make money’ and this relates exactly to that.
These businesses were also the top 30% of their sectors for productivity. This included both staff and assets and was focused on resources delivering to the best of their ability.
By implementing changes to improve productivity, your company will be able to operate more efficiently and make more profits.
This relates to the phrase ‘work smarter, not harder’ and means your business will reap the benefits from improved functioning.
Finally, these companies did not rest on their laurels and instead built on their differentiation. This allowed them to further grow their profit margin.
But embracing differentiation, businesses were able to cater for more customers and stand out from their competitors. This in turn lends itself to increased business, and you guessed it, higher profit margins.
If you would like to discuss or hear more, please feel free to get in touch.