Marcellus’ investment philosophy looks for continuity i.e. companies who do one or two things really really well for decades on end. Hence over the years we have always wondered whether it is possible for anyone to successfully identify companies who have completely changed their line of business activity and yet been successful. This HBR gives a template to identity such companies. The 20 companies identified by the business gurus as the top business transformations of the last decade are: Netflix, Adobe, Amazon, Tencent, Microsoft, Alibaba, Orsted (Denmark), Intuit, Ping An, DBS Group (Singapore), AO Smith (USA),  Neste (Finland), Siemens, Schneider Electric, Cisco, Ecolab (USA), Fujifilm, AIA Group (China), Dell, Phillips.
Unsurprisingly perhaps not a single Indian company made it into the top 20. The criteria used to identify these twenty firms are as follows: “Our aim was to identify the global companies that have achieved the highest-impact business transformations over the past decade, using the same methodology as our 2017 study. Our research team screened all the firms in the S&P 500 and Global 2000 using three lenses:
  • New growth: How successful has the company been at creating new products, services, new markets, and new business models? This includes our primary metric: the percentage of revenue outside the core that can be attributed to new growth areas.
  • Repositioning the core: How effectively has the company adapted its traditional core business to changes or disruptions in its markets, giving its legacy business new life?
  • Financials: Has the company posted strong financial and stock market performance, or has it turned around its business from losses or slow growth to get back on track? We looked at revenue CAGR (compound annual growth rate), profitability, and stock price CAGR during the transformation period, which was different for each firm.
….Each of these companies developed new-growth businesses outside its traditional core  which have become a significant share of the overall business. However, we believe it’s the decision to infuse a higher purpose into the culture, one that guides strategic decisions and gives clarity to everyday tasks, that has propelled these companies to success.”
Its this last point that makes many of the transformations highlighted here truly intriguing. For example, “The #1 company, Netflix, is a case in point. In 2013, CEO Reed Hastings released an 11-page memo to employees and investors detailing a  commitment to move from just distributing content digitally to become a leading producer of original content that could win Emmys and Oscars.
As the memo said, “We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish.”
Since unveiling that new purpose, Netflix revenue has roughly tripled, its profits have multiplied 32-fold, and its stock CAGR has increased 57% annually, versus 11% for the S&P 500.”
The echoes of bestselling author Simon Sinek’s ‘Start with Why’ philosophy is even stronger in one of the other examples cited in the piece: “In the early 2000s, when Douglas Baker Jr. became its CEO, Ecolab was an 80-year-old firm growing 10% annually by selling industrial cleansers and food safety services. “Our strategic plan was to sell more of what we had,” Baker says. To grow much beyond its $3.8 billion in revenue, the company could have kept moving into adjacent markets or new geographies, but Baker felt that wasn’t bold enough.
The transformation began by talking to customers, Baker says. The same customers who were buying its core products were also voicing concerns about access to clean water. And they weren’t alone. Projections for the year 2030 showed that 70% of the world’s GDP would be based in water-stressed regions, California and Southern India being prime examples.
In 2011, Ecolab had a $12 billion market cap when it acquired water technology company Nalco in an $8 billion deal. The combined company is now one of the world’s leading suppliers of hardware, software, and chemistry that helps manufacturers and service firms become more efficient users of water. A primary metric driving the organization is how much water is saved by its clients annually, which now stands at 188 billion gallons, against a 2030 target of 300 billion gallons.
“We broadened our vision and our purpose changed,” Baker says. “As our teams widened their awareness of global issues, our pride has been enhanced.” So has Ecolab’s market value, which has surpassed $55 billion, placing it among America’s top 100 most valuable firms.”

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