For the last two years, particularly at the World Economic Forum (WEF) in Cape Town in 2013, the emphasis on sustainable growth. Let’s face it, the face of business has changed!
Back in the day, CEO’s where in their prime, early 50’s, started working at the company as their first job and worked their way up through several positions and senior positions, before even being considered as a potential CEO. Today the CEO’s and potential CEO’s are much younger – maybe for a few reasons we will highlight but the dynamics we will also bring together soon.
As they say – “the proof is in the pudding”. Many of the top companies, Fortune500 were founded many years back. For example, Morgan Stanley was founded in 1935 and Goldman Sachs was founded in 1869. Today, these investment companies stand tall the world over. One thing they have in common – they have stood the test of time, in an ever changing environment and both have sustained World Wars. How many companies today can really do this?
Let’s put it straight, I am not saying companies cannot be sustainable, but we have to compare. Let’s look at Blackberry or RIM (Research In Motion). The company is struggling to peak in the tech market again but still remains in the technology commodity market and is set to release a new range of technologies this week. None of the other companies besides Apple has experienced this hurdle.
It is possible that Blackberry’s major problem is not really that its product cannot compete – but potentially that the product is not developed with sustainable value in mind, that will influence growth.
The companies of today spring up on innovative thrusts that the market captures – but the real question is what tailwinds will blow them post-the hype? See today, everybody worries about bottom-line growth – whereas in some of these older companies they were developed and sustained on sustained value and top-line growth. This is shareholder value.
For us today growth looks like, extremely fast growth trajectories to reach maturity, market saturation eroding advantage and consistent change in customer driven attitudes, preferences and demand. Even Facebook of today is not a company I would particularly invest in. This I say not because I feel to impact the decisions of investors – this they will do on their own accord in vetting their investments. The reality is Facebook is dependent on lateral technology to keep FBK’ers happy and most importantly, interested. This then could also stunt innovation and growth of the tech industry – given that unique developments could be bogged down by red tape should their apps get listed for exposure on FB.
So here we are looking for a company that has an extended uphill growing trajectory instead. This allows for value to be built at incremental stages before maturity and market sustainability.
The Boston Consulting Group (BCG) once conducted a survey and found that 310 companies out of 1600 global companies with turnover in excess of $1 billion annually, doomed themselves on the way up through losing and not building core value, bad mergers and acquisitions and unrewarded innovation.
Start line Lessons
I suppose my grandfather iterated these world too often – “it’s how you start that counts”. How true to many of these companies! Recently I started looking into the “business engineering” of small businesses. Basically this is the process of designing and refining the starting of the business. In many areas, companies over compensate in many areas like access to funds through over-gearing, over capacity, under capacity, bad positioning and determining the value in the growth stage.
Starting right will enable the company to realistically determine the movements that are needed for survival. The business would have to understand that it then cannot deviate from its core. A typical example today is Microsoft. A few years ago I wrote a badly written, if I may say so myself, article on the future of Microsoft – you can find it on my linkedin page. It basically predicted that Microsoft would change from innovator to follower in the market, simply because it did not foresee how the market will change and that its main substance would thus become dependent on its role in the mobile arena – changing CEO’s to that of a former Nokia executive.
What was one of the things the new CEO did when assuming the role, he disposed of skills into the market. This then becomes the translation into headline earnings and profitability – directly linked to job loss.
What does this mean for Africa – well, what company’s shave we started that have stood the test of time. Even the markets in Africa have spurge into full throttle forcing companies to expand rapidly through a shortened growth phase. The focus is not on top-line value but purely on bottom-line earnings and in this way the quest for value in sustainable growth is dissolute.
In doing so, the investment strategies of companies have also significantly changed, especially in Africa. Most investors purposefully spread their seeds looking for fast maturity and returns. They then cash in at the steepest dividend realisation and re-invest elsewhere. The value of the share and company thus suffer.
Conclusively, sustainable value for growth rests, as in yester-year, in the top-line value with value creation as part of the process of the quest for sustainable value growth.