June 06, 2005 09:33 ET

IBM Report Reveals Only a Third of S&P Global 1200 Achieved Sustained Business Growth Over a Decade

New Study Identifies Specific Traits Necessary for Business Growth, Points to Strategic Roadmap for Sustained Growth

ARMONK, NY -- (MARKET WIRE) -- June 6, 2005 -- A new study released today by IBM reveals strategic characteristics of companies that achieve and sustain rates of business growth above and beyond their competitors -- even in industries and locations that are struggling or declining.

Based on a 10-year analysis of the S&P Global 1200, the Growth Triathlon report found that only a third of companies grew both revenue and Total Shareholder Return (TSR) faster than the average for their industry counterparts. Regardless of industry or geography, leading companies had certain critical strategic tactics in common -- they all displayed characteristics of an on demand business, able to respond rapidly to changing market conditions. The study was conducted by researchers and business consultants who are part of the IBM Institute for Business Value.

"The research shows that successful companies, those able to respond quickly to marketplace demands, are the minority," said George Pohle, global leader for the IBM Institute for Business Value. "They aim for targets above and beyond what they and their peers typically expect and transform their business accordingly by aligning business processes, people and technology to deliver outcomes not previously possible. These findings create an unprecedented strategic roadmap for growth for companies."

The study found that regardless of industry or geography, in order to succeed, businesses, like tri-athletes, need to excel in three key tactical areas -- Course, Capability and Conviction:

Course -- Successful firms develop a point of view for the future and reflect a willingness to continually evolve their product portfolio and develop a stream of initiatives to support their growth course.

Capability -- Successful enterprises re-think the way they do business joining forces with others, as needed, to reach new levels of innovation, develop timely capabilities and achieve higher levels of growth. Successful companies recognize that different growth strategies require differing capabilities and supporting business models. They integrate technology, processes and people to grow the business and have the ability to sense and quickly respond to market changes.

Conviction -- Successful companies identify required changes to overcome the inertia of existing power structures and realign where necessary to enable entirely new ways of doing business. Successful organizations possess the ability to drive through the often 'wrenching' change growth demands. They communicate a believable and consistent growth strategy to employees and investors to foster a culture that responds to the need for change. When inevitable setbacks occur, exceptional companies have the conviction to continue.

The importance of capabilities was further reinforced in a separate study, evaluating the 3-year performance of companies that had advanced the farthest in building their On Demand Business capabilities.

Research supports that companies who are farther along in building their on demand business capabilities show superior results compared to their industry peers. The study found that companies who had made the most progress in integrating business processes and infrastructure both internally and externally with suppliers, customers and other external partners have shown clear gains in business results when compared to their peers. On average, these on demand companies:

Grew earnings 17 points faster than their industry peers

Enjoyed 1.3 pts better net profit margin improvement

Experienced 1.3 points better difference in ROI (Return on Investment) and .7 points better difference in ROA (Return on Assets)

The Growth Triathlon report additionally dispels a number of myths about business growth. The study reveals that a company's ability to grow is not constrained by industry maturity or location. In each of the four geographies and 18 industries surveyed, top performing high-growth companies not only outperformed their peers, but did so by wide margins.

The report also found that mergers and acquisitions do not generally destroy value. For example, top performers in the generally presumed 'slow-growth' consumer products and automotive industries outpaced median growth rates for the perceived to be 'high-growth' financial and electronics industries.

Additional key survey findings include:

M&As do not necessarily destroy value -- It's a game of skill, not chance. Creating growth through buying other companies does not generally sacrifice the long-term value of a company. Large firms grew their value (TSR) at a higher rate than their smaller counterparts who made fewer acquisitions.

Growth does not have to be consistent -- conviction does -- Successful growers are distinguished by the resilience to bounce back from setbacks. Of the companies that outgrew their industry median over the 10-year study period, only 6 percent did so every year of the decade. 94 percent of successful growers experienced at least one year of below- median growth; 72 percent fell below the median for three years or more.

Growth doubles the odds of value creation -- The survey found superior growth doubles the odds of superior shareholder value creation. Top performing companies understand the counterintuitive reality that over the long haul, cost-cutting is the wrong way to create value. Indeed, the greater risk occurs when companies don't bet enough on growth and are unable to respond to market demands.

10-Year study methodology

The IBM research team developed a database of growth and shareholder return performance for companies included in the S&P Global 1200 over the last decade. The study worked with a final list of 1,238 companies over the decade. The team analyzed the patterns of revenue growth and shareholder value creation over the decade, segmenting results by 4 component geographies and 18 industry groups. The team formulated hypotheses to explain the variation in outcomes and analyzed these companies using primary and secondary research, culminating in two workshops with seasoned experts in each industry. After each of these six workshops, the team refined its hypotheses, a process that eventually yielded the "3C" model.

About IBM Business Consulting Services

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