How Winning Companies Keep Winning

A long-term bull market has driven company share prices to lofty levels, but real winning doesn’t always come so easy. By Derrick Lilly | Spring 2018



A long-term bull market has made it easy to enhance shareholder value, but The Boston Consulting Group (BCG) warns that real winning doesn’t always come so easy. BCG’s recent report, “The Transformations That Work — and Why,” reveals at any time, nearly one-third of large U.S. companies endure severe, two-year declines in their ability to create shareholder value — and about a third fail to recover within the following five years.

Citing flat R&D investments and capital expenditures as recent red flags, BCG fears many companies aren’t doing enough to keep up and could slip into decline. So how do winners keep winning, and losers start winning?

BCG says companies must “fundamentally transform themselves in ways that dramatically and sustainably improve performance.” The kicker? They must do this at least once every five years. The payoff? A 14-percentage point increase in long-term shareholder returns.

So, whether you’re leading a company or advising one, here’s what BCG’s evidence-based report says leads to winning transformations and increasing long-term company values:

Spending on Revenue Creators: “In the long term, revenue growth is the biggest factor in transformation success,” BCG says. “A company can’t cut and trim its way to top-quartile performance.” Instead, it should aim to grow by spending on R&D and innovation with a clear link to sales growth.

Taking a Formal Transformation Approach: “CEOs and leaders need to show compelling plans, take immediate action, and lay the groundwork for leading with a clear vision and solid objectives,” BCG states. Bold and clear communication establishes credibility with investors and other stakeholders.

Appointing Action-Oriented, Disruptive Leaders: “To transform a company, the CEO and senior leaders must be willing to change the business dramatically,” BCG suggests. And if they’re not? Well, they may have to go. The disruption necessary for real transformations cannot be underestimated.

Taking Rapid Action: “Instead of trying to reinvent the company all at once, leaders should work to immediately kick off rapid moves that are easy to implement in the first 100 days and can generate results in 3-to-12 months,” BCG says, which can boost CEO credibility.

Applying Directive & Inclusive Leadership: “Transformation takes more than traditional, directive leadership; it also calls for inclusive leadership, such as fostering collaboration, soliciting feedback, and empowering teams,” BCG explains, meaning CEOs and HR teams must be mindful of how transformations affect people throughout the company.

Building a Diverse Leadership Team: Companies must also focus on acquiring talent and leadership that will sustain the changes into the future. As BCG notes: “It’s important to strike the right balance between external hires, with new ideas and capabilities, and internal talent, with deep knowledge of the business and organization.”