Focus on own industry for growth, firms told
Dubai, February 3, 2013
There is a strong perception among chief executives that expanding into a thriving new industry is the key to maximising growth.
Business leaders attribute their stagnant revenues to industry specific factors and firmly believe that, by finding better industries and putting their companies in a position to compete in them, they can reap greater rewards.
However, following an in-depth analysis of shareholder returns spanning 6,138 companies in 65 industries worldwide from 2001-2011, management consulting firm Booz & Company said that nothing could be further from the truth.
In fact, in almost every case, a bigger opportunity lies in improving the company's performance in the industry that it is already in by fixing its strategy and strengthening the capabilities that create value for customers and differentiate it from competitors.
"In reality, the data do not support this belief," said Booz & Company partner Evan Hirsh.
"While some industries certainly outperform others, the differences are far smaller than one might think, and most high-fliers eventually revert to the mean.
"Moreover, the difference in returns within an industry is several times greater than the difference across industries. Thus chief executives and boards shouldn't waste time and shareholder capital trying to succeed in a new industry."
Booz & Company's 10-year study of shareholder returns reveals that firms in the top quartile had annual total shareholder returns of 17 per cent or more.
"Yet, it is hard to find a leader today who hasn't entertained the idea that his or her company was simply in a bad industry or market space and a better opportunity lurked nearby," said Booz & Company principal Kasturi Rangan.
"This explains why product or service lines that still have growth potential get exploited to fund other businesses instead of being allowed to reinvest in their own.
"It also sheds light on the loss of focus that results when companies place multiple bets across various industries in the hope that one will be a big winner. Finally, it highlights the reckless pursuit of mergers that are billed as transformational but often involve overpayment, underperformance, a big write-off, and the loss of the chief executive's job," he stated.
"Half the industries we studied that were in the top quartile from 1991 to 2001 ended up in the bottom quartile during the next decade," said Hirsh.
"This variability, found in every type of economic cycle, shows why it is generally very risky to enter an industry at its peak."-TradeArabia News Service
More Industry, Logistics & Shipping Stories
- Flare, Jordan form parent company ‘Aereon’
- Drydocks delivers second MCV for US
- ASIS launches amphibious leisure boat
- Taskforce sought to develop Saudi downstream sector
- DP World launches $200m India project
- RAK 'exploring' ceramics unit stake sale
- Mideast carriers top global air freight growth
- DMCA launches maritime solution apps
- Saudi plans oil-to-chemicals plant at Yanbu
- Sabic gets four bids for JV with Mitsubishi Rayon
- Pentair, IDC launch industrial services JV
- Major maritime conference to be held in Dubai
- GPIC wins key IFA certification
- Gulf rules must aid e-commerce: Aramex
- Gulftainer expands 2013 ops by 50pc
- DMCA to take part in Dubai boat show
- Al Namal to launch eco-friendly chillers
- Abu Dhabi city ports to receive facelift
- Kuwait Styrene posts $180m net profit
- Drydocks set for key energy event
- Aramex launches new address check system
- Toshiba in green push at Bahrain expo
- Equate net profit surges 14pc to $1.2bn
- Shaikh Daij named new Alba chairman
- Al Abbas wins logistics rights to Sudan
- Milaha profits jump 14pc to top $260m
- BIC, Al Zayani renew partnership
- Dubai Metro to open 2 stations Saturday
- Top petchem firms back UAE plastics events
- DGCX, China’s DCE launch plastics futures