Turbulence in Global Capital Markets Puts a Premium on Corporate Strategy, Says a Report by The Boston Consulting Group
BCG's Tenth Annual Value Creators Report Calls for Closer Links Between Corporate Strategy and Value Creation
| Source: The Boston Consulting Group
BOSTON, MA--(Marketwire - September 9, 2008) - During the past five years, companies have
enjoyed robust average annual returns in global capital markets, according
to a new report by The Boston Consulting Group (BCG). But in order to
continue that performance in today's much tougher economic environment,
they will need to redesign their corporate-strategy process to focus more
explicitly on value creation.
The BCG Value Creators Series
This conclusion is the core finding of Missing Link: Focusing Corporate
Strategy on Value Creation, the tenth annual report in BCG's Value Creators
series. The series, which began in 1999, shares BCG's insights about value
creation with the firm's clients and the broader corporate community.
Starting from a database of more than 5,000 global companies, this year's
report presents detailed analyses of total shareholder return (TSR) at 644
companies across 14 major industries for the five-year period from 2003
through 2007. It also identifies the top ten value creators worldwide and
in each of the industries studied. Among the key findings:
-- The average annual return for the 2003-2007 period was an extremely
healthy 17.1 percent. This return reflects the strong rebound of the global
economy after the bursting of the late-1990s financial bubble and the 2001
recession. Given the recent downturn in global capital markets, however,
future TSR is unlikely to be so robust. Most of the top ten companies in
each industry had negative -- and often substantially negative -- TSR for
the first half of 2008.
-- The arrival of companies from rapidly developing economies (RDEs) on
the global value-creation stage has been dramatic in recent years. Fully
half of the companies in the global top ten come from either China or
India. By contrast, only one is from the United States. And the sole
European representative, the global steel company ArcelorMittal (based in
the Netherlands), is the product of India steelmaker Mittal's 2006
acquisition of the European steel company Arcelor. RDE-based companies are
present in many of the individual industry top-ten lists as well.
-- The most successful industries were traditional old-economy sectors
such as mining and materials, machinery and construction, and chemicals, in
large part reflecting the recent boom in commodity prices. The
worst-performing industries were previously highflying sectors such as
media and publishing, and pharmaceuticals and medical technology, which are
suffering from severe declines in company valuation multiples.
-- In every industry, however, the top ten companies not only
substantially outperformed their industry average but also beat the overall
sample average -- by at least eight percentage points of TSR.
"The lesson for executives is clear," said coauthor Frank Plaschke, a
partner in BCG's Munich office. "Coming from a sector with below-average
market performance is no excuse. No matter how bad an industry's average
performance is relative to other sectors and to the market as a whole, it
is still possible for companies in that industry to deliver superior
shareholder returns."
Redefining Corporate Strategy
The key to generating superior shareholder value in the future, according
to the report, is to repair what it describes as a "pervasive disconnect"
between corporate strategy and value creation at many companies.
"Corporate strategy and value creation exist in a symbiotic relationship,"
said coauthor Daniel Stelter, a senior partner in BCG's Berlin office and
global leader of the firm's Corporate Development practice. "And yet the
necessary connection between the two is a critical missing link in many
companies' corporate-strategy process. Establishing that link doesn't
necessarily mean privileging shareholder value creation over all other
strategic goals -- let alone always maximizing shareholder value in the
short term. But it does mean understanding how a company's strategy
actually generates value and how capital markets monetize it."
The report introduces a broader and more comprehensive approach to
corporate strategy than companies typically employ today. In particular, it
supplements the traditional focus on business strategy with a new strategic
focus on a company's financial policies and its investors' priorities and
goals.
"Business strategy, financial strategy, and investor strategy ought to be
three equal parts of a company's corporate strategy and should be addressed
in a holistic fashion," said coauthor Eric Olsen, a senior partner in BCG's
Chicago office. "An integrated approach is necessary because decisions in
each of these areas can have a positive -- or negative -- impact on the
others."
To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.
About The Boston Consulting Group
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