Performance Enhancing Moves<\/h3>\n\n\n\n
These are changes which cause better margins and new fit-for-purpose business models. <\/p>\n\n\n\n
- Productivity improvements, always a favourite, though to qualify as a big move, need to (relatively speaking) outpace the competition by 70-75%. <\/li>
- Innovation in products, services, and business models would cause Differentiating Improvements. For this to transform the company, the gross margin must put the company must deliver 25% more improvement than the industry median. <\/li><\/ol>\n\n\n\n
the size of the move must be the size of at least the quarter of the company or its market capitalisation for it to qualify as a big move, and for it to make that large an impact<\/h4>\n\n\n\n
Portfolio Reshaping Moves<\/h3>\n\n\n\n
These are movements that change the product mix, the way to reach customers, open up new products in new markets etc. <\/p>\n\n\n\n
- The first type would be if the company shifted greater than half of its capital spending across its businesses over a sustained period, say at least five years. This active resource reallocation could create then, 50% value greater than competitors that shift resources slower. <\/li>
- The second type is inorganic growth through programmatic M&A. For this to be big enough, there must be acquisitions every year for at least five years amounting to at between 25-30% of the company’s market capitalisation. <\/li>
- For other capital programs to be considered a big move, capital expenditure vs sales ratio must be at least 1.5 times that of the industry median for a sustained 5 years. <\/li><\/ol>\n\n\n\n
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The question also is how far will your board let you go? Will they let you spend 25% of your market cap in 5-7 years in acquisitions, for example? How hungry are they for the outcome?<\/figcaption><\/figure>\n\n\n\n Now the question of which of these five initiatives and sustained programs to run. Each of these, singly will bring in benefit. When combined with another (of the five), the benefit multiplies in a non arithmetic progression. Transformation, however, becomes radical and yields the highest when all the moves are considered and implemented in varying combinations over a sustained constancy thus addressing both a company\u2019s performance and its portfolio.<\/p>\n\n\n\n
However, the world is not economic theory where all other conditions are constant. Competition exists, market varies, consumer behaviour is fickle and regulations change at the least. <\/p>\n\n\n\n
For a company closer to the tail of one S-curve, its chances of starting to slide backwards (after a while) are high because of the dynamic eco-system. For these companies, and the ones which might have started sliding backwards (on their own, or being part of declining industries), just throwing money at problems or just good performance won’t be enough. This is when applying most of the five moves (above) becomes pertinent. <\/p>\n\n\n\n
While other companies which are just below the upward movement, the chances are better and capital expenditure (with improved performance) improves chances. <\/p>\n\n\n\n
Out experience says, there are two things to consider. Do not stand around and admire the problem, and most situations justify giving the large ‘all in’ push.<\/p>\n\n\n\n
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