Knowledge Center: Article
What does it take to be a “superaccelerator”?3/30/2017 Heidrick & Struggles
How can businesses thrive in a fast-paced digital world where profound long-term and short-term forces collide in unpredictable ways?
Extensive research from Heidrick & Struggles points to a single answer: acceleration. By that we mean the ability to reduce time to value by building and changing momentum more quickly than your competitors do. Our recently published book, Accelerating Performance, examines what it takes to become a “superaccelerator.” In the process, we identified 23 elite companies in the FT 500 that met our criteria to be a superaccelerator.
These enterprises, ranked by total revenue in the figure below, have demonstrated success for long stretches, and so, offer important lessons for managers elsewhere.
While the list includes Apple and Alphabet (Google’s parent company), the companies come from a wide range of industries, not just high tech. Nor are the companies all from the United States or any other specific region; they span the globe. Any company can become elite, or at least make major strides in that direction. Of course, no company is guaranteed continued success, as we’ve seen when researchers have followed up on the firms featured in classic business books such as In Search of Excellence and Good to Great.
Indeed, the fierce and often unpredictable nature of competition all but ensures that our list of 23 will not remain constant—a hypothesis we plan to test in the next phase of our research.
How did we select these superaccelerators? We looked for companies on the FT 500 list that were in the top 20% for revenue growth in both the past three and past seven years to ensure that success was sustained. We screened for companies that generated no more than 20% of their growth inorganically to avoid any that were primarily expanding through acquisitions. We identified companies that received no more than 20% of their revenue from their home government. We also looked for companies that had not seen their profit margin reduced by more than 20% as a percentage of revenue as they grew—growth can destroy value if companies pursue revenue so aggressively that they take a hit to their profit margins, and we wanted to avoid any that had done so. Only 23 companies followed those four “rules of 20,” as we came to call them.
To make sure we were onto something by studying these superaccelerators and what made them tick, we looked at how they performed in the stock market. We deliberately chose not to use stock market performance to identify them—we believe that stock market success is something that happens as a result of doing the right thing, rather than the target to be pursued at all costs. But, to double-check, we calculated what would have happened had you invested $100 in the 23 superaccelerators and in the rest of the FT 500, both three years and seven years ago. To accurately calculate this scenario, we corrected share price movement for things such as share buybacks and stock splits, and we assumed that you reinvested dividends back into the original stock.
The good news is that you would have made money in all four instances. But if you’d invested $100 in our 23 superaccelerators seven years ago, you would now have a portfolio worth some $437, an increase of $337. If, instead, you’d invested in the rest of the FT 500, your portfolio would be worth $211, an increase of only $111. In other words, the increase in wealth from investing in the superaccelerators compared with the rest of the FT 500 over the past seven years is more than three times greater.
In a sense, this finding may not be surprising. Companies that increased revenue profitably would be expected to outperform the stock market. If you had put money on the winning horse, you would be taking home more money than if you had bet on the horse that came in second. But that is not the point we are making. Based on our research, we are putting forward two different arguments about the importance of accelerating performance.
First, we believe that the most profitable growth was driven by the ability to accelerate performance: Because its presence predicts future outperformance, developing the ability to accelerate performance can help organizations outperform their peers.
Our second argument is that predicted growth is an important part of how investors determine a company’s value. Research shows that about 40% of a company’s valuation derives from estimates of future growth.1 A company that is able to accelerate performance can achieve that growth more quickly. In a business-as-usual scenario for a publicly listed company, that increased speed will show up in a higher valuation in the stock market. For a company owned by a private equity (PE) investor, it will reduce the length of time the PE company needs to own the portfolio company. And for a company undergoing a transformation, the increased speed can help minimize the length of time taken up by disruptive changes.
We’re not intending to give investment advice; that’s not our area of expertise. What we are saying is that by accelerating performance companies can grow more profitably than they would have otherwise. As well as being a good thing in its own right, that should also make those companies worth more.
Importantly, our research suggests that the benefits of acceleration accrue to all companies—not just the so-called superaccelerators. In other words, executives shouldn’t be discouraged if they can’t meet the stringent criteria to become a superaccelerator. Any level of improvement along the dimensions our research identified will produce benefits relative to competitors that lag on those same dimensions.
And in the end, accelerating performance is about persistence. Your competitors refuse to sit idly by, and even today’s success may prove transitory, or even bring unintended consequences—for example, in the form of added organizational complexity or complacency. Superaccelerators seem to recognize this, and we expect that the best of them will translate this spirit of continuous improvement into tangible efforts to mobilize, execute, and transform with agility—not just once but over, and over, and over again. Remember, the jungle always grows back.
About the author
Colin Price is an alumnus of Heidrick & Struggles' London office.
A version of this article originally appeared on LinkedIn.
1 Economist Intelligence Unit, Creating Growth in a Flat World: How to Identify, Quantify, and Capture New Growth Opportunities, 2016.