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Harvard Business Review
3 days ago
- Business
- Harvard Business Review
Growth Isn't the Only Way for Companies to Create Value
It's a basic goal of most companies: to grow revenue each year. But as globalization recedes, populations in many nations grow older (and buy less), and sustainability concerns lead more people to scrutinize the necessity of every purchase, companies are facing headwinds to growth. And while growth can be a particularly powerful differentiator in such a challenging context, it is also particularly risky. Pushing for growth at all costs can end up destroying value rather than creating it, through wasteful investments and diverting resources from the core strengths of the firm. The question thus arises: How can companies build lasting value without growth? Stability Has Its Perks To find answers, we studied more than 10,000 companies from North America, Europe, and Japan over the past 20 years. From that cohort, we identified 172 stable firms, defined by steady, near-zero revenue growth throughout the period. These stable companies delivered shareholder returns similar to market averages, but at 12% lower volatility. This low volatility also correlates with both greater resilience and longevity: Stable firms were half as likely as the average firm to suffer severe value collapse by losing 90% or more of their market capitalization over the 20-year period we assessed. They are also nearly twice as old as the typical S&P 500 company, averaging almost 100 years of age. Finally, of these stable firms, 57 of them—one in three — managed to outperform the market in terms of total shareholder return (TSR). If we take a closer look at those 57 companies that outperformed, our analysis reveals that these successful, stable companies do not conform to a single profile: They sell to both consumers and businesses, offer products as well as services, and appear across a wide range of industries (though less frequently in fast-growing sectors, where they can find themselves left behind by competitors). Still, they share some notable similarities. For one, 25% of stable outperformers had an owner with a controlling interest, compared to less than 8% of companies in the S&P 1500 —suggesting that a sense of ownership may play a role in enabling a disciplined, long term–oriented approach to value creation. This is consistent with the observation that stable firms steered clear of the risks that often accompany aggressive growth, such as overly ambitious, large-scale mergers or acquisitions, which have a failure rate of 70% to 75%. Instead, these businesses used four distinct strategies to achieve outperformance in the absence of growth: 1. At Your Service: The Asset-Light Play Many businesses facing low growth prospects react by seeking to acquire new customers—often at high cost—but stable outperformers are more likely to maximize value from existing customer relationships. They do this by shifting from physical products with declining demand to asset-light services and software. This approach not only deepens customer ties but also improves margins and lowers asset intensity. The stable outperformers that made this shift increased their EBIT margins by 8 percentage points between 2004 and 2024 on average, driven by 50% lower capital expenditures and 25% lower cost of sales. This enabled them to also achieve an average annual TSR of 9%. This path is most common in asset-heavy industries undergoing digital transformations or in IT companies becoming more service-oriented. More broadly, it may offer an interesting path for businesses facing commoditization or pressure from competitors. A case in point is Siemens: In 2014, it announced an increased focus on software-as-a-service and digital twin technology. This move reflected a shift from traditional industrial conglomerate to digital industrial innovation leader, embedding software and data-driven services into its core offerings and creating more resilient revenue streams and deeper customer integration. We found that while pursuing this strategy over the past decade, Siemens achieved an annual TSR of 12%. 2. Take the High-End Road: The Gross Margin Play Mature businesses are often tempted to rely on a strong brand image while cutting costs. However, enhancing quality can be a more sustainable path to value creation, enabling firms to establish a difficult-to-erode position and improve their gross margins. The stable outperformers who 'took the high-end road' increased their gross margin by, on average, 12 percentage points over the 20-year sample period. This enabled them to achieve an average annual TSR of 9%, driven mainly by margin expansion and a strong cash flow contribution. While we observed this strategy most commonly among consumer businesses, it may be relevant to many companies operating within a niche—whether due to product uniqueness or specialized expertise. By becoming irreplaceable, these businesses can strengthen their pricing power and move upmarket, whether they produce luxury goods or industrial components. For example, Morgan Advanced Materials, a UK-based manufacturer of ceramics and carbon materials, developed products with superior thermal resistance, electrical insulation, and mechanical strength to better serve its customers in sectors such as aerospace, semiconductors, and electric vehicles, where components must operate reliably under extreme conditions. We found that the company's superior products led to an improved pricing power, doubling its margins over the 20-year period, and achieving an annual TSR over 3% above the FTSE 100—while not growing revenues in real terms. 3. No Place Like In-House: The Balance Sheet Play When revenue growth is out of reach, balance sheet expansion offers another alternative to create value. Stable outperformers often grow their asset base through vertical integration to control a larger share of the profit pool and increase their value added. This approach also helps them build a unique asset portfolio that strengthens their differentiated value propositions and competitive moats. On average, the stable outperformers that followed this strategy doubled their total asset base as they vertically integrated. Their control of a larger share of the value chain enabled them to expand their gross margins by 8 percentage points on average throughout our period of observation. Their investments also yielded high returns: On average, firms following this strategy achieved an annual TSR of 9%, driven by a cash flow contribution of 5%. This strategy is most prevalent in asset-intensive sectors such as industrials, utilities, and materials—but any business with an already-differentiated product and significant market share facing cost pressures from suppliers may find vertical integration a compelling path to value creation. The hospitality industry offers a striking example. Unlike most hotel chains that franchise their brands to accelerate revenue growth, Whitbread, owner of the largest hotel brand in the UK, Premier Inn, owns all its hotels, directly manages their operations, and even controls digital distribution as well as revenue management by centralizing bookings on a proprietary platform. Although this integrated strategy constrains rapid expansion, consistently delivering a high-quality customer experience is an essential pillar of its competitive advantage—which we found has enabled the company to deliver 10% annualized TSR over the past 20 years. 4. Take It to the Bank: The Dividend Play Rather than aggressively pursuing growth, stable and mature companies often prioritize returning cash to their shareholders. However, without significant revenue growth, it can be challenging for these companies to meet dividend growth expectations, and therefore, to achieve high TSR. Our analysis identified an alternative strategy for value creation through dividends: providing consistent and predictable payouts that make their stocks behave like bonds. This 'bond-like' approach exhibited dividend volatility one standard deviation below the market average and offered investors greater stability and reduced risk, enabling these companies to outperform the market despite limited growth in revenues, margins, or dividends. These stable outperformers built financial slack, for example, by reducing their debt-to-equity ratios by 30% on average. In this way, they achieved not only a high and stable cash flow contribution to TSR but also enhanced their valuation multiples by an average of 3% per year. This strategy can be observed in all industries and sectors but is most applicable for companies with predictable streams of revenues and little fluctuation in investment patterns. Take GATX, a railcar leasing company: It has paid out uninterrupted quarterly dividends since 1919. Over the last 20 years, the firm has not had a reduction in dividend payouts for a single year and has maintained dividend volatility 1.5 standard deviations below the average of our sample—driving annualized TSR of 12%, fueled almost entirely by cash flow contributions and multiple expansion. What About Talent and Innovation? Pursuing low growth-strategies does come with challenges. For one, growth typically means opportunity—for career progression, new skill development, and other means of advancement. If a company isn't actively growing, these opportunities may be more limited, which could make it challenging to attract and retain top talent. To counter this, companies executing a low-growth approach must be intentional in how they design their talent strategy. Some of the companies in our study leverage their stability to invest in long-term initiatives and partnerships to attract and develop talent. These efforts might include targeted recruiting programs, apprenticeship opportunities focused on specialized skills, industry certifications, or partnerships with local educational institutions. Such channels build community ties and create a consistent stream of candidates. For example, UK home builder Persimmon launched the Persimmon Academy in collaboration with local colleges to tap into overlooked labor markets in the regions where it operates. The program, which enables the company to access new talent, shape skill development to align with its business needs, and foster stronger engagement across its workforce, has recently been expanded to new regions after its initial success. Beyond talent pipelines, stable companies can also foster long-term engagement by reimagining the employee value proposition—for example, by highlighting perks such as opportunities for horizontal rather than vertical mobility and focusing on job security, enabled by the reduced volatility of a low-growth strategy. This approach may be particularly appealing to younger workers, many of whom have spent their careers in economically uncertain environments. For example, Mondelēz International's internal talent marketplace, Match & Grow, enables employees to take on short-term projects beyond their usual roles or functions, gaining exposure to new experiences and collaborating with different teams. Since its launch in 2023, more than 25,000 employees have participated in the program. Another potential challenge for low growth-companies is maintaining an innovative culture—one in which creativity and imagination thrive. Without such a culture, there is a risk that complacency sets in. Yet rather than chasing disruption or innovating to unlock new markets, many of the stable firms in our sample highlight the power of continuous, incremental improvements. For example, Diageo introduced an innovation team that focuses on integrating emerging technologies and experiences to enhance their existing portfolio; this team developed the world's lightest whisky bottle for Johnnie Walker Blue Label, as well as an AI-powered virtual concierge that provides personalized cocktail and gift recommendations to consumers of its Seedlip brand. Counterintuitively, constraints imposed by low growth can even become powerful catalysts for innovation. In fact, rapidly expanding companies sometimes purposefully introduce limitations to their use of resources to encourage creative problem-solving. Patagonia, for instance, has been growing at more than 9% per year (and is therefore not part of our sample), but it self-enforces strict sustainability standards that limit the materials used in making its products. By using only organic or recycled fabrics and by urging customers to purchase fewer items, Patagonia has developed pioneering programs like its famous repair and buyback initiatives, central to its value proposition. . . . The strategies and success of stable outperformers show that growth is not the only path to value creation. However, company leaders should bear in mind that, while the stable companies we identified could sustain outperformance over decades, their levers may be exhausted at some point: Margins cannot be increased beyond 100% and dividend volatility cannot fall below zero. Pursuing a strategy of stability does not absolve leaders from having to continue to explore and revisit growth opportunities as conditions evolve.
Bloomberg
29-05-2025
- Business
- Bloomberg
Consultants are Taking Over the World's Corner Offices
Longtime 'CEO Factories' like General Electric and IBM have been supplanted by Accenture and other professional-services firms. By General Electric. Procter & Gamble. IBM. For years, those companies and a handful of others were held aloft as 'CEO Factories,' admired for their ability to recruit and mold corporate chiefs. Over a 20-year span, just three dozen companies produced one-fifth of the chief executives in the entire S&P 1500 index.
Business Insider
26-05-2025
- Business
- Business Insider
There's a CEO succession crisis brewing
As more CEOs call it quits, it could get harder for companies to find the next superstar leaders. A mix of sometimes poor succession planning, a tendency by some young go-getters to job hop rather than rise through the ranks, and a thinning of middle management could cause headaches for companies trying to find a new chief, corporate observers told Business Insider. Because of a "collapse of the leadership pipeline" at many organizations, the pool of candidates ready to step in and lead is often lacking, Shawn Cole, president and founding partner at the executive search firm Cowen Partners, told BI. That's in part because some companies have been busy pulverizing the organizational layers that once served as C-suite farm teams. "The middle-management, VP-level successors are just gutted right now," Cole said. It comes as more chiefs are peeling their nameplate from the C-suite door — and, in some cases, as boards are making them. Nearly halfway through 2025, the number of CEO changes for S&P 500 companies is on pace to reach 14.8% for the year, according to data from The Conference Board and ESGAUGE. That would be the highest rate of turnover in data going back to 2001. The average over the same period is 11.3%. In the first three months of the year, a record 646 US CEOs left their roles, according to Challenger, Gray & Christmas. That followed a busy 2024, when the number of departing chiefs rose to the highest annual level since the staffing and coaching firm began keeping tabs on CEO turnover in 2002. Cole said his firm is getting calls from boards and private equity firms looking to change directions with a new CEO. He said there's often a desire for visionary leaders who can think up the next great product or service to boost business. "They're like, 'Holy sh—, we need some better ideas in the room,'" Cole said of boards and PE firms. Normally, when corporate overseers want to make a change at the top, or are forced to, they can scan the org chart. Yet, he said, some up-and-comers have tired of riding the bench. "You've got upper management that's held on too long, and so what would have been your successor has now left the company," Cole said. At the same time, he said, because many companies haven't invested in grooming the next generation, it's not always possible to simply poach a hotshot from a rival. "The musical chairs is broken," Cole said. Nevertheless, some companies are managing to woo outsiders. Among the companies that make up the broad S&P 1500 index, 44% of new CEOs in 2024 were external hires, according to data from the executive search firm Spencer Stuart. It's the largest share of outsiders since the firm began tracking the data in 2000. Some of the biggest promotions still come from within. Earlier this month, Warren Buffett said that after 55 years running Berkshire Hathaway, he would step down at the end of the year. The conglomerate's board approved Buffett's chosen successor, Greg Abel, who is some three decades younger than the 94-year-old Oracle of Omaha. Buffett's run is unmatched among heads of big US companies and far beyond what's typical. The average tenure of CEOs of S&P 500 companies fell to 8.3 years in 2024 from 8.9 years in 2023, Spencer Stuart reported. Kathy Gersch, chief commercial officer at the change-management firm Kotter, told BI that recent drops in CEO tenure signal, in part, that boards have less patience for missteps. That's one reason, she said, that directors need to understand the plans for developing the next generation of leaders. Job-hopping might not help Another reason finding a CEO could be harder is that some workers, still early in their careers, don't necessarily want to grind it out at a single company with an eye toward climbing into the top job, Jason Schloetzer, an associate professor at the McDonough School of Business at Georgetown University, told BI. Years ago, he said, the goal might have been to complete a corporate management rotation — including turns in various departments and possibly foreign posts — to "really understand the organization from top to bottom in order to matriculate up to the C-suite," Schloetzer said. While millennials and Gen Zers have been changing jobs less than prior generations, some business school grads, for example, often view career progression as jumping every two to three years among companies, he said. That would mean, by the time they'd been in the workforce for 15 years after getting their MBA, these execs might have five or six companies on their résumé, Schloetzer said. That can be at odds with what some boards are seeking. Often, directors tap someone who might have been with a firm 15 years or longer, he said. Schloetzer blames the mismatch on business. "Companies have created this environment by not being loyal to employees," he said. Economic worries could deter some execs Some aspiring leaders might also hesitate to take over when there are worries about the prognosis for the economy. Would-be CEOs likely don't want to be on the hook for problems beyond their control, like tariffs or uncertainty over interest rate policy, Tim Quigley, a professor of management at the Terry College of Business at the University of Georgia, told BI. That might even keep some departing chiefs from looking elsewhere, he said. "Those same CEOs that are stepping away that might be obvious recruiting targets for firms, would say, 'Nah, I'll wait a little while and maybe step into the position down the road,'" Quigley said.
Fast Company
06-05-2025
- Business
- Fast Company
Succession planning: Strategy first, people always
In my many conversations with manufacturing industry leaders, succession planning consistently emerges as a critical challenge. When business owners start thinking about succession, it's often because a founder or CEO is contemplating retirement or exit. That entrepreneurial, innovative, and sometimes scrappy leader might not represent the personality needed for the next phase of the business, which might require different skills in building organizational structure, scaling operations, or moving into new markets. At my firm, we use the mantra 'Strategy first, people always.' Succession planning only works when we start with a clear understanding of business goals and stakeholder objectives. In many cases, these are businesses owned and managed by the same people or perhaps the same family. This strategic alignment ensures that succession planning connects with overall business goals and future direction. When talent strategy flows directly from business strategy and is driven by business leaders collaborating with human resources (HR), we see much better engagement and outcomes. Business leaders need to own these conversations about cost reduction, market expansion, technology transformation, and the talent implications that flow from these strategic imperatives. 'The share of externally hired CEOs surged in 2024, representing 44 percent of all new S&P 1500 CEO appointments,' according to research by Spencer Stuart. 'While outsider appointments increased in all segments of the S&P 1500, mid-cap companies led the way, with 58 percent of new CEOs hired externally and only 42 percent promoted from within the company.' When considering external candidates, it's crucial to build relationships early while carefully considering potential impacts on company culture and morale. External candidates can bring fresh perspectives and new ideas, particularly valuable when the business strategy requires significant transformation. The key is to ensure any external hire aligns with the organization's values while bringing the necessary skills and experience to drive future growth. It can be a very rocky road when you get an external hire wrong. Assessing candidates leveraging tried and tested assessments can help avoid costly mistakes. TIMING AND TRANSITIONS Every succession plan needs a schedule, and timing is critical. Plan well in advance—there are numerous examples of companies that started too late and faced significant challenges. Consider the age demographics across the leadership team and the whole organization. Having most of the leadership team near retirement age means potentially recruiting for multiple positions simultaneously, a challenging scenario that can destabilize the organization. With leadership transitions, it's not simply one out, one in. Create overlap periods for knowledge transfer when possible, allowing the incoming leader to understand the nuances of the role and build key relationships. Always maintain contingency plans for unexpected departures; succession planning isn't just about planned transitions. CULTURAL FIT AND CHANGE MANAGEMENT Culture is fundamental to business success, often stemming from the founders' vision. The challenge lies in preserving cultural strengths while enabling necessary evolution and fresh perspectives. My experience shows that successful transitions depend on clear communication and shared accountability. While leadership teams often share similar views on challenges and opportunities, they frequently lack the frameworks to discuss them openly. Creating structured opportunities for dialogue can surface these shared insights and concerns. What often appear as personality conflicts usually stem from different working preferences and communication styles. Understanding these differences early allows for smoother transitions. I find that a focused approach using targeted assessment tools and direct business-focused conversations can create alignment in as little as four weeks. Succession planning isn't a one-time exercise. Regularly evaluate your succession plans and measure their efficacy. Update plans based on changing business conditions—unexpected market disruptions can shift the demand for certain leadership capabilities. The COVID-19 pandemic, for example, underscored the need for leaders with strong digital transformation and remote team management skills. Monitor potential successors' progress regularly and adjust development plans as needed. The health of the succession pipeline needs constant assessment, with corrective action taken when gaps appear. This ongoing review process better ensures that the organization maintains readiness for both planned and unplanned transitions. BETTER PLANNING, BETTER OUTCOMES This succession challenge is particularly acute in the electronics manufacturing industry. It's my observation that many electronic manufacturing services (EMS) groups are run by executives in their fifties, sixties and even seventies, where choices narrow to succession or exit. Any exit strategy may be seriously impacted by a lack of succession planning or real bench strength across the leadership team inside organizations. One of the biggest mistakes I see organizations make is that they have a one-for-one approach with limited optionality. This approach is fraught with risk. You need to have at least three to five candidates who you're nurturing. Here's why. Burnout is real, and many leaders suffer from significant health issues at the age that they are ready for CEO positions. Missteps are real. I've seen candidates make significant missteps in business, which takes them out of the race. Finally, some candidates just decide they are out and the role is too much to take on. THE GOOD NEWS My colleagues and I have observed that EMS organizations with strong succession planning tend to command a premium in valuations. They stand to win more business based on team quality and culture and may gain increased wallet share from existing clients who have confidence in the leadership pipeline. This reflects the market's recognition that strong succession planning correlates with better business outcomes and reduced organizational risk. Making this investment matters to both the top and bottom lines. Through conversations with industry analysts, I've seen how organizations with strong succession planning consistently outperform their peers. They are better positioned to handle market transitions, more attractive to potential clients, and more resilient in the face of leadership changes.
USA Today
01-05-2025
- Business
- USA Today
100 Days of Trump: Who's thriving, who's struggling?
100 Days of Trump: Who's thriving, who's struggling? Show Caption Hide Caption Made-for-TV moments from President Donald Trump's second term President Donald Trump has brought his TV showmanship to the White House for a second term with made-for-TV moments in his first 100 days. The dramatic shift in U.S. domestic and foreign policy since President Donald Trump returned to the White House on January 20 has sent shockwaves across global financial markets. Trump's multi-front trade war and constant flip-flops on tariffs have upended supply chains, clouded business outlooks and stoked fears of a recession in the U.S. The S&P 500 .SPX has lost nearly 8% since his January 20 inauguration. As Trump completes 100 days in office, here is a look at the winners and losers in the U.S. stock markets: The winners Data analytics provider Palantir PLTR.O, which works with the Department of Homeland Security, has surged nearly 60% since Trump came into power as the Department of Defense prioritizes a new software acquisition effort to enhance the U.S. military. Palantir is also partnering with Elon Musk's SpaceX and drone builder Anduril to build key parts of Golden Dome missile defense shield, people familiar with the matter told Reuters. All three companies are founded by entrepreneurs who have been major political supporters of Trump. Palantir is the top performer on the S&P 500 .SPX in Trump's first 100 days as president. Phil Blancato, CEO of Ladenburg Thalmann Asset Management, said Trump-linked stocks and companies with "a predominantly domestic bias, especially in the manufacturing sector" stand to do quite well under the current administration. Trump's first 100 days in office: Will there be a recession in 2025? Conservative cable news channel Newsmax NMAX.N, which attracted strong interest from retail investors after its debut on the NYSE on March 31, have advanced more than 60% since the IPO. Gold miners are also in a bright spot, tracking a surge in the bullion, driven by U.S. policy uncertainty and fears of recession. The world's biggest gold miner Newmont's NEM.N near 30% surge since January 20 makes its shares among the highest on the S&P 500. U.S.-listed shares of foreign gold miners like Barrick Gold Gold Fields GFIJ.J and AngloGold Ashanti AU.N have also rallied between 20% and 50% since Trump took office. The losers Shares of U.S. carriers have been battered by Trump's tariffs and softening travel demand, with the S&P 1500 airlines index .SPCOMAIR losing nearly a third of its value since January 20. Delta Air Lines DAL.N, American Airlines AAL.O and Southwest Airlines LUV.N are among a host of carriers that have withdrawn their annual outlooks. Aviation industry is lobbying the White House for exemptions. Electric automaker Tesla TSLA.O has dropped 33% since Trump's return to power as investors feared that CEO Elon Musk's involvement in the Department of Government Efficiency could distract his focus from the electric vehicle maker, whose sales continued to fall. However, Musk last week said he would cut back his work for Trump to a day or two per week from sometime next month. Some department store operators have also been hurt by consumers cutting their discretionary spending on recession worries. Shares of Kohl's KSS.N have slumped 46% since January 20, with the company warning that a turnaround will take "some time". Macy's M.N, which reported annual sales and profit forecast below estimates last month, has shed 17% in the same period. A few electronics firms are among the steepest decliners on the S&P 500. Semiconductor-testing equipment maker Teradyne TER.O, has slumped 44.5% since January 20. The firm flagged short-term volatility in its business caused by tariffs and trade curbs in March. Zebra Technologies ZBRA.O has slumped 40% so far this year with the barcode scanner-maker warning of an earnings hit in mid-February. Some electronics firms are among the steepest decliners on the S&P 500. Semiconductor-testing equipment maker Teradyne TER.O, has slumped 44.5% since January 20. The firm flagged short-term volatility in its business caused by tariffs and trade curbs in March. Zebra Technologies ZBRA.O has slumped 40% so far this year with the barcode scanner-maker warning of an earnings hit in mid-February. Reporting by Shashwat Chauhan and Medha Singh in Bengaluru
