While large U.K. firms often grow less than in Europe or the US, value creation principles open new possibilities for a country with UK’s rich history of innovation
WASHINGTON, DC FEB 26: Pascal Soriot, CEO of AstraZeneca, testifies before the Senate Finance CommitteeUnless you know where you are, it can be hard to know where you are heading. A look at the long-term performance of the largest public companies in the U.
K. shows that more than one-third of them, including Rolls Royce and AstraZeneca are performing better than the standard international benchmark of the S&P 500 average in terms of long-term returns. Yet almost two-thirds of famous-name firms, such as HSBC, Barclays, Unilever, BP and Shell are performing below that benchmark.Stephen Denning; Seeking AlphaMost of the lower performing firms are mature incumbents. They are concentrated in energy, finance, pharma, and consumer staples: sectors that preserve value rather than create explosive new growth. In other words, U.K; public companies tend to be heavy on dividends and cash flow and light on innovation and tech scale-ups. Just look at the 10-year total shareholder return column—with numbers below 100% over a decade. Because the FTSE 100 is dominated by slow-growth incumbents, valuations tend to stay low, as growth companies list elsewhere . That helps to perpetuate the cycle: the UK market as a whole becomes even less interested in innovation, thus depressing overall performance and investor sentiment. Over time, the stock market impacts the wider economy—low productivity growth, under-investment in R&D, and a financial system geared toward real estate and dividends rather than bold new ventures The U.K. has world-class firms but relatively few new ones.In short, Figure 1 can be seen as a microcosm of Britain’s broader economic challenge—a brilliant past, a cautious present, and an underfunded future. The economy isn’t sluggish by accident; it has become consistently focused on conserving the past rather than thinking ahead.The current emphasis on protecting the status quo contrasts sharply with the British historical tradition of transformative innovation, with enormous global impact and influence. introduced trial by a panel of peers, ensuring impartial justiceParliamentary Democracy, 1776) introduced division of labor and free marketsJames Watt: Steam EngineTheory of Natural Selection reshaped biology, medicine, and philosophy. World Wide Web was invented at CERN and transformed everything.Now comes a new opportunity. Given its long innovation tradition, the U.K. could be well-positioned to take advantage of fundamental changes in the world economy in the last quarter century. The internet gave first, to firms, new possibilities for innovation, and then to customers, more choices, and finally to firms again, the potential of new business models that built on network effects. As a result, in the last quarter century, leading firms around the world have found ways to enable human concerns to drive the processes, practices, and methods. Thus they were able to grow much faster and generate exponentially more value. The U.K. is not alone in having slow-growing performers among its larger firms. But as shown in Figures 2-4, U.K. is enjoying proportionately less compounded value creation through investment and innovation than in Continental Europe and or the U.S. More U.K. firms are returning funds to investors than reinvesting and creating new possibilities. We now know what successful firms around the world are doing differently from traditionally managed firms. Instead of a focus on short-term profits, hierarchical structures, and rigid processes, firms world-wide are finding that value creation principles consistently deliver greater value. The principles aren’t fluffy manifestos or idealistic dreams. The principles are actionable best-practice, distilled from multiple comprehensive studies in business and academia. In short, firms tend to create more value when they:· Build autonomous networks over rigid hierarchies.The principles are interactive and multiplicative. While old-school management still proliferates, research shows that the principles generally deliver better workplaces, happier customers, and superior long-term profits—paradoxically, byFigures 2-4 below show maps of the leading firms in the U.K., Continental Europe and the U.S.Figure 2: UK 20 largest firms: value creation principles vs 10 yr TSRFigure 4: DJIA: Value creation principles vs 10-year returnsThe U.K. is a place of enormous latent potential, whose quiet virtues could power its next reinvention. Yet its values of careful stewardship, reliability, and continuity now need to be combined with its historical talent for innovation. The first step in making the transition is to get a realistic fix on where things now stand, for instance, by looking at the performance of the 20 largest firms in terms of the three value creation principles on a scale of 1 to 5. Overall 11.8/15.0 HQ United Kingdom; global, science-led, patient-focused bio-pharmaceutical company. Customer Focus 3.7/5.0; Autonomous Networks 4.1/5.0; Adaptive Mindsets 4.0/5.0; TSR/S&P500: 286%/230% Overall 8.5/15.0 HQ United Kingdom; one of the largest banking and financial services organizations in the world. Customer Focus 3.0/5.0; Autonomous Networks 2.5/5.0; Adaptive Mindsets 3.0/5.0; TSR/S&P500: 210%/230% Overall 7.3/15.0 HQ United Kingdom; global group of energy and petrochemical companies. Customer Focus 2.5/5.0; Autonomous Networks 2.5/5.0; Adaptive Mindsets 2.3/5.0; TSR/S&P500: 61%/230% Overall 7.9/15.0 HQ United Kingdom; one of the world’s largest consumer goods companies. Customer Focus 2.8/5.0; Autonomous Networks 2.8/5.0; Adaptive Mindsets 2.3/5.0; TSR/S&P500: 95%/230% Overall 8.0/15.0 HQ United Kingdom; develops and delivers complex power and propulsion solutions for safety-critical applications. Customer Focus 2.3/5.0; Autonomous Networks 3.2/5.0; Adaptive Mindsets 2.5/5.0; TSR/S&P500: 617%/230% Overall 7.0/15.0 HQ United Kingdom; leading consumer goods business with a global portfolio of brands. Customer Focus 2.0/5.0; Autonomous Networks 3.0/5.0; Adaptive Mindsets 2.0/5.0; TSR/S&P500: 84%/230% Overall 7.6/15.0 HQ United Kingdom; integrated energy company delivering energy at global scale. Customer Focus 2.4/5.0; Autonomous Networks 2.7/5.0; Adaptive Mindsets 2.5/5.0; TSR/S&P500: 91%/230% Overall 9.4/15.0 HQ United Kingdom; provides the materials the world needs with values of care, courage and curiosity. Customer Focus 2.7/5.0; Autonomous Networks 3.4/5.0; Adaptive Mindsets 3.3/5.0; TSR/S&P500: 334%/230% Overall 6.7/15.0 HQ United Kingdom; global biopharma company uniting science, technology and talent. Customer Focus 2.3/5.0; Autonomous Networks 2.4/5.0; Adaptive Mindsets 2.0/5.0; TSR/S&P500: 81%/230% Overall 11.2/15.0 HQ United Kingdom; global provider of information-based analytics and decision tools. Customer Focus 3.2/5.0; Autonomous Networks 4.0/5.0; Adaptive Mindsets 4.0/5.0; TSR/S&P500: 244%/230% Overall 7.8/15.0 HQ United Kingdom; multinational electricity and gas utility company. Customer Focus 2.5/5.0; Autonomous Networks 2.8/5.0; Adaptive Mindsets 2.5/5.0; TSR/S&P500: 78%/230% Overall 7.0/15.0 HQ United Kingdom; moves, lends, invests and protects money for customers and clients worldwide. Customer Focus 2.3/5.0; Autonomous Networks 2.5/5.0; Adaptive Mindsets 2.2/5.0; TSR/S&P500: 118%/230% Overall 11.3/15.0 HQ United Kingdom; provides advanced, technology-led defence, aerospace and security solutions. Customer Focus 3.3/5.0; Autonomous Networks 4.0/5.0; Adaptive Mindsets 4.0/5.0; TSR/S&P500: 357%/230%, Overall 11.0/15.0 HQ United Kingdom; one of the world’s leading providers of financial markets infrastructure. Customer Focus 3.7/5.0; Autonomous Networks 3.6/5.0; Adaptive Mindsets 3.7/5.0; TSR/S&P500: 240%/230%, Overall 7.7/15.0 HQ United Kingdom; leading UK-based financial services group providing banking and financial services. Customer Focus 2.5/5.0; Autonomous Networks 2.5/5.0; Adaptive Mindsets 2.7/5.0; TSR/S&P500: 73%/230%, Overall 10.9/15.0 HQ United Kingdom; UK-focussed bank serving over 20 million customers across retail, commercial and private banking Customer Focus 3.3/5.0; Autonomous Networks 2.8/5.0; Adaptive Mindsets 3.1/5.0; TSR/S&P500: 151%/230%, Overall 8.9/15.0 HQ United Kingdom; one of the world’s leading providers of food services. Customer Focus 2.5/5.0; Autonomous Networks 2.8/5.0; Adaptive Mindsets 2.9/5.0; TSR/S&P500: 135%/230% Overall 12.6/15.0 HQ United Kingdom; leading international investment company focusing on private equity and infrastructure. Customer Focus 4.2/5.0; Autonomous Networks 4.3/5.0; Adaptive Mindsets 4.1/5.0; TSR/S&P500: 1690%/230% Overall 9.0/15.0 HQ United Kingdom; one of the world’s largest global diversified natural resource companies. Customer Focus 2.3/5.0; Autonomous Networks 3.4/5.0; Adaptive Mindsets 3.3/5.0; TSR/S&P500: 433%/230%, Overall 7.0/15.0 HQ United Kingdom; global leader in beverage alcohol with an outstanding collection of brands. Customer Focus 2.0/5.0; Autonomous Networks 2.5/5.0; Adaptive Mindsets 2.5/5.0; TSR/S&P500: 8%/230%
Principles Innovation Growth Customer Networks Hiearchy Mindset
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