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What makes a company successful?
Shyamal Majumdar | April 10, 2007
What makes a company successful? There is no shortage of obvious answers to the question - flexibility to adapt to the market, high levels of customer retention and having the best people are the three most important criteria.
But Grant Thornton, one of the top global accounting, tax and business advisory organisations, found that there was a much more interesting story when it looked at the differences between the top performing companies and those whose performance was lacklustre.
The firm's Competitive Advantage Survey, published in the UK recently, split the data into three sub-sections - fast growth, growing and static businesses - to understand the different drivers that influence growth and competitive advantage.
Though the survey is restricted to UK-based companies only, most of the findings are relevant for Indian companies as well.
Grant Thornton found that fast growth companies focus on business innovation and creating the necessary flexibility to take advantage of changing markets, whereas poor performers are still stuck in the traditional mechanisms of price reduction and endless customisation of their products and services to clinch a sale.
It is hardly surprising that having the best people ranks top for fast growth businesses, third for growing businesses and fourth for static businesses. It gains in importance over the next three years when all companies rank it as the top.
Skills shortage is also a big concern with all companies agreeing unanimously that this is the biggest obstacle to maintaining or developing competitive advantage.
However, Grant Thornton makes an interesting point that there is a big difference between employing and retaining the best people and simply retaining staff at all costs.
Although all businesses ranked staff retention as a key priority in maintaining their competitive advantage, there are likely to be very different reasons underlying this response.
For fast growth businesses, the need to retain staff is centred on keeping the best minds focused on the growth agenda, whereas static businesses often face serious staff retention issues as the environment is less challenging and rewarding.
The reverse side of the staff retention coin is the inevitable risk of swallowing the poison pill that keeps the same staff in the same job year after year, stifling innovation.
Indeed, there is a strong argument for changing management teams systematically to keep ideas fresh and to maintain the creativity that top-performing companies rank top of their success criteria.
Jim Rogers, business advisory partner at Grant Thornton, says it is an interesting myth that staff retention is always a good thing. There is a danger that long-term employees embed themselves in an organisation and actively inhibit change.
All businesses need fresh blood and there needs to be a happy medium between new staff and continuity, he says.
The findings of this survey also contribute to the age-old debate as to whether it is people or processes that are the key contributor to competitive advantage. "In practice, you can't separate people from the process," comments Nigel Slack, professor at Warwick Business School. "Of course, really good people are both rare and immensely valuable. But they can never be fully effective if they are held back by clunky processes."
Fast growth businesses recognise the importance of sales capability and rank it top of their success attributes. "You can strategise and pontificate about why you don't make sales," says Rogers, "but the best companies know that processes and systems, backed up by good people to go out and knock on doors, is the most effective way to deliver sales growth."
The data for static businesses tells a completely different story. Top for them is branding, corporate identity and reputation, followed by price and range of products and services. It is as though people are the props to support a brand that is based on a price proposition.
Looking ahead three years, the vision is no different for static businesses. They are wedded to the principles of brand, marketing and communications, customer retention and price as their core success differentiators.
Yet these same companies complain that they can't get the right staff, that their marketing and communications are weak, that their competitors are stronger than they are and that they lack the management structure. The survey illustrates that static businesses put "internal capability" right down towards the bottom of the list of factors that hinder competitive advantage.
Compare that with the fast growth businesses who rank it fourth. They understand that the impediments to growth are something they have to put right internally. They don't attribute it to external factors.
These are some telling lessons for the CEO in catch-up mode.