Many of the world’s largest companies have not been able to generate sustainable value over a long period, a new report finds. Internal barriers, including talent retention, loss of vision and complexity are cited as areas of critical concern.
Creating companies that bring with them long term sustainable growth is no easy feat, according to a newly released report from Bain & Company. The firm, as part of its ‘Barriers and Pathways to Sustainable Growth’ report, performed an 18-year longitudinal study of sustained value creators. The research combines two surveys of senior executives from across the globe, with desk research and interviews.
According to the study, the number of companies that managed to generate real sales growth of more than 2x country growth stood at around 20% between 2004 and 2014, while 15% managed real profit growth 2x above that of the country growth in the same period. Only a small number (11%) of large companies, those with revenues in excess of $500 million, can call themselves “sustained value creators” – this group managed to achieve a sustained growth in revenues and profits while also generating back their cost of capital over the course of a decadeThe research highlights that, while a number of factors are affecting the long term sustainable growth outlook for companies, it are predominantly internal factors that hold companies back from success. Two major internal barriers are an inability to focus, cited by 34% of respondents, and an unaligned culture, also cited by 34% of respondents. Organisational complexity comes fourth, cited by 26% as an issue, while a weak business plan was cited by 24% of respondents as problematic. The biggest concern for companies, however, is insufficient resources, highlighting the growing impact of the talent shortage which is unfolding globally. The shortage is in particular visible in high demand talent segments, such as digital, programming and design, with for instance a recent study by A.T. Kearney finding that as many as 72% of leading companies are currently struggling to find the right analytics talent.
Internal barriers to growth
Respondents were also asked to disclose the biggest internal barriers holding back their business from growth. The chief issue is access to talent in order to keep up with the pace of business growth, as cited by 55% of respondent companies. The second biggest barrier is the death of a nobler mission. The third major barrier is complexity, as a company expands too rapidly out of oversight.
Additional concerns include the ‘curse of the matrix’ as employment structures cause havoc (also highlighted by a recent McKinsey study), while ‘unscalable founder’ takes the number five spot with 37% of respondents. Additional concerns include ‘fragmentation of customer experience’, ‘lost voices from front line’ and ‘erosion of accountability’, at 30%, 25% and 22% of respondents respectively.
The research further looked at the biggest challenges that low performing companies face. The top challenge is that they increasingly find it difficult to attract and retain top-tier talent, followed by spending too much time strategizing or dealing with overcoming internal barriers. Additional concerns highlighted by the respondents is that they do not have a strong process in place to manage succession of leadership’ and that their processes feel complicated and make the company more bureaucratic. The result is on par with study conducted last year by the Economist Intelligence Unit, a UK-based think tank, which found that more than half (55%) of businesses agree that organisational complexity is taking a toll on profits.
Low performing companies also have difficulty differentiating their products from those of their competitors, as well as lacking a ‘well-defined repeatable model for growth’.
Bain’s research found that, as companies scale, problems related to internal versus external barriers begin to increase. Around 20% of respondents from small companies say that they either strongly agree or agree more than they disagree that they spend too much time strategizing and dealing with internal issues. For moderate companies this jumps to 37%, with around 10% strongly agreeing to the issue. For large companies, around 15% strongly agree that internal barriers are an issue, with in total 44% saying that they agree more than they disagree.
One of the biggest issues cited is complexity, and its spiral of doom. Complexity, in terms of processes and bureaucracy, is particularly an issue for larger companies, at 60% agreeing that it is an issue, while almost half of those strongly agree that it is an issue. For small companies, around a quarter are beset by the issue, with around 5% strongly agreeing that their processes are overly bureaucratic.