BCG Ranks Top 25 Sustainable Value Creators

In times of increased uncertainty managers rightly focus on the cost cutting and restructuring needed to maximize cash flow, strengthen balance sheets, and ensure their company's liquidity for immediate financial survival. But while companies struggle to stay afloat, industries are meanwhile reshaping to create new winners and losers. Inefficient business models become exposed, mature industries face pressure to consolidate, and innovators find new market niches and competitive advantages. The real challenge while weathering a recession is to stay up to date on market trends, know your goals and set targets to ensure long term sustainability.

From a purely business perspective, the roots of sustainable value creation lie in the ability to hone distinctive customer value and defensive competitive advantage to deliver superior long term returns. This value creation must be consistent, in terms of beating the market average, as well as balancing returns for all stakeholders from employees and suppliers to direct customers and society as a whole. Consistently delivering superior value is easier said than done. Boston Consulting Group sampled 417 companies with a market value of more than $1 billion at the end of 2008 (the biggest of big monsters). Over the past decade, 45% of those companies beat the market more than five times, 8% beat the market more than 7 times and not a single company beat the market ten times.

Achieving long term financial sustainability requires knowing how to find the most strategic path to sustainable returns, given a company's starting point in capital markets, its competitive position, and the dynamics of its industry. BCG defines several profiles that consumer and retail companies should use to identify the right tradeoffs and most appropriate options given their business model. "Growth engines" need to grow rapidly, exploit scale advantage, and exceed investor expectations while preserving margins and high valuation multiples. "Cash-machines" create value less by increasing revenues than by continuously increasing margins, improving asset productivity and cutting unprofitable growth, then returning freed-up cash to shareholders or paying down debt.

Having a thorough understanding of your company's financial sustainability profile and a strategy going forward is the foundation of consistent value creation. BCG advises setting realistic performance targets, outlining improvements and actions, as well as the metrics that will be measured to meet those targets, and having contingency plans for dealing with valuation shifts. These are important aspects of a robust framework that should shift planning and budgeting away from an annual cycle based on historical performance toward a set of criteria based on increasing sustainability and driving stakeholder value continually.

The frustrating part about the rankings is that BCG includes ethically questionable corporations such as Altria Group, Imperial Tobacco Group, Pernot Ricard and Diageo in the Top 25 most sustainable companies (at least in terms of consistent market capitalization). Sad to say, but these companies that sell vices have been out-performing other consumer necessities such as diapers or soap for decades. Perhaps BCG's methodology should include environmental detriment and social risk as an indicator of long-term sustainability. Or maybe our reliance on these substances has contributed to the success of immoral companies that reap rewards from our weakest moments.