Roland Berger Strategy Consultants: International study shows seven strategic priorities for "outperformers" to boost growth, profit, and company value

Munich 18. 9. 2002 (ots) - Cross-reference: photo was sentvia satellite and is available at:http://www.presseportal.de/galerie.htx?type=obs

When the economy is in poor shape, forward-looking corporatestrategies naturally have to apply selected, intelligent cost-cutting measures. However, a global study by Roland BergerStrategy Consultants found that it is also important to focus oncreative growth. Why? Because only strong corporate growth goeshand in hand with sustainable, above-average profit and valuegrowth. The study examined 1,700 companies worldwide. Of these,441 form the top tier, the "outperformers", who increased theirprofit and value at above-average rates. During the periodanalyzed (1996-2001), this group saw sales leap by an average of33.8 percent p.a., compared to the average of just 11.8 percentannual sales growth among the entire group of companiessurveyed. Pre-tax profits for the leading group rose by 37.3percent annually; the corresponding figure for the entire groupof 1,700 companies was a mere 8.5 percent. At 23.6 percent p.a.,the total shareholder return (the increase in stock price plusdividends) likewise easily outstripped the overall group averageof just 17.3 percent p.a.

According to a statement made today by Roland Berger,Chairman and Global Managing Partner of Roland Berger StrategyConsultants, "Seven strategic priorities - which can be mixedand matched depending on the industry and the competitiveenvironment - are of critical importance to above-average growthin sales, profit, and company value."

In its study, the international strategy consultancy analyzed900 top-ranking European companies, the S&P 500, and the Nikkei300.

This group of top-tier companies had outstanding results inother performance indicators, as well, thus furtherdistinguishing itself from the other companies. The number ofnew jobs created each year increased annually by an average of26.9 percent, for example, while other firms managed just 2.0percent. The productivity of the top group rose by an average of13.5 percent per year, compared to 3.3 percent among the otherfirms surveyed. All stakeholders profit from the significantlybetter performance of leading companies: customers, employees,investors, and society as a whole - through more taxes,investment, and additional jobs. Seven strategic priorities for outperformers "It takes rule-breaking growth strategies to createsustainable increases in a company's operating result and value.Top companies understand this," says Roland Berger. "We provedthat their excellent growth in sales, profit, and company valuewas based on seven strategic priorities that can be fine-tunedaccording to the specific industry and competitive environment." 1. Innovation and Branding Innovation is the most important growth strategy, as it keepscompetitors at a distance. Companies need to master the "3Sprocess". The innovation phase should be as short as possible(speed), gain high market share through "first mover effects",which then make it possible to achieve low unit costs and highmargins through economies of scale. Innovation leadership is based on both new products and newservices. The Roland Berger analysis shows that focusinginnovation projects and budgets on promising solutions is thekey to coming up with the best idea in the context of globalcompetition. Innovation should also be secured through consistent branding.Only good ideas and strong brands create lasting competitivebarriers and lead to sustained increases in earnings and value. Nokia is a particularly successful example of top innovationperformance. A strong customer focus in products and serviceshelped the company become the market leader. Intel secured itslong-term growth by driving faster innovations in the chipmarket. German premium automotive manufacturers succeeded insecuring their leading position in the world through shortinnovation cycles combined with consistent branding. 2. Forcing new rules on others "Introducing a new game" that competitors join later in ordernot to be crowded out of the market; this is a strategy manyoutperformers use effectively. Individual companies use thesetactics to drive the market forward by interpreting existingstrategic rules in a new way. The Internet, for example, gaverise to many innovative business models. However, successfulexamples can also be found in more traditional industries, suchas no-frills airlines or innovative retail models likediscounters or specialist retail chains. This strategy can significantly boost growth and company value- if the "new game" can establish itself on the market and itsinventor can reap and secure the first-mover advantage. One such successful example is the VHS video standardintroduced by JVC in the late 70s, which asserted itself in themarket thanks to a smart licensing strategy and its user-friendly technology. Dell forced the international market for PChardware to buy into its innovative business model: customizedbuilt-to- order PCs with very short delivery times at competitiveprices. And, to cite a more recent example, Ryanair: much likeits US counterpart South West Airlines, the low-cost carrier isbeginning to aggressively change the European market with itscheap offers. 3. Globalization Globalization offers companies the opportunity to participatein the world market, which offers much faster growth thannational GDPs: the sum of all global GDPs has risen some 60percent since 1985, exports tripled, and foreign investment evenincreased eightfold. Players in this market face excellentprospects for above-average growth in revenues, profit, andshareholder value. Companies that actively pursue globalization retain theircustomers by following them when they expand their operations toother countries, and win new customers in volume and growthmarkets. They achieve unit cost advantages by using the globaldifferences between factor and locational costs, and improvetheir logistics positions. These companies also gain access tointernational know-how and are thus able to achieve innovativeleads. Business formats are known to change when demand andcompetition move from a national level to the global stage. Examples of companies that have successfully boosted growththrough globalization are Ahold and Carrefour, the undisputedleaders in European retail, or Citigroup, the only retail bankthat is successful on a global scale. These companies show howstrategies for overcoming stagnating markets can be implementedwith entrepreneurial spirit. Pursuing a global expansion strategydevised for long-term growth has made Vodafone the only trulyglobal mobile operator. 4. A focused portfolio Successful companies restructure and focus their portfolios tobecome global market leaders in target business segments. Non-core activities that do not offer the potential for reaching aleading position in the market are sold. Only market leadership enables companies to achieve superiorcost positions (economies of scale and scope) and realizeoptimum margins for investment and profit growth. From aleadership position, it is also possible to raise barriers toeffectively fend off the competition. In the last decade, anumber of companies in the US and Europe have shown how acleverly focused portfolio can help overcome growth barriers andcreate new value. RWE and e.on have consistently focused their portfolio on theinternational multi-utility business, while TUI is successfullyconcentrating on the tourism and logistics growth sectors. 5. Reducing vertical integration through outsourcing Reducing vertical integration by focusing on core competenciescreates, on the one hand, advantages in terms of specializationand experience, and on the other hand, superior unit costpositions and profit margins. Outsourcing - when coupled withorganizational or virtual integration of all partners in thevalue chain - maximizes available capital and reduces unitcosts. This frees up additional cashflow for innovation andgrowth. "Outperformers" have recognized that the previously commonpractice of comprehensively integrating all stages of acompany's value chain is not a path to growth. The futurebelongs to specialized product and service suppliers. This willfundamentally change the face of entire sectors, such asfinancial services providers. Roland Berger forecasts areduction of vertical integration at banks in the next 10 years,from its current 80 percent down to 30 percent. As an outsourcing partner in chip production for hardwaremanufacturers, Flextronics managed to increase its sales 100-fold within 7 years. Porsche has the least vertical integrationof all automotive manufacturers, and thus achieved maximumprofit. 6. Market presence and consolidation through M&As Mergers and acquisitions ensure greater market shares,presence in new, usually global markets, and industryconsolidation. This makes them major value drivers. Generallyspeaking, market consolidation is the basis for reducingcapacity and, through better capacity utilization, optimizingcosts for products and services. Those who gain leadershippositions in this area achieve superior growth rates in sales,profit, and shareholder value. Total Fina Elf's successful M&A earned it the unique standingof being the only continental European company in the Anglo-Saxon-dominated top tier of oil producers. Nestlé, too, made itsway to a successful global position through M&As. 7. Networks, partnerships, and virtualization Product and service-based networks and partnerships - withplenty of opportunities for virtual integration at a globallevel as a result of technological advances - enableoutperformers to maximize available capital, access globalexpertise, and thus create additional growth resources. A globalnetwork allows all participants to benefit from a larger customerbase. In addition to creating partnerships in research anddevelopment (co- inventing) or along the value chain (advantagesthrough better specialization), networks can also be used tobundle complementary and attractive offers. This boosts thepartners' marketing and earnings power - as the Star Allianceclearly shows. Puma offers a prime example of how to take optimum advantageof local competencies in a global, virtual network. SAP hascreated a unique network of services surrounding its softwareapplications, thus safeguarding its position as market leader. Companies set themselves apart from the global average onlywhen they take targeted action to improve their growth position.Even in today's strained economic situation, it is advisable torigorously pursue a dual strategy of intelligently cutting costsand focusing on creative growth. One of the key findings of thestudy was that merely cutting costs can boost profit and companyvalue in the short term only. It takes rule-breaking growthstrategies to generate sustainable increases in profit and value- even in times when the economy is weak. "One rule for strategies, structures, and operations appliesto all outperformers in all industries," says Roland Berger. "Acompany's ability to adapt must always be greater than the speedof changes in its environment. That is the basis of strategicand operational excellence and ensures the company's ability tosurvive the future."

ots Originaltext: Roland Berger Strategy Consultants ImInternet recherchierbar: http://www.presseportal.de

Please direct inquiries to: Ralph Driever Roland Berger Strategy Consultants Tel.: +49 (0) 89/9230-8318 Fax: +49 (0) 89/9230-8599 e-mail: ralph_driever@de.rolandberger.com Susanne Horstmann Roland Berger Strategy Consultants Tel.: +49 (0) 89/9230-8349 Fax: +49 (0) 89/9230-8599 e-mail: susanne_horstmann@de.rolandberger.com

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