Oct 28, 2005

Investors Back to Basics

A recent article in FT (The Harder They Fall, 28 October 2005) suggests that investors are rapidly shying away from companies who make financial engineering the core of their strategy. No matter how hard they try, clever corporate center portfolio management moves by conglomerate CFOs will never trump solid marketplace differentiation as the basis for financial gain. Short-term cost cutting, market share through price erosion, acquisitions to hide the lack of organic growth, and the like are all losing strategies that saavy investors have caught on to.

Even McKinsey, a paragon of 30,000 foot macro-engineering strategy shortcuts, may be turning the corner in favor of getting back to basics: “…valuation is a complicated exercise, but a big part of showing that your shares deserve a premium rating is proving that you can increase profits faster than average. The bigger the company the harder this is to do…”

The reality is that there simply are no “portfolio management” tools that allow executives to take their eye off the ball that matters most: clear marketplace differentiation for each and every individual business they are in. Listening to customers – indeed, advocating for customers – is the only real path to success. Worrying about short-term reactions on Wall Street, acquiring your way to mediocrity, or cutting costs to bankruptcy may be easier strategies to orchestrate from the executive suite, but getting your hands dirty in the rough and tumble world of real customers and real opportunities is where long term winners are taking the action.

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