Invest wisely – or suffer the consequences
A year ago – one decade after the financial crisis – the Swiss economy had weathered the storm and was operating with greater efficiency and lower costs. However, there were doubts about whether this would translate to sustainable growth for the nation and the Top500 companies, which use growth as their benchmark for success.
Switzerland’s success in the face of adversity raised an obvious question for this edition of the Top500 study: Is there a magic formula that successful companies use to exceed the average? Thankfully, this formula does exist. Top500 companies that invest actively, strategically, and more quickly than others to pursue their visions are reaping the rewards today. More importantly, though, this magic formula isn’t just a celebration of the successes of the best. Instead, it can act as a roadmap for companies that have not yet reached this level of maturity.
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Analyzing the different investment archetypes
Approaches to investment can broadly be divided into four groups that reveal personalities or archetypes.
- The determined one: Aggressively invests because they can afford to thanks to high level of capital. They achieve their target – a higher growth rate than competitors.
- The compelled one: Also takes an aggressive approach but is more financially limited when investing in future growth.
- The reserved one: Acts cautiously, despite having plenty of financial resources. They normally focus on maintaining the status quo for core business.
- The restrained one: Behaves carefully and requires new sources of money to invest at all.
One investment type stands out from the rest, with most Growth Champions belonging to this group: the determined one. They understand how and when to invest, and their boldness tempered with a balanced strategy pays off.
Key takeaway: Become a determined archetype to increase your chances of becoming a Growth Champion!
The magic formula for successful investment
We define both investment capacity and rate as an index. However, calculation methods differ.
This index covers factors such as surplus liquidity and available cash flows divided by the company’s revenues as well as investors’ capital divided by the company’s invested capital.
As an index, this covers investment direction (split between core and new business) and investment rate (speed of investment).
To assess direction, we use an index that gives equal weight to the direction of the investments and the amount of those investments.
Using these indexes, we derived the following formula for investment:
Investment capacity + investment rate (or speed) = strategic investment intensity
What does the formula reveal?
Invest like the best: Three steps to success
- Implement defensive investment strategies
Reform your old core business by making it more efficient—especially when facing significant margin pressures. Quickly introduce new, innovative technologies, as they will enhance your enterprise’s investment capacity.
- Implement offensive strategies
Develop and strengthen your investment capabilities. Look to push the boundaries of your business and open up new sources of revenue. You can do this by augmenting your core business with innovative business models and introducing higher margin services. In addition, consider new business models that may even cannibalize your core business in the long term.
This holds the key to growth in practically every area of your business. By revitalizing existing areas of your company, you can add services to support products in your portfolio, therefore boosting revenue. You also gain the opportunity to understand your customers’ ‘digital identities’ through non-stop interaction, enabling you to build stronger relationships.
As we begin 2020, investment will play a more important role than ever before. The business landscape is fiercely competitive and only those who hold their nerve and implement effective investment strategies that promote growth will succeed. Distinguish your company as a Growth Champion by putting investment at the core of your business – both now and in the future.