A new magic formula
January 16, 2020
January 16, 2020
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.
Approaches to investment can broadly be divided into four groups that reveal personalities or archetypes.
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!
We define both investment capacity and rate as an index. However, calculation methods differ.
Investment capacity
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.
Investment rate
As an index, this covers investment direction (split between core and new business) and investment rate (speed of investment).
Investment direction
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
Summary
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.
Going forward, you must assess and unleash the value of your chosen investment strategy.
You should introduce your strategy to different segments, scaling and capitalizing on the most lucrative opportunities. This creates growth.
Understand that there is no alternative to investment. Sticking to your strategy enables you grow your business.
Ensure you existing organization adapts to the new strategy and supports new business models. KPI tracking is helpful for measuring success.
The Top500 need the courage to rethink their business models in order to find their position within the platform economy.