High performance Business in the Nordic region An Executive Summary
What are the characteristics of the high performing businesses in the Nordic region? What are the characteristics of the high-performing businesses in the Nordic region and how can organizations increase their chances of becoming high-performance businesses? These were the central questions behind a newly launched study by Accenture’s management consulting practice in the Nordic region. To uncover the answers, Accenture surveyed approximately 1,000 of the largest companies across all major industry segments in Denmark, Finland, Norway and Sweden. Of the wide group of companies evaluated only about 10 percent – or 116 companies – were deemed high performers in the Nordic region, according to study criteria. Among the leaders were:
Denmark Bestseller, Aalborg Portland and Novozymes Finland Kuusakoski, Nokian Renkaat and Ponsse Norway Telenor, Ekornes and Frank Mohn Sweden SSAB, Sandvik and Hennes & Mauritz (H&M)
What is high performance? Accenture defines a high-performance business as one that consistently outperforms its peers through economic cycles, industry cycles and changes in leadership. Key measurements used to define the leaders included growth,
profitability, and consistent performance over time against a peer set (figure 1). Research results were also augmented by Accenture’s own depth of experience in doing business in the Nordic region. The study examined a five-year period of performance – from 2001 through 2006 – to gauge which companies could sustain performance over time. Figure 1: Accenture research viewed the performance of companies within their peer set, against key measurements including growth, performance and profitability.
Growth
Characteristics of the leaders
Although the study measured growth in terms of company revenue, the generation of wealth through employment was also captured.
During the five-year period covered by the study, the Nordic region went from an economic downturn to an upturn. The region’s gross domestic product (GDP) annual growth that was at 3.3 percent in 2004, had risen to 4.1 percent by 2006. And although employment growth lagged economic development, those figures were also bouncing back.
High-performance businesses employed 7 percent of the total represented work pool in the study. Yet their share of headcount growth accounted for more than one-fourth of the headcount growth of the entire survey sample. Clearly, these leaders are driving profitable growth, which goes hand in hand with an increased number of employees.
Against this backdrop of variable economic conditions, it’s interesting to note that the study’s high-performance businesses managed to perform solidly through both positive and negative marketplace scenarios.
Leaders are not only outpacing peers in employment growth, they’re also excelling in terms of productivity. When analyzing productivity measured as revenue per employee, the study found that high performers increased productivity by about 10 percent – others stayed at around 5 percent (figure 2). The industries where this
Figure 2: High-performance businesses lead in both productivity and in employment growth.
Figure 3: Norway significantly outperformed the other Nordic countries with nearly twice the share of high performers.
proved especially true included Pharmaceuticals, Financial Services and Logistics and Transport. Of all 4 countries analyzed through the study, one country in particular stands out: Norway. It represented double the share of high performers (figure 3). Examining the list of leaders more closely reveals that a number of companies are connected to the country’s booming oil and energy business, and are experiencing a “halo” effect as a result. Yet, even after taking these names off the list, Norway still has the highest share of high performers.
Productivity vs employment Average revenue employee CAGR (%) 10 High Performers 01-06 9 8 7 6 Others 01-06 5 4 3 2 1 0 0 1 2 3 4 5 6 7 8 9 10 Average no. of employees CAGR (%)
Share of High Performers in percent of businesses per country in the sample No. of companies in country sample Norway
18.5%
(227)
Finland
9.7%
(269)
Sweden
9.5%
(274)
Denmark
8.8%
(283)
Consistency
High performing business
Profitability 2
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High performance: dispelling the myths The Accenture research into highperformance businesses in the Nordic region not only defined the character istics of leading companies, it also served to dispel myths surrounding high performance. One myth negated by the study: Larger companies are more likely to be successful.
Consider the survey numbers
As part of the methodology, the universe of Nordic companies was split into three categories (figure 4). Regardless of whether companies were labeled “small” (with revenues of 80 to 200 million Euro), or “large” (with
revenues of 500 million Euro or more), there was roughly the same percentage of high performers in each.
The conclusion Bigger is not necessarily better in terms of business performance. The Accenture Nordic study disproved another popular business myth: “It costs to grow.” According to research results, growth pays off exponentially to the bottom line results of companies. The strongest growing companies also had the highest percentage of median return on capital employed. Another widely held view the research dismissed concerns performance of companies that are publicly traded. According to conventional wisdom, businesses listed on the stock exchange are more likely to take a short-term view of performance,
focusing on meeting quarterly market expectations. Yet the Nordic study was specifically looking at long-term performance. And the leaders were more likely to be publicly traded. However, more than 60 percent of the publicly listed high-performance businesses have a majority of stock controlled by one or two owners. One possible conclusion: it is the strength of active ownership that benefits performance, rather than being publicly listed. Dispersion of ownership, on the other hand, may lead to a lack of account ability, and could detract from a company’s performance.
The implications of the multipolar world
In the future, the ability to capture market share in regional, emerging markets, such as Russia and the Baltic States, as well as in Asia, will differentiate high performers from laggards.
Business is entering a deeper phase of globalization. This is what we at Accenture term, “the multi-polar world.” Simply put, the multi-polar world is a competitive environment that is broader than the triad economy dominated by the United States, Europe and Japan. Now, new sources of capital and labor are drawing Nordic companies looking to achieve high performance. In fact, study results reflect that while most companies in the sample have global sales, high performers are substantially overrepresented in this category. This suggests it may be more difficult to achieve high performance with only a local or regional reach.
Figure 4: Size alone is not enough to deliver high performance – high performers were nearly evenly represented in each of the size categories. Distribution of companies per size class: High Performers vs. total sample (1,000) (In percent) 38.7 38.2 26.1
35.3
33.2
28.6
<200 M EUR
200-500 M EUR
>500 M EUR
Top Performers Total sample (1,000)
4
5
High performance in Denmark
High performance in Finland
High performance in Norway
High performance in Sweden
Performance metric average by category. High Performers vs. Others.
Performance metric average by category. High Performers vs. Others.
Performance metric average by category. High Performers vs. Others.
Performance metric average by category. High Performers vs. Others. 2 yr EBIT margin
16.2% 6.5%
5 yr EBIT margin
4.8%
2 yr EBIT margin
7.2%
5 yr EBIT margin
6.3%
21.7% 19.9%
2 yr ROCE
14.0%
5 yr ROCE
13.2%
2 yr Revenue CAGR 5 yr Revenue CAGR Consistency
9.7%
82.4% 74.2% 26.9%
13.0% 7.9% 3.3% 1.8%
High-performance businesses in Denmark included Bestseller, Aalborg Portland and Novozymes, among others. Danish high performers comprised 21 percent of the total sample of high performers, or 25 companies. Nordic-level research showed no correlation between size and performance. In Denmark, however, high performers were more frequently found among large companies. In fact, 11.5 percent of large Danish companies were high performers whereas only 8 percent of small to medium-sized Danish companies garnered that distinction.
2 yr EBIT margin
13.2% 6.4%
2 yr EBIT margin
5 yr EBIT margin
12.6% 5.9%
5 yr EBIT margin
2 yr ROCE
16.5%
5 yr ROCE
15.4%
2 yr Revenue CAGR 5 yr Revenue CAGR Consistency
8.7% 6.9%
31.7% 29.9%
22.6% 19.4%
3.5 1.7
22 percent (or 26 companies) of the total Nordic sample came from Finland and included companies like Kuusakoski, Nokian Renkaat and Ponsse.The highest share of high performing companies was found in industries like Electronics and IT as well as Industrial Goods which typically have a relatively high focus on research and development. Since listed companies have generally performed better than privately owned ones in the Finnish sample, high per formers are over-represented in the listed category.
9.0%
21.3% 7.6%
2 yr ROCE
77.6%
13.5%
2 yr Revenue CAGR
Consistency
85.5%
16.4%
5 yr ROCE
5 yr Revenue CAGR
22.5%
16.6%
29.8%
20.4% 10.3% 3.3% 1.9%
2 yr ROCE 5 yr ROCE 2 yr Revenue CAGR 5 yr Revenue CAGR Consistency
15.8% 56.7%
13.8% 11.3% 8.2% 5.6%
51.5% 25.8%
17.9%
3.3% 1.6%
Although small relative to the overall population of its Nordic neighbors, Norway contributed in a large way to high performers. 35 percent of highperformance businesses identified – or 42 companies – were Norwegian.
SSAB, Sandvik and Hennes & Mauritz (H&M). These were a few of the names that topped the list of high performers from Sweden. Sweden contributed 22 percent, or 26 companies, to the roster of high performers.
Among these were Telenor, Ekornes and Frank Mohn. While the energy industry is a major driver for the Norwegian economy, Norway’s high performers were over-represented in 10 out of 12 industries.
High performers in the region grew employment in their respective global workforces by 38 thousand people during the five-year period the study covered. Non high-performance businesses decreased their total employment by nearly 59,000 people in the same timeframe.
High Performers Others
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Attributes of High Performance After analyzing the performance of leading companies through both our global and Nordic research efforts, a sense of the essence of a high-performance business emerged. These attributes of excellence can transcend and unite otherwise disparate organizations. We called this common ground competitive essence, which, in turn, is comprised of the three building blocks of high performance – Market Focus and Position, Distinctive Capabilities, and Performance Anatomy.
Market focus and position
Distinctive capabilities
Market focus and position are the “where and how to compete” aspects of business strategy. High-performance businesses have remarkable clarity when it comes to setting strategic direction. Through their market focus and position, high-performance businesses achieve a kind of strategic decision-making capability that enables them to compete in the best markets and maximize growth opportunities, without reaching or scaling beyond their limits; to select and manage the optimal portfolio of businesses and to use organization design as a competitive weapon.
When our research turned to an exa mination of truly distinctive capabilities among high performers, we began to understand the critical interplay between capabilities and value crea tion, a relationship that goes to the heart of our High Performance Business research. We have seen that to create value, each high performer develops a formula for doing business – either at the enterprise or business unit level – that successfully translates a big idea regarding customer needs into a unique set of connected business processes and resources that costeffectively satisfy those needs. We refer to these customer-centric formulas for value creation as “business algorithms.” Based on that initial work, we are now expanding our research to cover a number of new areas.
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We are seeing the critical importance of creating product and service variety to satisfy the demands of today’s more sophisticated and global customers, while at the same time managing the inherent complexity this creates. We now refer to this organizational skill as the ability to achieve “differentiation on the outside and simplification on the inside.”
Performance anatomy Long-term business success has a cultural component, to be sure. Spend any amount of time with executives and employees of a high-performance business, and you will get an almost palpable sense of the company as a distinctive community.
In the course of our research, however, we found that discussions of corporate culture often end up being less precise and actionable than one might wish.
High performance in the Nordic region
Accordingly, we developed a concept we called “performance anatomy” as a unique way to approach the core and common business elements related to culture, leadership and the workforce.
Leaders in productivity. Publicly traded. Generating employment. Strong global sales capabilities. These are a few of the hallmarks of highperformance businesses according to Accenture’s Nordic study. With the business landscape changing, and in the dawn of the multi-polar world, new demands are being placed on all companies.
We identified five core “winning mindsets” at the heart of a highperformance anatomy – essential skills that determine how and how well an organization approaches tasks critical to the execution of its strategy. They include the ability to: Balance market making and execution, multiply work force talent, generate strategic advantage through IT, improve performance through focused measurement and renew continuously.
Achieving and retaining the status of high performance will require a deeper understanding of the competitive landscape of all major industries throughout the Nordic region, and a fundamental reevaluation of the key drivers of success.
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Contact:
To find out more about achieving high performance, or for more information about the Accenture study, please contact:
Lars Börjesson lars.börjesson@accenture.com +46 31 339 40 14
or Henrik Tegnér henrik.tegner@accenture.com +46 8 451 3422.
A note on Accenture’s High Performance Business in Nordic methodology: Accenture’s research into the highperforming businesses in the Nordic region analyzed approximately 1,000 companies spread across the Nordic countries; 277 companies in Denmark, 283 in Finland, 227 in Norway and 274 in Sweden. All companies included had at least 80M Euro in annual turnover. High-performers were identified based on both longand short-term growth and profitability as well as consistency of the growth and profitability. The compa nies have been ranked both on a national and an overall Nordic level.
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For each metric, all the companies in the defined peer group were given a graded score based on a normal distribution: • Greater than +1 standard deviation from the mean = A score • Greater than .33 but less than +1 standard deviation from the mean = B score • Greater than -.33 but less than .33 standard deviation from the mean = C score • Greater than -1 but less than -.33 standard deviation from the mean = D score • Less than -1 standard deviation from the mean = F score The overall ranking is based on an average grade across seven performance metrics.
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About Accenture Accenture is a global management consulting, technology services and outsourcing company. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worldâ&#x20AC;&#x2122;s most successful companies, Accenture collaborates with clients to help them become highperformance businesses and govern ments. With more than 175,000 people in 49 countries, the company generated net revenues of US$19.70 billion for the fiscal year ended Aug. 31, 2007. Its home page is www.accenture.com.