A 2013 Deloitte report, Success or Struggle?, observed that despite high profits and stock valuations, the reality for many companies is far from upbeat. Strong competitors keep appearing from all corners of the world. Advances in technology are eroding the prevailing business models in industry after industry. Companies are under intense pressure, as they struggle to defend their vulnerable revenues and market share while pursuing elusive new opportunities and profitable growth.
“Companies are broken and many don’t know,” reads the provocative opening line of the Deloitte report. It highlights the paradox that “Many companies are reporting record profits, but longer-term trends suggest they are struggling.” As an indicator of such struggles the report cites the topple rate, which measures how rapidly companies lose their leadership position. The topple rate has increased by almost 40 percent since 1965. The tenure of companies on the S&P 500 was 61 years in 1958; it’s now 18 years. If these trends continue, 75 percent of the S&P 500 companies will have changed over the next 15 years.
It’s been getting harder for even successful companies to maintain their leadership positions. I remember reading In Search of Excellence: Lessons from America’s Best Run Companies when it first came out in 1982, - one of the most influential business books of all time. The book examined 43 of the Fortune 500 top-performing US companies, highlighting what made them great and what management lessons could be learned from them. Similarly, Built to Last: Successful Habits of Visionary Companies, became an influential business best-seller in 1994 as it took and in-depth look at 18 companies which it identified as visionary.
These two books studied over 50 of the most successful companies of the past few decades. How did these presumably best-managed companies fare over time? By 2006, about 20% were out of business, almost half were struggling and a only a third were still high performers, according to Beyond Performance: How Great Organizations Build Ultimate Competitive Advantage, a book published in 2011 by McKinsey’s Scott Keller and Colin Price.