For Big Companies, First-Class Assets Don’t Mean First-Class Performance

It’s not what you have. It’s what you’re able to do. That sums up what really drives the success of some of the world’s best performing companies. This is according to a new study by Booz & Company.


Booz & Company asked more than 700 senior-level executives to select up to three of the 15 largest public companies in their sector and comment on their success, or lack of it, and what drives them. Frequently cited success drivers fit under two main umbrellas: (a) those that define what companies have, i.e. assets (facilities, brands, etc.), a diversified position, or scale; and (b) those that define who they are, i.e. capabilities, a distinctive value proposition, and coherence.


Importantly, the companies whose success was seen to be linked to who they are (i.e. their identity) had a measurably higher three-year total shareholder return (TSR) record than those perceived as competing on what they have. These identity- (and capabilities-) driven companies had average annual TSR of 14.5%, versus 11.4% for companies relying more on assets, scale, and diversified positions for success.


It’s notable that respondents put Microsoft squarely in the asset- and scale-driven success category and Apple squarely in the identity-driven category. Other companies seen as owing their success to distinctive value propositions, capabilities and coherence included Caterpillar, Honda, PetroChina, SAP, Standard Chartered, Toyota, and Volkswagen.


“The study reinforces that differentiation based on a powerful system of capabilities leads to sustainable advantage. In fact, the identity of some of the most successful companies is directly linked to the value they can create for their customers with these differentiated capabilities. It’s a very powerful position and one that is very difficult for others to replicate,” said Cesare Mainardi, Chief Executive Officer at Booz & Company.


“We encourage companies to define themselves by what they’re able to do, their capabilities, rather than what they sell," adds Paul Leinwand, partner at Booz & Company. "This is because differentiated capabilities are so fundamental to a company’s identity and growth potential, whereas products have much more limited and short-lived potential. Companies that want to thrive over time need to compete on capabilities, not assets.”


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