Corporate Competitive Fitness study: A roadmap for growth

March 5, 2002 - Over the last decade, Professor Jean-Claude Larreche of INSEAD Business School has been fine-tuning a technique to help managers down the path of providing long-term growth to shareholders. This technique relates a composite index called Overall Market Effectiveness Capability (OMEC) to firm revenue growth. Does firm revenue growth yield a high composite index, or does a high composite index stimulate revenue growth? Regardless of causality, results should catch the attention of executives in the 326 firms represented in the report, published early March of this year. In its fifth year of publication by Pearson Education, the report titled The Competitive Fitness of Global Firms provides the OMEC rating for top North American and European firms.

"The New Economy is not just about new technology. It marks the era of leaders who have the courage to build new corporate architectures based on distinct capability profiles," says this marketing expert and INSEAD Board Member. Prof. Larreche has authored several marketing and business strategy books, served on Boards of Directors, and consulted with leaders of global firms. Analysis behind the study reveals two points: OMEC rating relates to firm growth and activities too focused on financial results cannot be sustained.

OMEC and Firm Growth - The curve of OMEC and annual revenue growth shows a strong relationship such that higher OMEC is related to higher revenue growth.

The existence of such a relationship suggests that monitoring a firms OMEC rating may provide insight into firm growth. Many business leaders have looked for ways to assess and monitor the myriad of activities within a firm.

High Performance Unsustainable? Recent scrutiny into accounting practices has left many people looking for firm valuation techniques outside of income statements and ratios. Unlike traditional methods, OMEC is derived from executive responses to a survey of 13 fundamental business capabilities - one of which is Performance. The Performance capability measures how effective the firm is in obtaining positive results from its actions. It is the capability most in line with commonly used financial indicators.

A comparison of the Performance capability against the other 12 capabilities reveals, in some cases, a significant gap in ratings. While a high Performance capability is a good indication that firms are able to cash-in on their investments, the large gap between it and the other capabilities implies that the other fundamental aspects of the business are on par.

A gross misalignment of capabilities is not sustainable over time. Capabilities balance each other out in a normalizing process that dictates either performance will decrease to the level of the supporting capabilities or critical capabilities must rise to sustain performance.

Executives have used both OMEC and the fundamental capability approach to assess effectiveness and key drivers in their firms and marketplaces. Analysis of this nature helps prioritize investment needs across an organization to bring about sustainable growth.

About The Competitive Fitness of Global Firms Report
This report publishes results of an annual study conducted by Professor Jean-Claude Larreche, at INSEAD business school. The study ranks top North American and European firms based on fundamental business capabilities based on a survey of top managers from those firms. The capabilities measured are: Mission & Vision, Customer Orientation, Corporate Culture, Organization & Systems, Planning & Intelligence, Human Resources, Technical Resources, Innovation, Market Strategy, Marketing Operations, International, Performance and E-Business. Out of the 326 firms covered, a total of 86 firms achieved above a World-Class rating for 2002 with BMW, Nokia, and Pfizer ranking as the "best". For more information and results of the study, visit: www.corvaltec.com.