Executive Agenda
The Summer Champions
Why some global leaders consistently
outgrow their markets
IKEA. McDonald’s. Google. Three companies from very
different industries, with a common achievement: Each
has consistently outgrown its market for years. What
does this trio have that others do not? That’s what we
wanted to know.
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Executive Agenda
What causes one leading company to stay consistently ahead of the market while another
hitherto-thriving company flounders? The question is intriguing—and pressing, too, during
these times of volatility. To explore the reasons and possible solutions, we conducted a study
of industry champions. The result was a matrix that measures market success—a combination
of growth in sales relative to market growth, and market share relative to the next largest
competitor (see figure 1). Where BCG’s matrix was created to help companies plan their
portfolios, this matrix is used to chart a company’s evolution and derive insights about its strategies.1 We call it the “four seasons” matrix, with the quadrants corresponding to the seasons:
• Spring. Companies that have outgrown their market but are not (yet) market leaders
• Summer. World leaders that have outgrown their markets
• Autumn. World leaders with below-average growth, gradually losing their positions
• Winter. Market followers that are growing more slowly than their markets
Relative growth
Figure 1
Figure 1
The four
seasons martix
The four seasons
matrix
Spring
Summer
Budding market leader
above-average growth
Market leader
above-average growth
Winter
Autumn
Market follower
below-average growth
Market leader
below-average growth
Relative size
Note: Relative growth (y axis): company growth divided by market growth (if growth is > 1, the company outgrows the market); relative size (x axis): company
Note:
Relative
growth (y (if
axis):
company
growth
divided
by market
growth (if growth is > 1, the company outgrows the market);
sales divided by sales
of largest
competitor
sales
are > 1, the
company
is market
leader).
relative size (x axis): company sales divided by sales of largest competitor (if sales are > 1, the company is market leader).
Source: A.T. Kearney analysis
Source: A.T. Kearney analysis
1For more information about strategies for outperforming markets, see Beating the Global Consolidation Endgame, by Fritz Kroeger,
Andrej Vizjak, and Michael Moriarty. Published by McGraw-Hill (2008).
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We chose the axes of growth and market share because both metrics have a strong, proven
relationship to long-term profitability and shareholder value. Combining those measures
provides a solid basis for picking long-term winners.
Positions in the matrix can change rapidly, as the saga of Dell illustrates. Dell rushed into Summer
after a short Spring. Between 1989 and 2001, Dell was the largest supplier of PCs and laptops
worldwide and grew faster than the market. When HP took over Compaq, Dell lost its Summer
position, regained it within a year, and lost it two years later when Michael Dell departed. The
company fell into Autumn in 2006 (still a world market leader, but growing slower than the market),
and into Winter one year later, when HP recaptured the number one position (see figure 2).
Other companies, however, manage both to lead and outgrow their markets for years. To find these
leaders, we screened the performance of 500 companies in 40 industries from 2003 to 2008.
Only 15 Summer Champions emerged: Amazon, Apple, ArcelorMittal, ASML (the Dutch supplier
of lithography systems), Canon, Caterpillar, Cisco, Disney, eBay, Google, Hewlett-Packard, Hon
Hai Precision Industry, IKEA, McDonald’s, and Starbucks (see figure 3).2 Although our findings
are drawn from the global champions, Summer positions exist in local and niche markets as well.
Relative growth
Figure 2
Figure 2
Dell’s seasonal migration
Dell’s seasonal migration
Spring
Summer
1984–1998
2002*
1998–2001
HP acquires
Compaq
2002
2003–2005
2004
Departure of
Michael Dell
2006
Winter
2007–2008
Autumn
Relative size
* HP announced its acquisition of Compaq in 2001 and officially acquired it in 2002.
Note: Relative growth (y axis): company growth divided by market growth (if growth is > 1, the company outgrows the market); relative size (x axis): company
Note: Relative growth (y axis): company growth divided by market growth (if growth is > 1, the company outgrows the market);
sales divided by sales of largest competitor (if sales are > 1, the company is market leader).
relative size (x axis): company sales divided by sales of largest competitor (if sales are > 1, the company is market leader).
Source: A.T. Kearney analysis
Source: A.T. Kearney analysis
2The sample is influenced by choices made about market definition. For example, markets with unclear boundaries, such as telecom,
affected the selection.
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Executive Agenda
Relative growth
Figure 3
Figure
3 residents
Seasonal
Seasonal residents
1.48
//
1.26
//
1.16
Spring
Hisense
Huawei
Wipro
Gree
Acer
Infosys
Hon Hai
China Shipping
//
1.10
1.06
Hertz
1.00
Starbucks
Lowe’s
1.04
Haier
AMD
Alcatel-Lucent
0.94
Philips
0.92
0.90
0.88
ASML
Canon
Cisco
McDonald’s
HP
AU Optronics
Caterpillar
Kuehne + Nagel
Yum!
0.98
0.96
Google
Cemex
Baosteel
1.08
1.02
Summer
ArcelorMittal
Deere
Fugro
Dunkin’ Donuts Nike
Saint-Gobain
Ingram Micro
Sony
DHL
Home Depot
Apple
Amazon
eBay
Microsoft
Disney
IKEA
IBM
LG
Lafarge
Dell
Whirlpool
Yahoo!
AB Electrolux
0.86
0.84
//
0.76
0.0 0.1
Winter
0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Autumn
Avis
1.1
1.2 // 1.5
1.6
1.7
1.8 // 2.2
2.3 2.4
//
12.6
Relative size
Note: To improve legibility, only a selection of the 500 analyzed companies are included in the Spring, Autumn, and Winter quadrants.
Note: To improve legibility, only a selection of the 500 analyzed companies are included in the Spring, Autumn, and Winter quadrants.
Source: A.T. Kearney analysis
Source: A.T. Kearney analysis
How to Plan for Long Summers
The 15 Summer Champions have more in common than the season within which they reside. All
focus intensely on the customer, all possess a deep understanding of operations and customer
needs, and all aim to provide unmatched value in products and services. Each one demands
excellence across the following dimensions (see figure 4):
The Right Goal: Focus on the Customer and Results
Will Follow
Summer Champions share one passion above all—the desire to offer their customers the best
possible product. While the product may vary widely, all set the bar high: “to make all the
information in the world accessible”(Google); “to build the perfect store” (eBay); “to provide as
many people in the world as possible with affordable and beautiful things” (IKEA); and “to create
happiness” (Disney). All of these goals seem idealistic, which usually stems from the passion of
the founder. Over time, this passion becomes embedded in the company DNA.
Google could easily improve short-term results by advertising on its home page to the billionplus daily visitors, as most competing search engines do. The company chooses not to do so
because it would run counter to its main goal—serving customers in the best way possible.
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Figure 4
Figure 4
How to make it a long summer
How to make it a long summer
Goal—keep an eye on the ball
• Customer focus
• Long-term focus
• Continuous improvement
• Profits (secondary focus)
Knowledge—know the playing field
• What customers want
• Smallest details of own operations
• Company processes and technology
• Research and development
Strategy—focus on cost and quality
• Balanced positioning
• Quality and costs
• Targeted development of competencies
• Clever scaling up of production
• Preemptive approach to competitors
Execution—maintain discipline
• Perfectionism and discipline,
delegating within tight frameworks
• Tightly knit teams, strong values,
inspirational leaders
Unmatched customer value
Source: A.T. Kearney analysis
Source: A.T. Kearney analysis
Amazon was criticized by shareholders for years for its high start-up losses. Founder and CEO
Jeff Bezos ignored the chatter and stayed focused on customers, telling his people: “Think
about how you can create real value five years from now because we can actually affect the
stock price [then], whereas none of us has any control over what the stock price is tomorrow.”
Hewlett-Packard co-founder Bill Hewlett said in the early days of HP: “It is always possible to
increase short-term profits for a while by lowering investments, but in the long run we would
pay a high price for that.”
While almost everyone acknowledges the importance of a long-term focus, in practice most
companies ignore this wisdom. In a recent A.T. Kearney study, we found that about two-thirds
of companies have a strategy horizon of four years or less. We also found that the longer the
planning horizon, the higher a company’s total shareholder returns (TSR). Indeed, TSR for
companies with a planning horizon of 3.5 years or less was 2 percent on average compared to
28 percent for companies with a 10-year or longer horizon.3
3For more information about this study, see “Where Have All the 10-Year Strategies Gone?” in Executive Agenda, 2011 Q1/Q2.
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Our Summer Champion analysis delivers similar results. From 2005 to 2009, the total market
value of Summer Champions grew 22 percent per year on average, while companies in the S&P
Index declined by 1 percent per year.
The Right Knowledge: No Detail Is Too Small
Summer Champions have a deep understanding of their customers’ needs and of their own operations, right down to the smallest details on the shop floor. They know exactly where costs lie and
are fully aware of opportunities, both short and long term. Managers do not live in ivory towers,
hidden behind stacks of paper or shuttling between meetings. Instead, they show up time and
again on the shop floor and dare others to do the same. They combine their operational insights
with client knowledge to uncover new opportunities, improve their products, and further reduce
costs.
Steve Jobs had a self-proclaimed “passionate devotion to profoundly understand[ing]” client
preferences. “Most people don’t take the time to do this,” he said. When Jobs left Apple in 1985,
the company had just entered the Spring quadrant, with the successful launch of the first
Macintosh and better-than-market growth. Jobs’ forced resignation marked the start of a long,
chilly Winter. Afterward, Jobs said about his successors: “They got very greedy and instead of
following the original vision—to get this thing (the Mac) out to as many people as possible—they
went for profits…. What that cost them was the future.”
Managers do not live in ivory towers,
hidden behind stacks of paper….
They show up time and again on the shop
floor and dare others to do the same.
At IKEA, all managers must work on the shop floor one week a year, during what they call “antibureaucracy weeks.” Retired CEO Anders Dahlvig told Businessweek, “I unloaded trucks and
sold beds and mattresses.” Ingvar Kamprad, founder of IKEA, says, “The shop floor is the best
university. That’s where you learn everything about the business you need to know.”
At ArcelorMittal, Chairman and CEO Lakshmi Mittal managed an Indonesian steel mill for 13
years before his first acquisition. He studied Japanese steelmaking in detail and learned exactly
how to run an optimal plant. With that knowledge, he built an empire that today reaps more
than $100 billion in sales. Mittal told Fortune he never played golf and it shook him to find out
that for Western steel executives, “the mentality was that you work for five days of the week and
play golf for the rest.” Mittal prefers to spend weekdays and weekends in “the stinking hot steel
factories” or phoning his factory managers.
McDonald’s CEO Ray Kroc was a sales rep for decades. As the story goes, while selling milkshake
machines to restaurants, he noticed one small customer ordering new machines much more
frequently than others. In long talks with the owners—the McDonald brothers—he recognized
an exceptional formula for success. Mr. Kroc attributed his subsequent accomplishments
leading the company to years spent visiting myriad competitors.
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Now, consider how his successor handled McDonald’s. In 1960, as McDonald’s was enjoying a
strong position in the Summer quadrant, Kroc handed control to his CFO, Harry Sonneborn.
Sonneborn did not visit any restaurants and freely admitted he didn’t even like hamburgers.
He focused all of his attention on pleasing the shareholders. McDonald’s entered the Autumn
quadrant as competitors Burger King and Burger Chef stole the lead. Only after Fred Turner took
over in 1968 did McDonald’s head back to the Summer quadrant.
Summer Champions invest in knowledge of their processes and technologies more than their
competitors do. Starbucks and McDonald’s are standouts in the almost scientific way they
approach their products and analyze all processes surrounding them. Our technology Summer
Champions have significantly higher R&D budgets than their direct competitors. Consider their
2008 R&D budgets:
• Canon: $4 billion; more than four times Konica Minolta’s
• HP: $3.5 billion; more than five times Dell’s
• Google: more than twice Yahoo!’s
• Caterpillar: almost three times Komatsu’s and twice John Deere’s
Summer Champions not only grasp what the client wants today, but also understand where
their markets and customer needs are heading. Many reserve time to think about the future
and are willing to take daring steps to remain successful in a changing situation. For example,
long before the Internet hype, John Chambers and his colleagues at Cisco saw that computer
networks would form the core of the next big computer revolution and decided to fight aggressively for a position of dominance comparable to that of IBM and Microsoft in earlier revolutions.
An Ambitious, Balanced Strategy—and No Pigeonholing
Traditional strategy theory suggests positioning around a single theme: either high quality or
low cost. But Summer Champions resist being pigeonholed and instead become masters of
balance, delivering the right amount of quality (or speed or service or any other distinguishing
element) for the right price. This balancing act relies on five strategies:
1. Position according to deep knowledge of customers and the shop floor. Drawing on
customer insights is not a one-time choice but a continual process. Seldom does a customer
seek the best product completely independent of its price, or the cheapest product
completely independent of its quality. The challenge is finding the right mix of advantages
and price in a given market.
IKEA, a Summer Champion for two decades, offers highly competitive prices and strategically
chosen elements of service, such as instant product availability and daycare for children.
Neither assembly nor delivery is included, however.
Although a lithography machine from ASML is much more expensive than one from Nikon,
it is so fast that the total cost of manufacturing one computer chip is lower. Similarly,
Caterpillar’s machinery costs more than that of its competitors, but the excellent quality and
service reduce the total cost of ownership.
Of the many thousands of large Chinese-Taiwanese companies, only Hon Hai has grown into a
Summer Champion. Hon Hai, the world’s largest maker of electronic components, knows its
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Executive Agenda
customers and offers speed and flexibility at a low price—a unique and unbeatable combination in this industry.
2. Keep a sharp eye on costs. Our champions never choose between offering either great
products or low cost. They excel at both. Cisco offers top-quality products but is also
extremely frugal, allowing no employee to fly business class. Overhead is not exempt from
scrutiny. At eBay, the “eBaysian” way of working means: Don’t squander money; spend it as if
it’s your own. Both eBay and Amazon follow the Disney model of austere offices.
3. Invest in relevant competencies. Summer Champions continually work on their core
competencies to realize their carefully defined positioning. Apple and IKEA focus on design
and logistics; HP and Hon Hai on technology and customer service; and ArcelorMittal on
sourcing and production.
4. Adopt the right model for growth. Google began including other languages in its search
engine at an early stage. Starbucks, McDonald’s, and IKEA would have remained hometown
favorites without well-oiled processes for setting up branches—either their own, or
franchises. ArcelorMittal, Cisco, and eBay would have remained local rather than global
champions without their takeover and integration strategies. For all of these companies, the
telling force behind success is preventing dilution of their strengths during rapid growth and
internationalization.
5. Block competitors. Foiling competitors takes daring and confidence. Apple’s iPod Nano,
introduced in 2005, relied on unique solid-state memory technology instead of the hard disk
of its predecessor. And Apple paid suppliers such as Samsung and Hynix $1.25 billion to keep
the new technology out of the hands of competitors.
Perfect Execution: Rules + Freedom
For Summer Champions, balance applies not only to strategy but also to execution. These
companies are both rigid and flexible—rigid in the sense of providing written, detailed lists
of requirements, training staff to perform accordingly, and communicating continually; and
flexible in establishing decentralized organizations, sharing the same core values, believing in
full transparency, and collaborating fully with suppliers.
Fred Turner, Ray Kroc’s first man at the grill and later the board chairman, wrote the first
handbook for franchisers. It begins like this: “High-volume McDonald’s branches will always
have an old mother hen cluck-clucking around from one corner to the other, never satisfied. You
must be a perfectionist! There are hundreds and hundreds of details to be watched. There isn’t
any compromising.”
The following outlines the elements of balance that all Summer Champions espouse:
Agility. All of our leaders are agile. At McDonald’s, for example, regional managers can make
franchise and real estate decisions—a level of authority reserved for the CEO in other chains.
Caterpillar is another example. After many years dominating the construction equipment
industry, Caterpillar stepped into a cold Autumn in the 1980s when Asian competitors, primarily
Komatsu, entered the market. By the time Caterpillar started to restructure, it was losing
hundreds of millions of dollars a year. Its organizational reshuffle focused on decentralizing,
turning its large functional silos—factory, sales, marketing—into small, independent business
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Executive Agenda
units responsible for their own pricing, marketing, and sales decisions. Soon after, the company
began winning large tenders and turning out new models. In 1995, Caterpillar launched a D9
tractor after just three years in development; previously, it took five to six years to launch a
product. The model was so successful in the United States that within two years Komatsu pulled
out of the U.S. market. As revenues tripled—from 1992 to 2004—Caterpillar headed back to
Summer.
Shared values. For an agile organization to work, there must be a shared culture and set of
values to guide decision making. Lee Cockerell, Disney’s former operations director, remembers
being in Disney World on Labor Day weekend in 2004 when Hurricane Frances passed through,
leaving devastation in its wake. All the crew members came to the park and worked through the
entire night. The next day, to the astonishment of 75,000 visitors, the entire park was impeccably clean even as most public places remained closed. Although there was nothing on the
books governing such an extreme situation, the company values left no doubt in the minds of
the crew members as to what they needed to do.
Seldom does a customer seek the best
product independent of its price, or the
cheapest product independent of its quality.
Google’s success can largely be attributed to its culture of creativity, team spirit, and integrity.
In 1999 Google was a humble start-up with only $300,000 in revenue. Six years later, with
$6 billion in revenue, Google shot past Yahoo! and jumped into the Summer quadrant. The
company’s success is attributed to strong, ethical principles summarized in a simple credo,
“Don’t be evil.” In a 2007 interview with Fortune, Google founder and CEO Larry Page explained
it this way: “You walk into an office with 200 people and it’s amazing the extent [to which] it feels
like Google did when it was a start-up. I think that’s really healthy for a culture.”
Intense training. Perfect execution also requires extensive coaching and training, which is why
our champions provide vast training opportunities not only for management but also for shopfloor personnel, suppliers, clients, and dealers. And a remarkable number of champions have
established their own “universities.” Disney’s university opened in 1955 and trains even grounds
cleaners in interpersonal skills for three days to ensure that any visitor asking them a question
receives a correct and friendly answer. At Hamburger University, McDonald’s managers participate in intense training to become “the best talent developer in quality, service, cleanliness,
and value-for-your-money.”
Transparency. Summer Champions are typically transparent. Information streams smoothly,
results develop visibly, and adjustments are made quickly. Information moves from operations
to the head office, where potential improvements are identified, and circulates within operations to support decision making in decentralized units.
Retired Cisco CFO Larry Carter invented the concept of “the fast close,” or presenting consolidated financial statements for a reporting period on the first working day after that period
ended. He made sure that not only the head office but also every Cisco line manager could
analyze turnover and margins of an area, a product, and a business unit with a few mouse clicks.
He did this while halving his department’s costs.
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Executive Agenda
A steel plant director at ArcelorMittal describes his weekly reports: “They want to know in
meticulous detail how much oil gets used, how many units of electricity are used per hour, and
how much time is spent on repairs. After that, somebody calls me and asks, ‘Why are you using
more oil than our factory in Kazakhstan?’”
Supplier collaboration. The drive for perfection applies to suppliers as well. Starbucks, for
example, spent years developing packaging that would keep coffee fresh beyond seven days,
with Starbucks personnel working closely with suppliers to push them beyond their existing
technology. Such collaborative relationships always result in better materials and, in some
cases, more innovative products. For instance, supplier collaboration resulted in an innovative
valve for coffee packaging that releases gases to the outside but does not allow air in.
At Caterpillar, suppliers must have a “passion for quality,” making sure all products meet the
company’s quality standards so that every product delivered is “Caterpillar to the core.” The
Certified Supplier Program ensures annual checks on 1,100 suppliers, based on strict and
detailed conditions.
The Future of Summer: Asian Spring?
While 11 of our 15 Summer Champions originate in North America, emerging economies
dominate the Spring quadrant. Names such as Huawei, Haier, Wipro, and AU Optronics are
quickly moving toward the upper-right quadrant of Summer. In time, Western companies could
sink into Autumn, while Eastern companies could advance into Summer. A wholesale migration
of East does not seem likely, however, as the Summer quadrant will almost always host
companies from varied origins. As the marketplace becomes increasingly global, the principles
and practices upheld by the Summer Champions will be all the more important for achieving—
and maintaining—success.
Author
Carol Velthuis, principal, Amsterdam
[email protected]*
*For more on the findings, see Velthuis, ˝Surfing the Long Summer: How market leaders grow faster than their markets,˝ 2010.
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Executive Agenda
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