Companies that survive and thrive - outlasting their competitors - share a common characteristic. Regardless of the industry, revenue or employee count, companies that have established and retained a leading position in their respective markets have done so on a foundation of operational excellence. Specifically, they outperform the competition in planning and executing the activities required to satisfy their customers. As a result, compared to the competition, their products either provide higher value, the same value at a lower price or both.
The connection between operational excellence and longer company life as a market leader is clearly demonstrated by the S&P 500. The lifespan of listed companies has steadily decreased since the S&P 500 was established more than 50 years ago. At that time, companies could expect to stay on the list for 61 years. By 2012, that had decreased to just 18 years. As this accelerated decline continues, lifespan is expected to be only 13 years by 2027.
This shorter lifespan on the S&P 500 can be attributed to one of two factors:
1. Companies are performing at market-leading levels for shorter periods of time.
2. Companies are being acquired at an earlier stage in their lifecycle.
For some companies, the latter is the case and they are removed upon acquisition or when they become private. But many fall off the list because they no longer meet the eight primary criteria for an S&P 500 company which includes market capitalization, liquidity and financial viability – a direct reflection of their degraded performance.
Companies that survive and thrive, by definition, have maintained market-leading performance and have longer-than-average S&P 500 lifespans. For them, effective operations are a prerequisite for success and bringing current operations up to that level is the first order of business. Indeed, attempting major strategic initiatives prior to achieving operational effectiveness has proven to be costly.
Valizant products and services help companies improve operational effectiveness through the alignment of people, process and data. Learn how Valizant products and services accelerate your journey to effective operations.