Outliers!

Then, if Gladwell’s10,000 hour rule is about practicing one specific task for a considerable amount of time, does the corollary mean that companies that are focused on core businesses (focusing on limited specialized tasks) would perform better than diversified companies? Were C.K. Prahalad and Gary Hamel right all along? In December 2006, Heuskel, Fechtel and Beckmann of the Boston Consulting Group, in a massive global study covering hundreds of global corporations from 1996 till 2005, proved that shareholder returns of diversified companies beat both the stock market average and the shareholder wealth average of the majority of the core focused corporations. BCG writes that “there is no statistical correlation between (core) ‘focus’ and shareholder value.” When we analyse the B&E Power 100 listings this year on this parameter, we were in for a shock. Giving BCG a flyby, of the 100 companies we had, only one is truly diversified. 99 other companies focus on singular or very narrow streams of businesses. Even when we consider groups/promoters (e.g. Tatas, Birlas, Reliance) who own cross holdings in various companies, we could only reach 16 companies that belonged to diversified groups.

Out of 16 listed industries, a majority of our companies (61 of the B&E Power 100) belong to only four industries – financial services (30), metals and mining (11), oil and gas (10), real estate (10). Out of the same 16 sectors, only 3 have positive profits growth year on year – financial services (30%), information technology (12.9%) and FMCG (9.75%). All others have negative growth in profits, with oil and gas (-20.8%), pharmaceuticals (-32%) and real estate (-44%), killing the profits growth of the overall B&E Power 100, which stands at a measly 3.3% year on year.

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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