Did you know that 65 of the world’s largest companies (Fortune 500) are all more than $100B in revenues? I was more amazed to find that the top 3 companies (“Royal Dutch Shell”, Exxon Mobil, and Wal-Mart) are more than $400 Billion. Wow, that’s huge! I decided to do a quick analysis on the Top 200 and this is what I found:
1. 45% of the companies are in the range of $70B - $130B, with 99B as the overall Top 200 average revenue size.
2. Average profitability of Top 200 companies is
5.89%. 3. 112 (56%) companies have less than 5% profit margins.
3. 38 (19%) companies have profit margins of more than 10%.
4. Only 13 (6.5%) companies have a net profit margin of more than 20%. (The minimum company size in the set here is $48 Billion). Data Source: http://money.cnn.com/magazines/fortune/fortune500/
The chart clearly indicates that irrespective of the industry sector or economic factors some companies clearly break away from the “commoners” in terms of net profit margin achievement.. Another trend that can be spotted clearly is the move towards the right as companies grow larger and larger in size. For most of the companies more than $100 Billion, the margins are about 5%.
These stats raise a few questions:
1. Are companies inadvertently sacrificing profitability in search of growth? 2. How are those few companies managing a profit margin of more than 20%? 1. 45% of the companies are in the range of $70B - $130B, with 99B as the overall Top 200 average revenue size.
2. Average profitability of Top 200 companies is
5.89%. 3. 112 (56%) companies have less than 5% profit margins. 3. 38 (19%) companies have profit margins of more than 10%.
4. Only 13 (6.5%) companies have a net profit margin of more than 20%. (The minimum company size in the set here is $48 Billion). Data Source: http://money.cnn.com/magazines/fortune/fortune500/
The chart clearly indicates that irrespective of the industry sector or economic factors some companies clearly break away from the “commoners” in terms of net profit margin achievement.. Another trend that can be spotted clearly is the move towards the right as companies grow larger and larger in size. For most of the companies more than $100 Billion, the margins are about 5%.
These stats raise a few questions:
I think that companies, in pursuit of growth, add complexity exponentially to their businesses. Diversification into multiple industry segments, thousands of products and services with regional localizations, significant investments in Engineering and R&D, hundreds of global partners & vendors, global acquisitions etc. are some of the fall outs of the “growth pursuit” which make sustainability of profits extremely challenging. I believe that a “Portfolio” view to business management and operations brings the much needed discipline in execution and decision making. It is critical to effectively manage the
a. Portfolio of businesses
b. Portfolio of products / services
The following are 5 critical questions that business leaders must have answers to ensure that growth and profitability objectives and initiatives stay aligned:
Reference: EPMC
Portfolio Management helps you to answer these questions and helps organizations build a disciplined approach to sustained growth and profitability. I request readers to share their experiences & challenges with Portfolio Management @ chinmay.kale@hcl.com.
References:
1. Fortune 500 Rankings: http://money.cnn.com/magazines/fortune/fortune500/
2. Enterprise Portfolio Management Council : www.theepmc.org
c. Portfolio of Programs / Projects
in an enterprise and deliver sustained profits to shareholders. The following are 5 critical questions that business leaders must have answers to ensure that growth and profitability objectives and initiatives stay aligned:
Reference: EPMC References:
1. Fortune 500 Rankings: http://money.cnn.com/magazines/fortune/fortune500/
2. Enterprise Portfolio Management Council : www.theepmc.org
