FOR more than 30 years, Ernst & Young has helped many of the most dynamic and ambitious companies around the world grow into market leaders.
Our experience has shown that market leading businesses don't rely on luck. They carve out success for themselves, take control of their direction and leave nothing to chance.
Only a business that is exceptional can develop into a market leader, and the transformation never occurs overnight.
On the route to the top, companies go through three distinct growth stages. They start as emerging enterprises, focusing on identifying market opportunities and sources of funding, and recruiting the right people to kick-start the business.
Success during this stage paves the way for the rapid growth stage, where companies focus their energies on becoming a supplier of choice for their most valuable customers, managing expansion and securing additional capital.
From here, they evolve into a next-generation market leader and turn their attention to working effectively globally, balancing entrepreneurial spirit with corporate culture and optimising their capital structure.
Regardless of the stage of growth, companies are typically confronted with six fundamental challenges.
During each stage, the focus of the business challenges shifts and so too does the way a company responds.
Successful risk management is undoubtedly a vital element for success in today's fast-evolving business world.
Companies who want to become market leaders must embrace risk to accelerate their growth.
Because risk-taking is a fact of life for an emerging enterprise, fledgling businesses must recognise, plan for and review the risks most critical to their short-term goals.
Understanding and protecting intellectual property and customer data are likely to be key risks at this stage.
As companies grow rapidly, there is a greater need to anticipate business changes ahead and identify processes to address the most significant financial, compliance, operational, and strategic risks, in particular if they are embarking on new ventures.
By the time an exceptional enterprise becomes a market leader, it dedicates significant resources to enterprise-wide risk management and developing strong internal controls.
They also invest senior executive resource to set the tone on risk management and ensure regular communication around business risk to key stakeholders.
Exceptional enterprises rarely evolve by organic growth alone. Partnerships and strategic acquisitions can help to accelerate a company's growth and enhance its competitiveness and profitability.
When the business is emerging, exceptional enterprises identify cost-effective partnerships or alliances that will result in greater value for their customers.
The ability to leverage personal and business networks will be a key differentiator.
Strategic growth
They then move on to evaluate strategic growth acquisitions that will drive customer and shareholder value.
They also invest resources in developing an appropriate exit plan for venture capital backers and shareholders.
When internationalising, they often seek to identify a low cost, low-risk alliance to test the waters rather than looking at a potentially costly acquisition.
Next-generation market leaders will seek to carry out regular value-adding transactions, including mergers, acquisitions and the disposal of non-core elements of their business.
Exceptional enterprises ensure that they dedicate resources to evaluate potential targets, identify the best sources of funding and undertake thorough commercial and financial due diligence for their transactions.
For new businesses to succeed, companies need to clearly understand their position in the customer value chain.
Companies that are exceptional will typically establish a flexible infrastructure, using short-term or contract resources to allow them to meet demand and respond quickly to changing circumstances.
Often by the time the company becomes a market leader, it is building a more global view of its operations and facing the associated challenges of operating across borders, such as ensuring their legal and tax structures are suitable for operating in multiple jurisdictions.
All companies need to identify the best mix of financial solutions needed to accelerate their growth. Learning how to take control of, and successfully manage the funds available, will be a strategic advantage.
Exceptional enterprises understand the funding options that best suit their needs when starting their businesses.
They prepare well thought-out and regularly reviewed business plans that are tailored to the needs of the investor, and stress compliance with regulations for investor assurance.
Obtaining and managing the right level of expansion capital then becomes pivotal as they move into the rapid growth phase.
Typically, flexible financing is required for companies at this stage to capitalise quickly on new market opportunities and value-enhancing transactions.
As their businesses develop further, their finance priorities changes to focus on developing a world-class finance function, ensuring alignment of tax strategies with business objectives, and committing to regular and transparent stakeholder communications.
They are also constantly assessing innovative financing solutions that can increase growth and improve shareholder return.
'Customer first' may sound cliche, but it is never far from the truth.
Exceptional enterprises need to understand their customers - who they are, what they want and what keeps them returning.
Building customer loyalty goes hand in hand with long-term sustainable growth.
Supplier of choice
Exceptional enterprises know that when they are newly emerging, their focus is on building products and services around its customers, and establishing a customer base with an understanding of the competition.
Once they become rapid growth enterprises, they would aspire to become the supplier of choice. To do so, they intensify their customer focus to proactively acquire market share.
They also commission consumer research for keener insights and invest in enhancing their brand so as to turn new opportunity into revenue.
As they progress to be the next-generation market leaders, exceptional enterprises will turn their focus to expanding internationally.
The ability to provide seamless global solutions to global customers will matter. They will also make sure that their customer service performance meets industry best practices.
An organisation is only as good as its people. Hence, exceptional enterprises build an environment conducive to attracting and retaining the right talent - those who embrace the company's vision and culture.
At the emerging stage, exceptional enterprises build strong leadership teams to lay the foundations of corporate culture and drive the business forward.
They attract the best by creating competitive benefit plans and incentive schemes, and also a basic HR function to support the business.
Once the company experiences rapid growth, managing staff turnover and preparing for future expansion will rank high on the agenda.
Exceptional enterprises identify the next generation of leaders from the existing workforce and implement attractive remuneration packages to retain valued staff and, where necessary, attract new people.
When the company grows into the next-generation market leader, very often, keeping the entrepreneurial spirit alive in a more corporate environment becomes a challenge.
This means recruiting new people who embody the company's values becomes increasingly important. Experienced managers are brought in to fill any gap and people strategies need to be ever more closely aligned with business objectives.
Given that our research shows that on average, the major indices of leading companies churn by about 40 per cent every five years, this implies that the next generation of market leaders is already waiting in the wings.
Clearly, exceptional enterprises are successful not just because they are luckier than others. Rather, it is their high level of consciousness on what makes or breaks their businesses, and their ability to mount the challenges that evolve with their companies' growth that makes the difference.
So why wait for luck? Take the lead and make your own.
The writer is Country Managing Partner, Ernst & Young LLP.
This article was first published in The Business Times on 23 July 2008.
