Executives responsible for setting strategy at large corporations should look to emerging startups to help understand future trends, as acquisition targets, or as competitive threats. However, assessing the activities of their peers – other major multi-nationals within and outside their own industry – remains critical to making good strategic decisions. With that in mind, Lux Research has developed a new tool, the Lux Competitive Benchmark, to provide a fresh perspective on how the growth initiatives and innovation efforts at large companies drive performance.
Corporate leaders, of course, stay closely aware of the reported commercial performance of their peers. But as valuable as traditional financial analysis can be, it is essentially a trailing indicator, representing the success or failure of previous strategies. To look forward and predict future success requires a new type of analysis.
To do so, the Lux Competitive Benchmark evaluates companies on two axes. The horizontal axis is a relatively traditional financial metric, a Business Execution score based on profitability, solvency, liquidity, as well as go-to-market measures. The vertical axis, however, details the company’s strategic positioning and technology – its R&D spending, relevant acquisitions and investments, and a sector-by-sector analysis of its patent activity. This provides a lens on preparation for new growth opportunities. For each company plotted on the chart, the size of the dot indicates the relative size of the company.
The benchmark below shows some of the world's leading industrial manufacturing companies in the areas of power, energy, and water. This analysis allows executives from these companies, as well as others adjacent to or looking to enter these areas, to understand the positioning and future prospects of the leading incumbents. What's more, the underlying data can also provide a foundation for a deeper analysis of particular companies.
For instance, consider GE. As the size of the dot indicates, it's a very large player that the industry cannot ignore, and its horizontal position indicates that it's delivering a solid, although not spectacular, financial performance. By our unique innovation metric, however, GE is a leading player, with only a handful of companies matching or exceeding its strategic activity. The key to GE’s high score is driven by robust investment activities both inside and outside the company. In the last five years, the company has invested in no less than 94 private placements and 34 technology-related acquisitions, a large number even for a company of this size. The closest competitor in terms of outside innovation is Siemens which invested in 34 private placements and 29 technology acquisitions and scores slightly higher purely because its innovation activities are stronger relative to revenue. GE’s internal innovation investment is also strong: its R&D expenditure is the highest in the field at nearly $5.3 billion, followed by Siemens, which managed to spend $4.4 billion despite its smaller size.
The Lux Competitive Benchmark also offers a wealth of information about which of the less-prominent companies are in advantageous positions, many of which could be missed or under-analyzed in a more traditional competitive analysis focusing on a few of the largest or closest competitors (many companies use the top 3 or the top 5 for comparison). For instance, Pall appeared as a strongly positioned smaller company. Its recent acquisition by another strong player, Danaher, should therefore come as no surprise.
As interesting as a company-wide analysis is, sector-specific breakdowns can also be valuable. The Lux Competitive Benchmark can also be adapted to focus on particular segments, as in the example below that focuses on the water space. Since large companies seldom break down the profitability of individual divisions, a purely financial analysis at this level typically isn't practical, so here the horizontal axis is Segment Focus – what percentage of the company's revenue comes from that segment. Patents and acquisitions, on the other hand, can be readily placed in individual sectors, allowing for a sector-specific Innovation Metrics on the vertical axis.
This analysis also highlights trends that might not otherwise be obvious. To return to GE, while it has a very minor stake in water, relatively speaking – we estimate GE’s revenue in the water space to be about $830 million, about 0.5% of its total revenues – the company is a strategic leader. It has acquired and invested in technologies including membranes, wastewater treatment, waste-to-energy, desalination, and zero liquid discharge (ZLD). While water is essentially a side market for GE, it still manages to dominate the relatively sleepy competition in the space – a company like Veolia that's a major industry player in this industry lags on the Innovation Metric with little internal or external activity.
This Lux Competitive Benchmark provides an objective and quantitative starting point for analyzing a large company’s innovation strategy and growth prospects, visualizing their positioning, and developing a prescription for improvement. The rich set of underlying data – venture transactions, R&D investment, partnerships, acquisitions – combined with the insight of Lux's domain and industry experts, helps determine exactly what each company positioning really means and what it should do next. Expect Lux Competitive Benchmarks for more companies and industries in the future.