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Accelerating performance in investment management

Subscribe to Financial Services 7/31/2017 Lisa B. Baird, Graham Beatty, Marcus De Luca, Jonathan Goldstein, Todd Taylor and Deepali Vyas
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Competitive differentiation is harder to achieve than ever in the investment management industry. It doesn’t help that organizational culture and strategy have changed little in the past 60 years or so. And an avalanche of forces—commoditization, margin compression, stubbornly low-bond yields, the debate over active versus passive investment, artificial intelligence, and the battle for shelf space, to name a few—are pressuring firms of all kinds to make themselves seen and heard above the crowd.

Accelerate to differentiate

Not all firms will persevere. We believe the winners will grasp and incorporate two keys to success:

  1. Accept that change is constant and unpredictable, and that evolution is continuous and mandatory; and
  2. Understand that speed is critical: survival in a rapidly changing world will require the ability to think and act quickly.

These conclusions, in turn, are linked together in the concept of acceleration, as explored by Colin Price and Sharon Toye in Accelerating Performance, their recent book based on Heidrick & Struggles research. It defines acceleration as “the ability to reduce time to value by building and changing momentum more quickly than your competitors.”

As part of this research, Heidrick & Struggles analyzed the 2016 FT 500 list of the world’s largest publicly traded companies to determine how many were growing revenues—a surrogate metric for customer satisfaction—fastest over the past three- and seven-year periods. Companies were selected if they passed four screens, detailed below, that we call the “rules of 20”:

  • They had to be in the top 20% in revenue growth in both periods.
  • No more than 20% of their revenue growth could be generated inorganically, i.e., via acquisitions.
  • No more than 20% of their revenue growth could come from their home governments.
  • Their profit margin could not decline by more than 20% over the seven-year period.

The 2017 list, based on the top 500 global companies by market capitalization, includes 25 companies that met these strict criteria and thus earned the title of “superaccelerators.”1 While no investment managers made the list, it’s worth noting that one prominent manager was on the 2016 list, primarily due to the successful integration of strategic acquisitions.

Raising organizational METAbolism

Accelerating Performance concludes that in a world that keeps moving faster, acceleration most reliably generates the highest return. How, then, does a business accelerate?

The process boils down to increasing the organizational metabolic rate, but doing so selectively and in a way designed for maximum effect. We call it META, which is an acronym for the four steps of Mobilize, Execute, and Transform with Agility (Figure 1). Each of the META steps, in turn, comprises several “drive factors” that enable acceleration.

Accelerating performance in investment management

Mobilize

Mobilization is a straightforward proposition: inspire the workforce to act in line with a compelling ambition and purpose, and with a clear group of strategic priorities.

It rests on a dual foundation of powerful leadership communication and making decisions based on what works best for the customer.

Execute

Execution is the consistent delivery of excellence within a core business by strategically streamlining resources to get the most out of them. This step requires a shared understanding of the following three factors: the strategic capabilities that are needed; the extent to which those capabilities exist in the organization; and the feasibility of closing the gaps between goals and reality.

Transform

As its name suggests, transformation is where organizations experiment and innovate to create new growth engines and reinvent existing businesses before the marketplace does it first. More than the other META steps, it implies a change in both organizational thinking and resource allocation.

Agility

This step is the most critical element in the acceleration process. Agility means staying ahead of competitors to create a competitive advantage by spotting opportunities and threats, and by adapting and pivoting faster than rivals. Additionally, this element includes preparing for, withstanding, and quickly recovering from setbacks.

Recipes for success

There are multiple ways to put META into action. Indeed, our research into the “drive” (and decelerating “drag”) factors in each of the four areas identified no fewer than 39 differentiating actions that winning companies can—and do—take to improve. Yet no company can (or should) focus on all these areas. After all, strategy isn’t just about what you do, but also what you don’t do.

When we looked further, we identified four “recipes,” or patterns, that companies use to successfully pursue acceleration. Choosing one of the four recipes helps organizations focus on the single set of coherent actions that are best aligned with their strategy and most likely to bring success (Figure 2).

Accelerating performance in investment management

Our research indicates that it’s usually best for an organization to choose one recipe and excel at it instead of choosing more than one or a blended approach.

Results are more favorable for companies that are masters of one trade rather than jacks of none.

The four recipes are Customer Intimate, Talent Magnet, Portfolio Investor, and Execution Engine.

Customer Intimate

In the Customer Intimate recipe, the customer is the focus of what the company does and thus a key ingredient of the business model. Companies choose this recipe if they operate in an environment in which customers’ needs are rapidly evolving, customer loyalty is hard to gain and easy to lose, and customer decisions can make or break the business.

Talent Magnet

Talent Magnets are constantly looking for the best people available, focusing on retaining talent, and offering opportunities for professional and personal development. The model best fits companies whose people are of such high quality as to constitute a clear competitive advantage—think knowledge-intensive organizations such as technology and professional services firms.

Portfolio Investor

This is the private equity/venture capital portfolio model that tries to maximize winners and minimize losers: it’s all about efficiently allocating resources to promising growth opportunities—and ruthlessly cutting those that aren’t. Portfolio Investor companies typically operate in a volatile environment in which constant innovation drives results and disruption is normal.

Execution Engine

Simplicity is at the core of the Execution Engine recipe, which focuses on efficiency and effectiveness. It’s a good fit for companies concerned about responding to market pressures, concentrating on delivering low-cost products and services, and addressing evolution in manageable ways instead of big steps.


For case studies based on each of the four recipes, flip through the interactive article above or click the download button for the PDF.


It’s time to accelerate

In general, organizational culture and strategy in the investment management industry have been staid for the past few decades. We believe this must change for firms to successfully differentiate themselves. Winning requires bold, laser-focused leaders who can motivate their firms to implement new models, cross the finish line, and stay there. 

Acceleration offers several models—the Customer Intimate, Talent Magnet, Portfolio Investor, and Execution Engine recipes—that investment managers can adopt to fit their own cultures, structures, and circumstances. By adopting and applying an acceleration mind-set, and sticking to their chosen model with discipline, companies can make the sorts of changes that will allow them to outperform their rivals. 

Choosing a direction and boldly steering a firm into a new frontier is a daunting prospect; nevertheless, firms must accomplish this goal with commitment and resolve to be competitive in the marketplace going forward.

The industry demands acceleration now more than ever before.


About the authors

Chad Astmann is an alumnus of the Heidrick & Struggles' New York office.

Lisa Baird (lbaird@heidrick.com) is a partner in the New York office; she leads the Investment Management Segment in the Americas and is a member of the Leadership Consulting Practice. 

Graham Beatty (gbeatty@heidrick.com) is a partner in the New York office; he leads the Real Estate Sector in the Americas. 

Marcus De Luca (mdeluca@heidrick.com) is a partner in the London office; he leads the Infrastructure Investment Sector. 

Jonathan Goldstein (jgoldstein@heidrick.com) is a partner in the New York office; he leads the Private Equity Sector in the Americas. 

Todd Taylor (ttaylor@heidrick.com) is a partner in the New York office; he leads the Financial Technology Segment and the Wealth Management Sector in the Americas. 

Deepali Vyas (dvyas@heidrick.com) is a principal in the New York office; she leads the Global Markets and Hedge Funds sectors in the Americas.

References

1 For more, see Colin Price, “VUCA, meet META: The 2017 list of superaccelerators,” Heidrick & Struggles, June 13, 2017.


Lisa B. Baird Partner +1 212 8679876
Graham Beatty Partner +1 212 8679876
Marcus De Luca Partner +44 20 70754000
Jonathan Goldstein Partner +1 212 8679876
Todd Taylor Partner +1 212 8679876
Deepali Vyas Principal +1 212 8679876

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