A hallmark of a strong company is one that has a strong competitive edge or moat, throws up a lot of cash from its operations, does not require too much debt and ultimately provides strong returns to shareholders. If one takes a look at the average trend over a longer time frame, such companies never fail to display consistent growth and are able to retain their edge even during adverse times.
But there are many companies who did not always get it right at the start and had to transform themselves to become the strong companies and market leaders they are today. Indeed, as Eddie Lampert mentions on his blog, such transformations occur when companies adapt their business model to changes in technology, competitive landscapes, government regulations, and basically find whole new ways of serving their customers.
In the global arena, an example that most stands out is Apple Inc. Today, the i-Pod, i-Pad and i-Phone have become the most sought after gadgets and have made Apple one of the most valuable companies in the world. But it was not always this way. If one looks at the history of Apple, its beginnings were on quite a shaky ground. Indeed, in the 1990s the company was called Apple Computers and in the period 1996-98, it saw a 40% drop in revenues. What more, in one year alone Apple lost as much as US$ 1 bn. Once Steve Jobs came back at the helm, the entire strategy of the company changed. For instance, it decided to focus less on computers and more on developing products and a platform called iTunes. The company was also renamed from Apple Computers to Apple Inc. The rest they say is history.
The Indian space also boasts of some notable examples and one that comes to mind is the transformation of Bajaj Auto. There was a time when Bajaj Auto was the undisputed leader in the two wheeler space. But then came the erstwhile Hero Honda. The latter through the launch of a range of motorcycles captured a dominant share of the Indian two wheeler market and thereby relegated Bajaj Auto into playing the second fiddle. Bajaj Auto had no choice but to go back to the drawing board and re-think its strategy.
The results are there for all to see. Today, Bajaj Auto is still the second largest player in the two wheeler space. But gone is its lackadaisical approach towards investing in R&D and apathy towards coming out with cutting edge products. With the new sets of beliefs and values that Rajiv Bajaj has instilled into the company, Bajaj Auto in no time came out with its most successful launches 'Discover' and 'Pulsar'. Not only were these motorcycles the results of Bajaj Auto's own R&D set up, but they also helped in establishing the company as a market leader in the premium motorcycles space. With the management quite clear that the focus will be on profitability and brand creation and not on chasing market share and revenues, we believe that the company has set the right path for a strong business going forward.
What is also clear from both these examples is the strength and the ability of the management to think out of the box and respond to the changing environment. In Apple Inc's case it was Steve Jobs and for Bajaj Auto, it was Rajiv Bajaj who transformed the fortunes of the company. Investors who can identify such companies in the early stages of their transformation, are probably staring at a massive wealth creating opportunity.
No comments:
Post a Comment