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Finding the best companies

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By Amit Lodha

The world has many good companies. Most of these businesses, especially in consumer services, have competent management, an ability to innovate, respect for regulation and high service standards. But few of them will ever be great. What would make them great?

The answer is that great companies offer something unique, something different, that sets them apart from the competition. Stock investors can find these companies if they ask the right questions. These questions are simple enough to pose. Finding businesses that meet the criteria of being great, though, is difficult because great companies are rare. 

Lindt & Sprüngli, the Swiss-based chocolatier and confectionery company, is one of those rare greats. Lindt & Sprüngli makes the world’s finest chocolate due in no small part to the way it controls all parts of its production process, from beans to the bar. That, however, is not what makes Lindt & Sprüngli great. What makes the company stand out is that it understands its core advantage and is comfortable with itself. It knows that it will never be the lowest-cost provider of chocolate, just the best. So the first question in the quest to find the great among the good is: Without being complacent, is the company comfortable with its position in the world because it contributes something unique? 

That leads to the question of how a company arrives at a unique position. Innovation is probably the answer for most businesses. What is innovation? Innovation is simply creating a method, idea or product to fulfil an unmet need. Question two then is: Is the company fulfilling a vacant need?

The third trait among the great is an ability to personalise the consumer experience. This is not just putting customers first. It is giving them the feeling that the service provided is bespoke and meets their needs. 

Facebook started out in 2004 as a photo-sharing site among friends. Its founders quickly saw that people want to interact regularly with their friends, to share what they are doing and to see what they are up to. The genius of Facebook is that it allows its 900 million users to have a “personalised” web page. This is personalisation on a scale before never considered possible.  

Personalisation is taking off in medicine too. Health companies are creating bespoke treatments driven by the knowledge that due to differing human metabolisms and physiques the cure for a disease such as cancer can be different from one person to the next. Personalisation can come to the fore with basic consumer goods too. Starbucks staff write your name on the cup because this personalisation helps the company charge $3 for a drink produced by a 1 cent coffee bean.

So the third question is: Does the company offer something that is personalised?  

Making it easy

We live in a world of data, noise and complexity that distract and confuse us. Companies that can simplify things around us, companies that enable us to make the right choices, they win.

Google is the best example of technology-based simplicity. The technology behind generating the search results is so complex that Google is one of the biggest employers of engineers in the world. Yet all they aim to do is make the outcome of a search so simple, few people (just 8%) need to click beyond page one to find what they need.

Some people could say that Amazon.com, with its 250 million products on offer, disproves this simplicity thesis. But a platform such as Amazon.com (or Google) needs to give the appearance that it offers the widest-possible choice. The reality is that Amazon.com’s top 100 drives people towards simple decisions among the top choices or best-selling products. Amazon.com has invested in its ‘fulfilment’ technology to deliver products on time and at low cost to the buyer, reducing the friction between buyers and sellers. So the fourth question for finding the great is: Does the company make it simple?

A company with a unique selling point, an innovation edge, an ability to personalise, that offers simple solutions has the ingredients to be a great one. However, to make sure, there is one more question that needs to be asked, one that is directed at management: If you had to focus on one thing to judge whether you are doing your job well, what would be it? 

The likely answer for a consumer-goods company such as Unilever is market share. The corresponding answer for a consumer-services company such as Facebook would, logically, then be its share of advertising dollars.

Facebook executives, however, don’t respond like that. Their answer is “market share of user engagement”. As always, Facebook understands its challenge. The success of the company depends on how much time someone spends on Facebook versus competitor sites. The question of advertising market share flows from these engagement levels. It’s thinking like this that has helped Facebook become a great company.

Published: Wednesday, March 30, 2016


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