Don Sull's blog

My last few posts have discussed agility, or an organization’s capacity to identify and seize opportunities to create economic value consistently faster and more effectively than rivals. Multiple organizational attributes promote agility, including incentives, corporate culture, information systems, and the processes to translate corporate priorities into individual objectives. My next several posts will analyze how different companies, including Reckitt Benckiser, Goldman Sachs, Anheuser Busch InBev, and America Latina Logistica have built agility into their organizations. (Note although I have had discussions with executives at these companies, all information in this and subsequent posts comes exclusively from public sources).

We start with Reckitt Benckiser, a company that is not a household name, although many of the products it sells are. With 2008 revenues of £6.6 billion, Reckitt Benckiser (RB) squeezes exciting growth out of boring categories year after year. The company sells leading products in categories including fabric care (Vanish, Woolite), surface-care (Lysol, Harpic), air fresheners (Air Wick), and over the counter health care (Strepsils, Gaviscon, and Clearasil).

Competing against much larger firms such as P&G ($79 billion in revenues for year ending June 2009) and Unilever (€41 billion in 2008 revenues), RB must rely on agility rather than sheer size to win in the market place. And that it does. The company has consistently identified and seized opportunities to grow in its core markets. Between 2005 and 2008, RB grew net revenue at a 9% compound annual growth rate, versus an average of 5% for its peer group. While 2008 was a very difficult year for many consumer goods companies, RB grew revenues by 10% (at constant exchange rates). The company achieves this revenue growth in large part through new product introductions, and achieves 35% of its revenues from products less than 3 years old.

Agile organizations create economic value not only by seizing opportunities to increase revenues, but also by cutting costs. Toyota, for example, has consistently exploited shifting consumer preferences to introduce new models that sell, while simultaneously using its lean production system to identify and weed out waste throughout its organization. RB also balances revenue growth with cost reduction, which helped the company to increase its operating margins by 0.8% to 23.4% in 2008, despite pricing pressure and raw materials price inflation. The company re-engineered its container for Vanish to use 70% less plastic than the original tub.

Companies also manifest agility by seizing unexpected opportunities as they arise. The global economic crisis depressed demand for advertising and marketing services globally, creating an opportunity to buy more brand awareness bang for the same buck of media investment. RB increased media investment in 2008, to exploit the lower prices for advertising and promotion in the midst of the global recession.

Consistent agility has allowed RB to grow net income at an average of 19% per year for the past five years, versus an average of 5% for its peer group. RB has also done well on economic value creation, the bottom line measure of agility. RB shareholders have enjoyed superior returns, with a £100 investment in RB in December, 2003 would be worth £226 at the end of 2008, while a comparable investment in its peer group would be worth only £134.

Although Reckitt Benckiser is not as well known as the products it sells, RB has done a very good job of increasing revenues, profits, and economic value through agility. My next post will analyze how Reckitt Benckiser has structured incentives to promote agility through the company.