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Sustainable value creation is also balanced. Just because sustainable value creators emphasize the long term, that doesn’t mean they somehow ignore the near term. In- deed, they tend to have an in-depth understanding of how short-term dynamics in the capital markets can af- fect their ability to deliver value in the future. As Jack Welch went on to say in a subsequent interview, “Any fool can just deliver in the short term by squeezing, squeezing, squeezing. Similarly, just about anyone can lie back and dream, saying, ‘Come see me in several years, I’m working on our long-term strategy.’ Nei- ther one of these approaches will deliver sustained shareholder value. You have to do both.”6 The value of value management is that in addition to be- ing a critically important way of measuring company per- formance, it also sets an essential context for corporate decision making. Contribution to TSR is the only way to assess and evaluate unlike businesses in the portfolio, weigh the potential tradeoffs and risks among different strategic moves, and in the end optimize total business performance. The key value-creation challenge for companies in today’s economy is sustainability. In our opinion, the key value-creation chal- lenge for companies in today’s economy is sustainability, by which we mean develop- ing an approach to shareholder value that allows a company to deliver above-aver- age returns consistently, over relatively long periods of time. Many of the senior executives we talk to are hungry for an approach to value creation that looks beyond the horizon of today’s volatile markets or next quarter’s earnings. And our recent inter- views with institutional investors suggest that they are increasingly on the lookout for those companies with a long-term track record of value creation and a credible plan for delivering value not just this year or even the next but for many years to come.5 For all these reasons, we have decided to devote this year’s Value Creators re- port to the theme “searching for sustainability.” Finally, a sustainable approach to value creation makes it easier to fund and provide sustainable benefits for oth- er stakeholders in the company’s economic system: em- ployees, customers, suppliers, and society at large. Put another way, the more sustainable a company’s ability to deliver shareholder value, the more likely its entire eco- nomic system will prove sustainable as well. Defined in this fashion, sustainable value creation is a laudable goal; even more, it is an imperative. But it is also extremely difficult to achieve. Consider the following data: in a sample of 1,781 global companies with a market valuation of at least $1 billion at the end of 2008, about half beat their local stock-market average more than five times in the ten years from 1999 through 2008. But less than 10 percent beat their local stock-market average for more than seven years, and only a single company beat the average for all ten years. The Characteristics of Sustainable Value Creation What makes value-creation sustainable? First and fore- most, the delivery of above-average TSR built on a foun- dation of distinctive customer value and defensible com- petitive advantage. It is not about squeezing the system or manipulating the numbers in order to maximize this year’s returns. By definition, sustainable value creation means delivering superior shareholder returns over the long term, by which we mean over a decade or more, not just a few years. The reason that delivering above-average returns consis- tently is so difficult has to do with the impact of investor expectations on a company’s value-creation perfor- mance. Many executives still assume that in order to consistently generate above-average TSR, it is enough to be steadily growing the fundamental economic value of the business through some combination of above- In order to be sustainable, a company’s value-creation performance must also be relatively consistent. Although it is the rare company that can beat the market or its in- dustry peer group year aer year, sustainable value cre- ators do so more oen than not. A company that is deliv- ering extraordinary returns one year and then destroying value the next may come out above average over a given period of time. But its value-creation performance would hardly qualify as sustainable. 5. See Collateral Damage: Function Focus—Valuation Advantage: How Investors Want Companies to Respond to the Downturn, BCG White Paper, April 2009. 6. See “Jack Welch Elaborates: Shareholder Value,” BusinessWeek, March 14, 2009.

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