Snapshots of the Honorable 57 – A Mini-Paper
Companies currently remain in the Fortune 500 for under 15 years. Fifty years ago the average life expectancy on this elite list was about 75 years.
The Fortune 500 are recognized as the biggest and the best, and it makes sense that they are our models of success. We have looked to the List for lessons and wisdom through the years. For example, they have provided visibility and insight about progressive new business practices they’ve proven effective. And, we’ve scrabbled to find meaning by analyzing those who joined or changed places on the List as well as from the many whose names fell from the List.
Turnover on the List began to escalate in the late 50’s, just a few years from its beginnings. Over 1,800 companies have made the list since its inception. All of us have observed that there are many causes of turnover among the Fortune 500. Following are examples:
- Greater efficiencies and value creation among individual companies
- Changes made in the methodology used in compiling the Fortune 500 List itself
- M&A activity, in its booms and busts. For instance, M&A boomed in the 1990s; subsequently, we saw an unfolding of the largest number of the worst deals of the past 30 years. More recently we’ve witnessed consolidation of Fortune companies themselves; for instance, consider the potential acquisitions proposed between Aetna and Humana as well as Anthem and Cigna.
- Globalization, with heightened competition, emerging markets and off-shoring.
- Ups and downs in the world economy
- Technology changes that have disrupted customer demand for products and services, making some obsolete and leading to creation of new ones
- Start-ups who are becoming equally or more highly valued than many companies on the Fortune 500. They are still private, not on the stock market. Note: These are the focus of Fortune’s recently launched Unicorn List.
What has endured in the face of all of the turbulence the Fortune 500 List has experienced since coming to life in 1955? The answer: Fifty-seven companies have endured, maintaining places on the list every single year. Just think about the significance of this achievement: These companies have adapted to changing times, innovated, adopted new technologies, diversified and reinvented themselves, remaining vibrant today. They are referred to, by Fortune Magazine, as the Honorable 57. Motorola, Pepsi, Exxon, GE, and Dow Chemical — are some of these special giants, who together help drive the US economy. “These businesses have weathered economic turmoil and rapid innovation in their industries. They’ve survived boardroom battles and bankruptcies. All the while, they’ve maintained a spot among the cream of the corporate crop…” said Tom Huddleston, Jr. in his Fortune article dated June 9, 2015, “These companies have made every Fortune 500 list for 61 years”.
As we considered the volatile performance of the Fortune 500 companies and the List’s high turnover rate, we became more scrutinizing in selecting success models and more skeptical about treating the Fortune 500’s turnover as an economic indicator or trend. We are now shifting our focus to the 57 companies who have remained part of the Fortune 500 all these years — The Honorable 57. What have they been doing that has enabled them to not just survive but to prosper in these decades of change, adversity and turbulence? We explored their annual reports and letters to shareholders for answers to this question.
Following are common themes we observed:
- The business strategy has been actively used, organization-wide, to guide day-to-day decisions and actions as well as the establishment of both short and long term goals.
- Six similar strategic areas of focus are visible threads within the fabric of their plans, actions and/or results:
- Reinvention, Transformation, Differentiation and Growth
- Sustainability – From the Community to the Planet
- Agility and Resilience – Core Strengths
- Emphasis on Developing and Aligning Their People and the Company Culture
- Innovation – Products, Services and Technologies
- Execution – Strategically Oriented with a Focus on Operational Excellence and Efficiency
We became more and more excited as we reviewed the Honorable 57’s annual reports and letters to shareholders, with their powerful stories of great leadership, challenges faced and impact achieved. Following are highlights of the achievements of the Honorable 57 in 2015, including a few examples for today’s leaders as we navigate in an ongoing global tsunami of change and challenges.
Reinvention, Transformation, Differentiation and Growth
- Alcoa completed the transformation of their product offerings in 2015, in preparation for a planned split into two public companies in 2016, the Upstream Company and the Value-Add Company, each with unique value propositions and goals. The company completed integration of three multi-material acquisitions, expanding penetration of the most advanced aircraft engine and airframe market segments where the company’s innovation strength has established a powerful competitive edge. The 2015 restructuring positions the company for profitability in peaks as well as down cycles. The exit from high cost commodities assets and strategic investments strengthen the company to grow as a leader in its key markets — exemplifying both strategic diversification and market discipline.
- US Steel: The 2015 Chairman’s Letter to shareholders stated “Across our company, our employees drove our success. They transformed how we do business…” This transformation was enabled by the company’s adoption of The Carnegie Way to guide the company strategy, energizing and leveraging employee-driven change.
- GE: 2015 marked the strategic re-focus of GE as a high-tech leader. The company completed the transformation of their portfolio by exiting most of their ﬁnancial services while completing the purchase of Alstom. To accomplish this transformation, GE sold more than half the Company where they lacked competitive advantage and rebuilt their core. As stated in the annual report, every GE business today rests solidly on a bedrock of deep domain competency.
- PepsiCo has not only held a place on the List but has moved up over 320 slots on the List since 1955. The company’s transformation is reflected in the impact of their strategy, which has its roots in both shareholder return and the company philosophy of Performance With Purpose. Performance With Purpose is embedded throughout the organization, driving a focus on integrating the following three priorities into business activities: Human Sustainability, Environmental Sustainability and Talent Sustainability.
- Abbott Laboratories acquired Tendyne Holdings, Inc. thereby expanding their treatments for mitral-valve disease; acquired Omnilab to broaden lab informatics capabilities; announced a collaboration with Sekisui to offer coagulation testing solutions; and sold their Developed Markets pharmaceuticals to tighten the company’s strategic alignment.
- IBM is the only computer industry company that has reinvented itself through multiple technology eras and economic cycles. The purpose of their reinvention is to create differentiating value. In 2015 a new reinvention took root, moving the company beyond traditional hardware and software services to become a cognitive solutions and cloud platform company.
Sustainability – From the Community to the Planet
- Alcoa reduced absolute greenhouse gas (GHG) emissions by 5.5 million metric tons since 2014, was among the ﬁrst to sign the White House’s American Business Act on Climate Pledge, pledging significant, specific reductions in absolute and net GHG emissions, and joined the Aluminum Stewardship Initiative to deﬁne the ﬁrst global sustainable aluminum standard. In their communities, the Alcoa Foundation contributed more than $22 million for programs in education and environmental sustainability. Employees contributed over 80,000 hours to local organizations during the company’s annual Month of Service.
- Eli Lilly and Company initiated and continued their ongoing leadership and support of initiatives in communities worldwide with a number of programs focused on health care, serious illnesses, patient programs, STEM and other education initiatives, poverty relief, product donations, disaster relief and more. In 2015, Eli Lilly donated over $560 million in products and cash, while employees contributed time and skills to their communities.
- John Deere and Company: Employee hours volunteered to their communities grew 20% in 2015, exceeding 100,000 hours for the first time. The company and the Deere Foundation contributed almost $30 million to support world hunger, education, and economic development in the US and internationally. In addition, Deere achieved an environmental initiative, exceeding their goal of recycling 75 percent of their manufacturing waste, three years before the 2018 target date.
- Boeing: In 2015, the company completed the largest single restoration project on the Duwamish River in Washington state; the 757 ecoDemonstrator tested more than 15 technologies aimed at improved environmental performance, including the ﬁrst ﬂight with U.S.-made “green diesel” fuel; and they announced several collaborations with universities and other organizations to advance research of sustainable aviation products and practices. Boing continues to target zero growth by 2017 in greenhouse gas emissions, water intake, hazardous waste and solid waste sent to landﬁlls. Boeing, with its employees and retirees, invested $190 million in 2015 to help improve lives and build better communities worldwide. During the company’s global month of service employees and their family members and friends participated in more than 200 projects beneﬁting community partners in 14 countries.
Agility and Resilience – Core Strengths
- PepsiCo: Integral to the business strategy, these core strengths are described in the letter to shareholders as follows: “In virtually every sector, the pace of change is accelerating, creating new opportunities, new challenges and new uncertainties…In such an economy, we will need to become more nimble and more adept — and we will need to redouble our commitment to Performance with Purpose. This means building on our progress to date to achieve even greater results in the years ahead, focused on further transforming our products, protecting the planet and enriching the lives of people around the world. These priorities are more important now than ever, and this year we will be sharing an ambitious sustainability agenda for the coming decade. As we continue on this journey, we will also need to become comfortable continuously reevaluating and reimagining every aspect of our business — “living in beta,” as some call it — pushing ourselves to out- innovate our competitors today so we can out- perform them tomorrow. We will need to embrace a new kind of agility, moving swiftly without creating instability in our business. And we will need to empower everyone to meet his and her own individual responsibilities while also embracing a collective responsibility for the success or failure of our company as a whole. This sort of dexterity is what will separate the winners from the losers in this economy, and I am confident PepsiCo will be a winner.”
- Abbott Laboratories: “Abbott’s response to those economic forces underscores the strength of our business, the unusual flexibility provided by our broad and well balanced business diversity, and our proven ability to navigate challenging waters,” stated Miles D. White, Chairman of the Board and CEO, in the letter to shareholders. The company has continually reshaped its business and product offerings to advance science, build on emerging trends (in technology, society, demography or economic) and navigate risk, as well as to focus on growth opportunities, building, managing and balancing income streams while remaining closely aligned with market needs. The company now derives half of their revenue from more developed economies and half from emerging markets, helping to enable stability. The customer base is evenly divided between traditional healthcare payors and consumers, providing access to a greater number of growth opportunities while reducing risk associated with single-market fluctuations. Credit is also given to the focus given to efficiency during the past three years which has helped the company to reduce its cost structure and strengthen execution.
- PPG completed several strategic growth initiatives, including successful integration of Comex, the leading paint supplier in Mexico, acquired in late 2014, and opened a new PPG-Comex concessionaire store location approximately every two days, surpassing the milestone of 4,000 store locations in Mexico. In 2015, PPG invested approximately $475 million in capital spending, including several key growth projects, as well as investing $400 million on six acquisitions that are expected to further strengthen product, technology and distribution offerings to customers. Initiatives to build sustainability include focuses on safety, resulting in reductions of 11% in the injury and illness rate. Reductions in energy use (8 percent), waste (7 percent) and overall GHG emissions (7 percent) contributed both cost reductions and environmental sustainability. In the area of operational excellence, employees developed and completed almost 250 sustainability projects, and environmental and ergonomic-related improvement projects saved more than $14 million.
Emphasis on Developing and Aligning Their People and the Company Culture
- US Steel: The company’s business strategy is guided by their infusion of The Carnegie Way, a long-term initiative the shapes and influences all aspects of work throughout the organization. Over 8,000 employees participated in Carnegie Way training, recreating and strengthening the company culture and aligning people throughout the company with the strategy, resulting in their identification of thousands of projects and implementation of tools to drive and sustain improvement through innovation and change.
- Altria Group: Diversity and valuing differences is a foundational strategy that is credited with building stronger connections among employees, suppliers and customers. To date, 56 percent of managers and 32 percent of salaried employees have participated in inclusion training, with plans for additional training events in 2016. This strategy of valuing differences is mirrored in establishment of Employee Resource Groups (ERGs), which bring together diverse groups of employees whose insights are applied internally and externally.
- International Paper: The company’s Leadership Institute offers 15 programs that address all aspects of leading teams and providing interactive learning and growth opportunities for employees. Since 2005, more than 2,900 employees have participated. International Paper Leadership II, designed for more-experienced leaders, started in 2014. This is an eight-month program combining on-the-job learning with formal leadership training. In addition, diversity education, a variety of forums and Mentoring Boards provide additional developmental support and guidance to employees.
- PepsiCo: The company’s Global Development Council sets priorities for global classroom and online curriculum needs. The company’s internal, global learning resource is PepsiCo University, which consists of nine colleges (Finance College, Global Procurement College, Sales College, Global R&D College (including colleges in Packaging, Nutrition, Food Safety and Regulatory, Ingredient Application Science, Human Research and Science, Experience Design, Product Development and Process Engineering), HR College, Strategy College, Supply Chain College, BIS College and Marketing College. In 2014, over 65 percent of associates in the target audiences completed courses through one or more of these colleges. Also in 2014, PepsiCo added accelerated leadership courses around the world. In 2015, PepsiCo launched a new, global portal for PepsiCo University designed to help employees learn based on their unique needs and interests, and promote a culture of continuous learning and development. Employees are also encouraged to increase their skillsets through assignments providing critical experiences, which may include pioneering a new product or moving to a different country while tackling new roles and challenges over a relatively short period.
Innovation – Products, Services, Processes and Technologies
- Alcoa has continued to pioneer the industry, making potentially breakthrough advances in developing performance materials for its automotive and aerospace customers as well as applying disruptive technologies to transform their manufacturing capabilities.
- US Steel: Using an innovation road map to guide investments in research and technology, US Steel developed new steel grades and steel-intensive applications to address customer needs, and began to explore alternative materials and advanced manufacturing. This includes working closely with customers, industry associations, universities and the U.S. Department of Energy. They introduced advanced high-strength steels and other innovations in 2015 that effectively position the company to succeed in targeted markets.
- PepsiCo Continuing to grow and shape their product portfolio in a way that not only meets the strict guidelines set by the world’s public health organizations but also keeps pace with evolving ways consumers define nutrition, PepsiCo launched helped Americans cut over 6 trillion calories from their diets. Some of the new products highlighted in the annual report include Doritos Loaded, which launched the company’s entrance to the frozen food aisle, 7-Up Limonada, ready-to-drink teas, Izze organic sparkling water, and Mountain Dew Kickstart.
- Abbott Laboratories: In 2015 the annual report highlights include 38 new nutrition products, 5 new medical devices, and 1 new diagnostic product. The company made progress with its new group, Abbott Ventures, formed to make targeted investments and strategic acquisitions, in building a new-product pipeline in the diagnostics space.
- Whirlpool introduced 100 new innovative products in 2015! In Laundry products, the Whirlpool Supreme Care features smart technology, allowing consumers to operate the machine remotely. The Cabrio laundry pair of top-loading machines is designed with fabric protections to better remove stains and prevent over-drying as well as to keep operational noises “inside the machine and out of the laundry room”. In cooking products, the Pour Over Coffee Brewer, the Siphon Coffee Brewer, the Burr Grinder or the Precision Press Coffee Maker each provide barista techniques, flavors and consistency today’s customers want.
Execution – Strategically Oriented with a Focus on Operational Excellence and Efficiency
- Alcoa achieved significant savings in 2015, including $532 million of productivity improvements in their Upstream business along with savings of $616 million achieved in their Value-add businesses in productivity improvements and from synergies with recent acquisitions.
- US Steel: In 2015 the company realized $815 million in benefits from changes driven through their adoption of The Carnegie Way, representing sustainable improvements resulting from change, not temporary cost reductions.
- Colgate-Palmolive: Embedded throughout Colgate is the strategy of generating savings to invest in business growth. Savings have been realized through efficiency initiatives and through the 2012 Restructuring Program, a Global Growth and Efficiency Program, which focuses on improving organizational capabilities and the cost structure. Cost savings projects, both large and small, cross all aspects of the business. One such project was the establishment of 12 new commercial hubs across all operating divisions that clustered single-country subsidiaries into more efficient regional hubs, a move that has resulted in smarter and faster decision making. Another initiative extended Colgate’s business service centers, successfully streamlining global functions spanning 83 countries. Another cost savings was made through a project that drove the simplification and standardization of high-impact, point-of-purchase displays for the six countries in the Central America hub. This has reduced development time by two months and generated more than 30 percent in savings.
- International Paper: The ingrained principle of Manufacturing Excellence, supported by trained employees using established, systematic approaches and tools, drives company-wide continuous improvement and sustained year-over-year success. For example, a team partnered with a customer to investigate, analyze and solve an ink-smearing issue at one mill. The result included solutions that significantly improved communication between International Paper and the customer, increased customer satisfaction, and saved International Paper $150,000 per year. Another project, aimed at cost savings at a containerboard mill, revealed that high truck turnaround time added $775,000 to the mill’s annual wood cost. The fiber supply and mill teams partnered to reduce waste. Using minimal capital, the team was able to identify and address bottlenecks, which resulted in a 30 percent reduction in turnaround time. Other mills are replicating the process improvements in an effort to generate similar time and cost savings. In another cross-functional project at a corrugated box plant, teams from replenishment planning and improvement organizations worked with the plant manager and manufacturing manager to reduce holding rail cars, known as rail demurrage. With a goal of a 50 percent reduction in costs, the team implemented solutions that led to a 64 percent reduction in the first year, a savings of more than $150,000.
In conclusion, we believe the Honorable 57 have found their own recipes for success, while at the same time, using some similar strategic approaches. Our research included reviewing annual reports, letters to shareholders, corporate responsibility and sustainability reports, videos from Fortune Magazine and YouTube, and more. We are not economists or analysts. We are business people, readers who are passionate about business performance. Our experience tells us there’s something very important we can all learn from the Honorable 57. The purpose of this article is to provide a simplified summary with insights and observations of their stories.
It is our wish that this article provides value to you, our readers, and we thank these amazing companies for their leadership. Please share your thoughts, opinions and knowledge by commenting.
- Honorable 57 websites – Annual Reports, Sustainability Reports, Corporate Responsibility Reports
- Fortune Magazine
- Article: “These companies have made every Fortune 500 list for 61 years” by Tom Huddleston, Jr., June 9, 2015 @tjhuddle – link: http://fortune.com/2015/06/09/honorable-57-fortune-500/ ).
- Click this link and scroll down for an introduction to Fortune’s Unicorn List: http://for.tn/1MeiGDB