Our survey reveals how industry sector rivals view their competitors on everything from their ability to innovate to their corporate performance on environmental issues. Read on to see if your company is closer to Tesco at the top or to Eurotunnel several miles below.
11 ... 7 ... 19 ... 31 ... 4 ... and finally number 1. Not this week's winning numbers for the Lottery, but the somewhat erratic route to the top of the tree taken by Tesco, the food retailer which is Britain's Most Admired Company for 1996. Wave your Clubcards in the air. Step forward Lord MacLaurin and take a bow.
The food retailer once known for simply piling it high and selling it cheap now joins Shell, Marks & Spencer, Glaxo (as was), Rentokil and Cadbury Schweppes in the elite band of winners celebrated in the survey which has been running since 1989.
Companies included in the survey - again researched by Michael Brown from Nottingham Business School and assisted by Stuart Laverick from Derby University and Professor John Saunders from Loughborough University Business School - are measured against nine different performance criteria. Against these yardsticks, Tesco's mould-breaking emphasis on customer service has been a key factor behind the company's selection this year as the overall pick of the bunch. Initiatives such as the company's introduction of a Sunday School service for children whose parents spend the Sabbath paying more attention to their daily bread than to the divine, or its one-in-front promise to shoppers at checkouts demonstrate a commitment to customer service which has won plaudits from rival and consumer alike.
But the customer service drive alone would not be enough to propel the supermarket to the top of the league: as the tables show, rivals are also eloquent in their admiration of the company's managers and their capacity to innovate, with the runaway success of the Clubcard and Tesco Metro outlets prime examples (see box).
Tesco is only one of several retailers to do extremely well in the survey this year, with Next and M&S hot on its heels (although the story is rather a tale of two extremes since retailers also bring up the bottom of the table). Squeezed in between the retailing giants, however, in second position overall is Burford, run by Nigel Wray. On the back of some astute and highly imaginative deals, Wray has propelled the company to second spot from 15th position last year and a more lowly ranking as number 68 in 1994. The respect which peers accord to Burford managers' use of their corporate assets will come as little surprise to those who watched the company sell most of its property portfolio before the market slumped, only to use the cash pile it had created to sweep up the stream of bargains represented by less prescient rivals. The company's managers, widely respected for their ability to combine entrepreneurism with a certain caution ('protect the down-side' seems to be a corporate mantra), also garnered many a vote for their talents at innovation and their marketing nous.
While Burford's rise has been dramatic, M&S has long been regarded as the yardstick against which other British retailers, and arguably all British companies, are measured. Next's reputation has tended to be rather more volatile, taking in as it does the boom and bust days of its flamboyant founder, George Davies, ousted in a boardroom coup as wild over-expansion caused the share price to plummet in the late '80s. Yet Next is back, reporting pre-tax profits of £142 million last year, a 40% rise on the previous 12 months. As analysts predict continued growth of 20% a year for each of the next three years, peers are ringing in their endorsement of the quality of the company's goods and services, its innovative approach and its marketing.
David Jones, the man credited with the turnaround, is now widely regarded as one of the City's blue-eyed boys.
In its current incarnation, Next shares at least one philosophy with the retailing rival snapping at its ankles, M&S; no longer does it happily splash out on new stores at the drop of a hat (even one in this season's colour), preferring instead to develop existing stores. M&S's emphasis here is well illustrated by chairman Sir Richard Greenbury's recent announcement that the company would be hiring 2,000 new members of staff primarily to work in existing outlets (this on the back of the 1,500 jobs the company created last year). The share price tumbled as analysts fretted about increased overheads but Greenbury's comments on the need for increased investment to promote growth and maintain a loyal customer base bore out peers' admiration for the company as a long-term investment and as a provider of quality goods and services.
M&S is only one of the great British brand names to make it into this year's top five, although Cadbury Schweppes only just sneaks in, a fall from last year when the firm topped our poll. Chairman Dominic Cadbury has certainly presided over a stormy couple of years, which have seen among other things, the abrupt termination by Coca-Cola of a joint bottling venture. With this arrangement terminated, a refocused Cadbury Schweppes finds itself very much a small player on its own in a world of leviathans, and will require all of the marketing skills for which peers rate it so highly.
While four out of the five most admired companies in Britain reflect the service base of the UK economy, more traditional British industries also have their fair share of supporters, with engineering firms Siebe and Spirax Sarco both making an appearance within this year's top 10. Having grown for many years by acquisition, Siebe has won such admiration for its adept use of its assets and for its management that peers now view the firm as a good long-term investment, a perception that only appears to have been enhanced by Siebe's friendly £520 million takeover of Unitech earlier in the year.
Taking a wider lens to the first division of overall rankings - the top 20 - 12 of those who made it this year are veterans from last year's, and eight of those featured in 1994's grouping of what Miss Jean Brodie in her dry Scottish tones would term the creme de la creme. Whitbread, Vodafone, J Sainsbury, Rentokil, Guinness, Land Securities, Wolseley and Rexam all fell from grace this year. Of course, some will shortly bounce back, but others will not. It is difficult, for example, for observers to be optimistic about printer and packager Rexam which is now skulking in a lowly 153rd position.
In addition to the overall rankings, the survey's findings also rate companies according to sector, so that direct rivals are compared head on. Perhaps the most notable conclusion here is how little change has actually taken place over the last year. Of course there has been a jostling for position, and some reversals with BP, for example, coming out on top of Shell, a contrast to last year when the Anglo-Dutch company beat its rival across every one of the nine yardsticks of company performance used in the survey. In similar vein SmithKline Beecham this year succeeded in toppling Glaxo Wellcome from prime position. But on the whole companies which ranked in the top three of their sector in 1995 were still there this year.
That said, one striking exception to the overall trend is J Sainsbury's exit from the top three of its sector, a departure which reinforces a loss of reputation and customer base which has been only too well chronicled over the last year (although interestingly peers still rate the company's products and service levels highly). Managers at the beleaguered supermarket chain must be ruing David Sainsbury's throwaway comments about electronic Green Shield stamps, while holding out hopes for their belatedly launched loyalty card and the financial services the company is poised to provide.
Sainsbury does have some company in its downward slide, however, since Land Securities, P&O and Grand Metropolitan were all edged out of their sectoral top three this year. As indeed was Pearson, owners of the Financial Times and part owners of the Economist Group in the news and publishers sector.
The company's entrenched managers are poorly rated by competitors, although it remains to be seen if this will change substantially under new chief executive Marjorie Scardino whose own reputation is pretty glowing.
The flip side of the coin is that the rapidly growing Stagecoach, under the brother and sister duo of Brian Souter and Ann Gloag, makes it into the transport top three for the first time, on the back of the company's capacity to innovate and its use of corporate assets. Meanwhile Bass, which last year ranked a lowly seventh among its peers, now finds itself in second place, outgunning Whitbread in terms both of its financial soundness and its value as a long-term investment.
At the same time the media peer group has formally recognised the rehabilitation of the WPP Group after the upheavals of the early '90s. Chief executive Martin Sorrell's controversial but heavily performance-related remuneration package is looking juicier by the minute.
In a third set of tables, the survey identifies top performers against the nine difference yardsticks established by the research team, irrespective of sector of operation; the innovation rankings are perhaps particularly worthy of scrutiny given the need in any company to find new ways to create value. It is no coincidence that Tesco and Burford, number one and number two in the overall ranking, do extremely well here, as does the British Land Company. Chelsfield, the property company run by Elliott Bernerd, is also well regarded on the innovation count, a recognition of the group's success in reorientating itself away from traditional, office-block properties, towards big retail and leisure investments. Dorling Kindersley's highly innovative talents are profiled elsewhere in this issue but are perhaps best summed up in the image of a publishing company sporting on its walls a slogan that the book is dead.
And Asda's record on innovation will be interesting to watch now that Archie Norman has taken a back-seat role, bored of business and thirsty for political influence.
Of course, the survey has a tale of woe to tell as well as one of great corporate achievement, and many of the companies which feature at the bottom of this year's rankings are beginning to look familiar, if not comfortable, as under-achievers. While the expansion of the list from 250 companies last year to 260 obviously means that Eurotunnel's drop from 249 to 260 is not as bad as it looks, frankly at this point in the proceedings, the odd point or two makes little difference.
Given that last year's number 250, Trafalgar House, has gone on to prove the accuracy of the survey by being taken over (and therefore excised from this year's candidates), omens are not great for companies such as Dawson International and Cordiant. Nor indeed for companies such as Flextech or Wm Baird, whose reputations, it seems, are being downgraded at a rate of knots.
Presumably it is the idea of such an unpalatable alternative which has caused Kwik Save, which comes in just above Eurotunnel at 259, to embark on its drastic £300 million reorganisation, which will see the culling of nigh on 2,000 jobs and 107 stores. Perhaps the prospect of a peer taking such decisive steps will act as a spur to Kingfisher, W H Smith, Sears and House of Fraser, all of whom perform poorly. Like the merchandise they purvey, those retailers at the bottom of the pile may yet find themselves on the remaindered shelf.
The full results of the survey, including detailed analysis of each sector, are contained in the report Britain's Most Admired Companies 1996, available from Management Today for £39. Please contact Valerie Robertson on 0171 413 4203.
Management Today will be hosting a Most Admired Companies conference at the Dorchester Hotel, London on 25 March 1997. For more details, please contact Tania Cassell or Buzz Carter on 0171 413 4116.
THE MOST ADMIRED.
1 4 Tesco 8.03
2 15 Burford 7.76
3 38 Next 7.71
4 7 Marks & Spencer 7.68
5 1 Cadbury Schweppes 7.67
6 10 Reuters 7.63
7 14 SmithKline Beecham 7.58
8 45 Siebe 7.57
9 - Spirax Sarco 7.56
10 23 British Petroleum 7.51
11 13 Glaxo Wellcome 7.49
12 3 Smiths Industries 7.46
AND THE LEAST ADMIRED
249 - British Biotech 4.51
250 - Fine Art Developments 4.39
251 248 Nurdin & Peacock 4.39
252 244 Cordiant 4.34
253 175 Flextech 4.14
254 216 British Gas 4.14
255 205 Wm Baird 4.02
256 191 Sears 3.94
257 - House of Fraser 3.85
258 245 Dawson International 3.58
259 238 Kwik Save 3.57
260 249 Eurotunnel 2.85
SUPERB INNOVATION AND CLEVER MARKETING AT TESCO
The holder of all the unbeatable cards.
It was back in 1959 that the young salesman, Ian MacLaurin, first met Sir John (Jack) Cohen, the founder of Tesco. Pile it high, sell it cheap was the company's winning formula in those days, but since becoming chairman in 1985, MacLaurin has worked hard to find his own modern equivalent. Wider aisles, Tesco Metros (the bijou as opposed to the hyper-market), free car parking outside stores, healthy eating initiatives, mothers' nursing rooms, pharmacies - all these and more have featured during MacLaurin's reign.
That said, it is the introduction of the Clubcard last year and its development this year into the Clubcard Plus debit card (the first move by a UK chain into supermarket banking) which have done most to propel Tesco ahead of its rivals in the Most Admired Companies rankings. Tesco now has over six million customers who use the loyalty cards regularly; the company confirmed in September that the success of the card was a significant factor in an almost 11% jump in half-year, pre-tax profits to £321 million. Sales over the same six months grew by 14% to £6.7 billion, with the company's UK market share increasing from 13% to 14%, higher than J Sainsbury for the first time.
The card and its variants are MacLaurin's crowning achievement, confirms Frank Davison, an analyst with HSBC James Capel, who concludes: 'Tesco is firing on all cylinders'.
Analysts are predicting that in the year to February Tesco will become Britain's most profitable grocer, again overtaking Sainsbury's. The comment of one observer - that Tesco's strategy is to have one foot on the throttle and the other on Sainsbury's neck - hits the mark nicely. Yet Tesco's Unbeatable Value campaign is evidence that it does not lose sight of other competitors in its focus on beating the market leader; this price-based campaign in particular is seen as a key weapon in the battle with Asda.
The threat is reinforced by Tesco's most recent announcement - that it is planning to open its first hypermarket in the UK early next year. Asda already operates 11 such stores, while Sainsbury's has the 12-strong Savacentre chain.
So what do our respondents identify most clearly as the factors underlying Tesco's success? World-class management, superb innovation and clever marketing to back up a quality offering, both in terms of the products on the shelves and the shopping experience. And the company wins brownie points on the green front too.
Tesco itself is so convinced of its winning formula that it is seeking to roll it out in Europe, where food retailers look like much easier prey than the main players in the extremely lean UK grocery game.
In conjunction with Loughborough University Business School, Management Today approached Britain's 10 largest public companies in 26 industrial sectors and asked their chairmen, managing directors and selected main board directors and other senior personnel to evaluate their peers.
- Participants were asked to rate each company in their sectors (excluding themselves) on a scale of zero (poor) to 10 (excellent) for their performance against nine criteria: quality of management; financial soundness; ability to attract, develop and retain top talent; quality of products/services; value as a long-term investment; capacity to innovate; quality of marketing; community and environmental responsibility; and use of corporate assets. Analysts at 10 leading investment companies were also polled.
- On the basis of the individual scores assigned to a company for each of the nine characteristics, three separate analyses were produced: an overall ranking of all 260, a ranking of the 10 companies included within any given sector, and top 10 league tables in each performance category.
TOP THREE MOST ADMIRED COMPANIES IN EACH OF THE 26 SECTORS
Sector First Second
1 Banks Lloyds TSB Bank of Scotland
2 Building Materials &
Merchants Wolseley Pilkington
3 Business Services Rentokil Hays
4 Chemical & Plastics BOC Allied Colloids
5 Conglomerates BAT BTR
6 Drinks Whitbread Bass
7 Electricals B T Vodafone
8 Electricity PowerGen Southern Electric
9 Engineering Auto & Aero Smiths Industries GKN
10 Engineering & Metals Siebe Spirax Sarco
11 Financial Perpetual Mercury Asset
12 Food Manufacturers Cadbury Schweppes Unilever
13 Health & Household SmithKline Beecham Glaxo Wellcome
14 Insurance Prudential
Corporation Commercial Union
15 Leisure Thorn EMI Granada
16 Media Capital Radio Carlton
17 News & Publishers Reuters Dorling Kindersley
18 Oil, Gas & Extractive British Petroleum Shell Transport &
19 Paper & Printing St Ives De La Rue
20 Property Burford British Land
21 Retailers (Clothing) Next Marks & Spencer
22 Retailers (Food) Tesco Argyll
23 Retailers (General) Argos Boots
24 Textiles Dewhirst Group Allied Textiles
25 Transport British Airways BAA
26 Water Southern Water Wessex Water
1 Banks HSBC 6.46
2 Building Materials &
Merchants RMC Group 5.74
3 Business Services Electrocomponents 5.68
4 Chemical & Plastics
5 Conglomerates Cookson Group 6.21
6 Drinks Guinness 6.03
7 Electricals Orange 6.12
8 Electricity National Power 6.14
9 Engineering Auto & Aero Rolls-Royce 6.13
10 Engineering & Metals TI Group 6.70
12 Food Manufacturers Tate & Lyle 6.09
13 Health & Household Zeneca 6.19
General Accident 5.74
15 Leisure Stakis 5.88
17 News & Publishers Emap 6.30
18 Oil, Gas & Extractive
19 Paper & Printing Bunzl 6.11
20 Property Chelsfield 6.21
21 Retailers (Clothing) Burton 5.80
22 Retailers (Food) Asda 5.96
23 Retailers (General) Dixons 5.41
24 Textiles Sherwood Group 4.88
25 Transport Stagecoach 5.24
26 Water Severn Trent Water 5.98
This has been a year in which good reputations in individual sectors are more likely to have been maintained than lost. Last year only 10 companies retained their 1994 number one sector ranking. This year, however, 19 of last year's winners repeated the feat. Indeed in five of the 26 sectors - business services, chemical and plastics, engineering (auto and aero), food manufacturing and insurance - the same top three companies featured in the same order as last year. But there is still noteworthy change elsewhere.
In the financial sector, last year's first second and third, Schroders, M & G Group and MAI, are replaced by Perpetual, Mercury Asset Management and 3i, in that order. BAT has leap-frogged BTR, Williams Holdings and Tomkins to take the top spot in conglomerates. And St Ives has shot to prominence in paper and printing. Meanwhile, the demise of Coats Viyella has allowed Dewhirst Group to take top spot in textiles. Over in both the transport and the water sectors, British Airways and Southern Water have triumphed over BAA and Wessex Water respectively.
1 Tesco 8.57
2 Burford 8.57
3 Spirax Sarco 8.29
4 Siebe 8.29
5 Smiths Industries 8.25
6 Commercial Union 8.25
7 Mercury Asset Management 8.24
8 SmithKline Beecham 8.13
9 Granada 8.12
10 Marks & Spencer 8.06
1 Mercury Asset Management 8.38
2 Tesco 8.29
3 Cadbury Schweppes 8.20
4 British Petroleum 8.20
5 Perpetual 8.02
6 SmithKline Beecham 8.00
7 Burford 8.00
8 Shell Transport & Trading 7.89
9 Siebe 7.86
10 British Airways 7.84
QUALITY OF MARKETING
1 Cadbury Schweppes 8.60
2 Burford 8.57
3 Tesco 8.29
4 Orange 8.25
5 Next 8.25
6 British Airways 8.20
7 SmithKline Beecham 8.00
8 Glaxo Wellcome 7.88
9 Spirax Sarco 7.86
10 Argyll 7.71
1 Marks & Spencer 9.36
2 Shell Transport & Trading 9.22
3 BT 9.20
4 Land Securities 9.00
5 Bradford Property 9.00
6 Argos 9.00
7 Associated British Foods 8.92
8 Glaxo Wellcome 8.81
9 Reuters 8.67
10 Boots 8.48
1 Smiths Industries 8.63
2 Reuters 8.58
3 Mercury Asset Management 8.13
4 SmithKline Beecham 8.06
5 Marks & Spencer 8.06
6 Siebe 8.00
7 Argos 7.94
8 Perpetual 7.90
9 Cadbury Schweppes 7.90
10 Shell Transport & Trading 7.89
1 Argyll 7.71
2 ICI 7.69
3 D S Smith 7.50
4 Marks & Spencer 7.47
5 BOC 7.35
6 Arjo Wiggins Appleton 7.33
7 Tesco 7.29
8 J Sainsbury 7.13
9 Anglian Water 7.10
10 BT 7.03
1 Tesco 8.71
2 Cadbury Schweppes 8.30
3 British Airways 8.18
4 Savoy Hotel 8.18
5 Marks & Spencer 8.17
6 Next 8.17
7 J Sainsbury 8.13
8 Spirax Sarco 8.07
9 BOC 8.02
10 Perpetual. Boots 8.00
CAPACITY TO INNOVATE
1 Burford 9.14
2 Tesco 8.71
3 British Land 8.57
4 Chelsfield 8.40
5 Reuters 8.00
6 Next 8.00
7 Asda 7.75
8 Dorling Kindersley 7.64
9 Pilkington 7.63
10 Rolls-Royce. SKB 7.63
USE OF CORPORATE ASSETS
1 Burford 8.29
2 British Land 8.14
3 Siebe 8.14
4 Spirax Sarco 8.00
5 Cadbury Schweppes 7.80
6 Reuters 7.80
7 Next 7.73
8 Lloyds TSB 7.65
9 GKN 7.63
10 BTR 7.57
BRITAIN'S MOST ADMIRED COMPANIES - Consistent in making gains and losses
of a spectacular kind.
ON THE WAY UP
Asda 198 173 20
Hays 70 50 31
St Ives 136 55 33
Bank of Scotland 152 57 38
BAT 97 78 41
3i - 119 46
Cookson Group 103 83 50
HSBC 89 74 52
Bunzl 211 148 70
National Power 100 99 76
Reckitt & Colman 138 137 80
British Aerospace 196 110 88
Barclays 213 143 90
National Westminster 236 127 93
General Accident 172 128 97
ON THE WAY DOWN
Kwik Save 171 238 259
British Gas 127 216 254
Flextech 118 175 253
Tarmac 182 215 247
Slough Estates 205 229 243
Allied Domecq 67 140 237
NFC 143 207 235
Scottish TV 191 201 226
UniChem 121 171 222
Allied Textiles 58 103 193
Rugby Group 64 104 191
Redland 82 117 190
Brixton Estate 114 120 169
United Biscuits 74 147 167
Chubb Security 14 101 150
To qualify for admission to one of the two tables above, companies on the way up or down must meet two criteria. First, they must have been heading in the same direction for two consecutive years since this lessens the impact of a freakishly good or bad performance in the latest survey. And the gains or losses must have been reasonably spectacular.
Asda qualifies on both counts. The company is now minus Archie Norman but his hard work showed spectacular benefits in 1996. Only four years ago, the food retailer ranked 239th in the overall league. It crept up last year, but only from 198th to 173rd position.
This year, however, Asda has risen to the dizzy heights of 20th place, mainly on the back of its innovative approach, not least its attacks on long-established pricing agreements.
3i is now showing strongly, while distribution and manufacturing group Bunzl also made an impressive 78 point leap. Over at Reckitt & Colman, meanwhile, managers should be priding themselves on their newly enhanced reputation during a difficult period of corporate restructuring.
Moving in the other direction is British Gas: the company again failed to reverse the tail-spin which set in last year, and has dropped from 216th place in 1995 to 254th place in 1996. Among its peers, British Gas finished last in seven out of nine of the performance categories.
The performance of Allied Domecq has been nearly as poor. Its report card shows little room for enthusiasm in any aspect of the company's performance. It seems hard to believe that financial soundness, value as a long-term investment and a capacity to innovate were recently seen as the company's strengths.
United Biscuits has also been making steady progress in the wrong direction.
Back in 1990, UB ranked a heady 14th. Now it lingers at 167, a drop of 20 places on last year's ranking. The driving force behind the latest slip has been a sharp fall-off in the company's perceived ability to attract, develop and retain top talent.
Britain's Most Admired Companies - M&S enjoys the laurels three years in succession.
For the last three years we have asked our respondents to take a step outside their sector and vote for their favourite company in the nine performance categories, irrespective of the firm's size and form of ownership. Of the top 10 companies in this year's free vote, six were survivors from 1995, and five of these had also cut the grade the previous year.
The star of those stalwarts has to be Marks & Spencer which for the third consecutive year receives the winner's laurels. And it looks likely to retain them next year too since it polled more votes than its second and third place rivals (Tesco and Glaxo Wellcome) put together.
Interestingly within its own sector, M&S has been usurped by Next. But in the view of those companies looking in from the outside, M&S is on its own in terms of the quality of its management, products and services, and its ability to attract, develop and retain top talent.
Tesco's achievements are described elsewhere in this article but it is interesting to note that admiration for the company spreads throughout corporate Britain. A free vote maiden, the food retailer enters this particular top 10 in second place.
Reuters, BP and Rentokil were the other newcomers to this year's free vote top 10. Reuters, rated highly as a long-term investment, also scores in terms of its financial soundness, while BP's progress in this league is based substantially on its perceived ability to attract and retain top people. Over at Rentokil Sir Clive Thompson's penchant for squeezing out maximum shareholder value, which was so extensively publicised during the BET takeover battle, is a significant factor behind the high esteem in which his company is held.
Thompson's nickname, Mr Twenty Per Cent - based on his insistence on seeing that rate of annual growth in earnings per share - says it all.
Four companies have also dropped out of this year's top 10, with the exit of both Hanson and J Sainsbury coming as little surprise after 12 months' worth of negative press coverage. Rejected too are Unilever, still dogged by the Persil Power episode and perhaps now more importantly by the structural weaknesses it highlighted, and ICI which is currently in the throes of a radical reorientation of its business portfolio to try to overcome its traditional over-reliance on its industrial chemicals business.