Neal St. Anthony/On Business: Minnesota Nice Applies To Investment Returns, Too
Neal St. Anthony
Tuesday, June 12, 2001
Minnesota-based public companies led the nation in achieving sustained, profitable growth during the past decade, according to a study to be released today by Bain & Co.,
the Boston-based business consultant.
Fourteen of 33 Minnesota companies -- 40 percent -- with revenue of at least $500 million met Bain's key hurdles for long-term growth, profitability and total return,
compared with only 29 percent of 263 other Midwestern companies studied and 10 percent of companies throughout the United States and overseas.
"This data clearly shows that Minnesota has a higher percentage of 'sustained value' creators than the Midwest and the nation overall," said Mark Horwitch, the director of
Bain's Chicago office, which conducted the Midwest portion of the study. "Why, we don't really know.
"There's the whole concept of Midwestern conservatism, sticking to your knitting and not moving into things you don't understand. There also is quite a bit of openness in
terms of leaders being involved in the community, sharing insights and best practices. There's some peer-group emulation."
The designer of the study, Bain executive Chris Zook, has received national attention for "Profit from the Core," a blueprint for companies to focus on core strengths,
expand through related efforts and resist high-risk forays into areas they don't understand.
Zook, director of Bain's global-management consulting practice, said he undertook the study of what amounted to 8,000 public companies located in the so-called "G7"
group of industrial countries because two-thirds of the firm's clients were looking for "their next growth wave."
"The average stock is held for just 1.2 years now compared with eight years in the late 1960s," Zook said. "Shareholders dump stocks and boards dump CEOs faster than
we've ever seen, yet the odds for sustained profitable growth are only about 10 percent, under our threshold."
Bain's elite group of sustained-value creators maintained at least a 5.5 percent average annual inflation-adjusted growth rate in both earnings and revenue, returned
annually at least 10 to 12 percent in market appreciation and dividends and built market power in well-defined core businesses that expanded logically and systematically
into related markets.
"Growth comes from focus, not from chasing trends, looking for quick fixes or placing flags on a map," Horwitch said.
The Minnesota winners during the decade ended in December include:
ADC Telecommunications Inc., which positioned its products to take advantage of the building boom sparked by the transmission of more and more electronic data by
phone companies, cable TV operators and others to homes and offices.
ADC's stock has collapsed this year amid the global slowing of telecommunications-related spending and investment.
Best Buy Co. Inc., which has expanded its product line from audio equipment to computers and appliances as it transformed itself from regional to national retailer.
Fastenal Co. of Winona, which has turned nuts and bolts into a big growth business over the past 35 years.
Medtronic Inc., which has expanded successfully and profitably from making heart-related devices to new medical products and therapies.
Target Corp., which focused on the development of its Target discount stores, even jettisoning its old name, Dayton Hudson, which was rooted in its flagship department
stores.
TCF Financial Corp., which proved that opening new branches in supermarkets, making prudent acquisitions in contiguous states and trying to make a little money off a
lot of people is a sound strategy.
Xcel Energy Inc., which pulled off a cost-cutting merger with a Colorado utility and launched its own big independent power producer as the demand for electricity
increased.
"Of all the areas of the world we looked at, the Midwest is the highest for achieving sustainable growth," Zook said. "The companies that were able to achieve it had a few
things in common -- 95 percent grew around one or two dominant core businesses as opposed to being much more like conglomerates.
"We also found that having a strong market position was worth three or four times more in terms of driving profitable growth than an average position in a hot sector."
Of the Midwest companies studied, 60 were in Illinois, 59 in Ohio, 33 in Minnesota, 27 in Michigan, 23 in Wisconsin and 21 in Missouri.
Storage developments
Last week, several data-storage industry leaders, including Brocade Communications, Compaq, EMC, Hitachi and IBM, announced several landmark initiatives designed
to provide customers with cross-vendor products that speak the same language.
Plymouth-based Computer Network Technology, which connects servers to various brands of storage-area networks, was watching closely.
"In one sense, we benefit in having more diversity in protocols because we make things work that weren't meant to work [together]," said Chief Executive Tom Hudson. "On
the other hand, as communication-systems costs come down ... the market will expand greatly from remotely connected storage across the enterprise.
"It's a good thing for customers in general and a bit of a 'Holy Grail' for the industry. Storage management and maintenance is too complicated. It's got be convenient for
mere mortals to use it or it's going to throttle growth in this industry."
By the way, Hudson sees no end this year to the reluctance of clients to commit to major technology spending initiatives.
Jacobs-Pohlad team up again
Investor and boat-company mogul Irwin Jacobs has been joined by longtime investment partner Carl Pohlad in taking big stakes in AremisSoft Corp., a software maker
whose contract to overhaul Bulgaria's health-information network was questioned this spring in a New York Times report.
Jacobs has said that the stock is undervalued and that he bought his 9 percent stake at about $12 per share, half the stock's January peak of $27.63.
According to a recent SEC filing, Pohlad, his three sons and two associates paid an average of about $13.50 per share for 6.3 percent of the company. The 2.5 million shares
were acquired during the past 60 days.
The stock closed down slightly to $12.90 Monday.
Several law firms have filed suits against AremisSoft, accusing it of making misleading statements about the value of the Bulgarian contract.
-- Neal St. Anthony can be reached at 612-673-7144 or Nstanthony@startribune.com.
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