Create 6 Times More Value Per $1 Of Revenue
The Importance of Adapting and Shifting Mindsets
What does a 25-year old at Uber know about the Taxi and Limousine Services industry that a 25-year veteran of the taxi industry does not? Taxi executives are tied to assumptions and beliefs that were true 25 years ago but no longer hold true. To successfully deliver a digital transformation, executives need to change their thinking about the way their business currently operates to understand the business they need to run.
Dominance of Digital Businesses:
An analysis of the S&P 500 over the last 20 years reveals that companies adopting a digital approach to business are dominating due to the technology strength built into their operating models. In fact, only Microsoft remains in the top 10 of US corporations since digital technologies began to disrupt traditional businesses in the 1990s.
The Value of Digital Revenue
Markets are now valuing revenue from digital businesses significantly higher than revenue from traditional companies. For instance, Google, Facebook, and Salesforce have been given significant premiums by the market, while traditional companies are valued at little more than the near-term cash they can produce. This demonstrates the growing importance of adopting digital technologies and strategies in order to increase the value of a company’s revenue.
Examples of Market Valuation
- Airlines: $1 of American revenue is worth $0.91 in enterprise value
- Hotels: $1 of Marriott revenue is worth $2.90 in enterprise value
- Consumer Packaged Goods (CPG): $1 of Kimberly Clark revenue is worth $2.94 in enterprise value
- Digital: $1 of Google revenue is worth $5.03 in enterprise value
- Digital: $1 of Salesforce revenue is worth $8.41 in enterprise value
Embracing digital disruption and rethinking traditional business models is crucial for companies to remain competitive in today’s digital landscape. By adapting to new technologies and shifting their mindset, executives can transform their businesses and unlock greater value in the age of digital transformation.
[i] Authors’ research of top 10 companies globally by market capitalization listed in the Financial Times in 2000, 2010, and 2019.
[ii] “Enterprise-Value-To-Revenue Multiple – EV/R Definition,” Marshall Hargrave, Investopedia.com, updated June 25, 2019.