McKinsey: What every CEO needs to know about ‘superstar’ companies
The superstar effect is real, and in this new competitive environment, strategy matters more than ever.
The rapid growth of very large global companies is fueling widespread debate about “superstar” effects and superstar companies. The McKinsey Global Institute (MGI) recently published its first findings in a series of research papers on this topic. One motivating factor for our ongoing research is that even as the debate grows, it is marred by confusing definitions, errors in measurement, and incomplete data—and as a result, the evidence remains inconclusive. We are also struck by the fact that the superstar phenomenon (the growing concentration of economic success) can be observed not just among companies but also in other aspects of the global economy, such as cities and sectors of economic activity. While we appreciate that important questions remain on the topic, in this article, we highlight key insights that our research has revealed to date—and their implications for business leaders around the world.
To understand company dynamics better, we analyzed 5,750 of the world’s largest public and private companies, each with annual revenues greater than $1 billion. Together, they made up 65 percent of global corporate pretax earnings (earnings before interest, taxes, depreciation, and amortization) from 1994 to 2016. Our metric for superstar companies is economic profit, a measure of a company’s invested capital times its return above its weighted cost of capital. We focus on economic profit because it reflects the economic value created by a company’s operating activities and investments.
