December 13, 2022
In December, we hosted a virtual town hall with the astute and articulate Asutosh Padhi, author of The Titanium Economy and North America Managing Partner at McKinsey & Company.
What is the Titanium Economy?
For the last several decades, the industrial technology sector has been overlooked and underinvested in, as investors embraced Silicon Valley, services and all things technology related.
To the public, manufacturing, particularly in rich countries like Canada and the US, was regarded as a “has been” business. Fewer and fewer wanted to invest or work in it and the inevitable decline of factory jobs became an economic truism. Many of our member CEOs have faced this challenge head on.
Now as we talk more and more about a deglobalizing world, things are changing. Asutosh has taken a deep dive into the industrial backbone of the North American economy to reveal a strong, innovative sector that is well positioned to seize opportunities coming from shifting trade patterns and supply chains. These companies are underappreciated and not often talked about because they don’t make the front page of the Wall Street Journal, but 90% of these companies are profitable.
Why are these underappreciated companies so successful?
Asutosh highlights two common themes he sees across these Titanium Economy companies:
- FOCUS – these companies tend to operate in micro-verticals, which requires them to compete based on specialization: technology, consumer, distribution, etc. They have deep knowledge and customer intimacy, which means intimately understanding their customer’s operation and how they can add value to them.
- PLAYBOOK – Titanium Economy companies tended to have a playbook and were steadfast in following it. Asutosh and his team identified three parts to their success:
- Understanding how to transform the core of the business: the goal of transforming the core is to achieve better margins by leveraging data and technology to benefit the company. This ultimately leads to better, smarter products, more agile methods of decision making, a better customer experience, operational efficiencies, and enhanced profitability and cash generation for the business.
- Multiple expansion: Recognize a shift from having one-time sales to selling multiples and creating reoccurring revenues.
- Mergers and Acquisitions are highly disciplined and driven by acquiring capabilities – pursuing synergies is not the primary rationale. Successful companies continue to increase through enterprise value by executing a disciplined M&A strategy.
How can we demonstrate resiliency as we approach a recession?
“There is no better time to be a CEO. These are the moments of uncertainty when the actions you can take really differentiate you vis-à-vis your competitors” – Asutosh Padhi
Asutosh and his team at McKinsey have done a lot of research on managing through uncertainty and have found these times provide opportunity for step change growth and real separation from competitors. The actions companies took created the path to stand out for the long term, creating 4X or 5X value creation lasting over a 10-year period. It came down to 3 things:
- Focus on growth – don’t be distracted by margin improvement – this is where everyone gets hyper focused.
- Shift your portfolio – consider investments in software, technology and explore different business models.
- The power of your balance sheet – a lot of time is spent on the P&L statement, but if you’re considering a strategic M&A, right now credit markets are frozen, so you need an extraordinarily strong balance sheet to be able to execute.
“Look at this moment to not just play defense but play offense. Those that play both will be successful.” – Asutosh Padhi