The newest list of the Fortune 500 was released today, and the configuration of the top ten companies provides some insight into how U.S. businesses may need to operate to be successful during the current recession and over the next few years.
With earnings for the list of the nation's largest corporations down 85 percent from their 2008 numbers due to the recession -- profits for the 500 fell from $645.2 billion in 2007 to $98.9 billion for 2008 -- what is it about these companies that places them at the top of the heap when times are particularly tough?
Key Industries -- Certain industries are recession-proof, and energy falls into that category. But more than that, energy companies dominate the top 10 among the Fortune 500 this year because energy is a key industry for expansion over the next decade and beyond. The most successful companies often operate in industries that are ripe for expansion over a five to ten year period.
Four of the top 10 Fortune 500 firms are in the energy business, and a fifth has a major energy-producing subsidiary. ExxonMobil (XOM) owns the top spot on the list, followed by Chevron (CVX) and ConocoPhillips (COP) at No.3 and No. 4. General Electric (GE), the diversified conglomerate which produces among other things, light bulbs and the electricity to light them, is No. 5 on the list. And oil refiner Valero (VLO) is No. 10.
When five corporations can earn enough billions of dollars to rank among our nation's top ten earners, it demonstrates how lucrative an industry energy has become and how potentially more lucrative it can be. With President Barack Obama's administration offering tax incentives to companies that invest in the development of clean energy, growth appears to be visible for as far as the eye can see. After all we will always need to produce energy, whether in boom times or bust.
Key constituencies -- Business success often comes to those companies that serve certain key constituencies that are loyal or under-served. Wal-Mart Stores (WMT), ranked No. 2 on the Fortune 500 serves the cost-conscious consumer, which never goes out of style. Everyone likes a bargain, and by delivering a bargain to loyal customers, Wal-Mart will be able to withstand the recession and then thrive when economic conditions improve. Hewlett Packard (HPQ), No. 9 on the list, also serves a key constituency of technology and electronics users -- both in business and in the general public. Providing goods and services that enhance people's ability to be more productive will always lead to repeat sales in good times and bad.
Key Innovations -- Being innovative during tough times can increase a company's survival, and AT&T (T), No. 8 on the Fortune 500 list capitalized on that point very well. Teaming up with one of the most innovative companies in the country, Apple Inc. (AAPL), to negotiate an exclusive deal to offer the i-phone with its phone services, AT&T has reemerged as a leader in its industry and positioned itself for expansion and growth over the next decade. AT&T has piggy-backed off of the "coolness" of Apple's technology and now the company that was once known as "Ma Bell" has an entirely new group of young, hip customers that are likely to identify with its brand for a lifetime.
Key Compromises -- Sometimes when the economic realities get tough, you must have the courage to make key compromises to save your business and reposition it for future growth. Such is the plight of top auto makers General Motors (GM)and Ford Motor Company (F), No. 6 and No.7 on the Fortune 500 list. Just as millions of laid off workers have been forced to reinvent themselves and obtain new skill-sets to compete in the job market, both companies have been forced to restructure themselves to survive -- essentially changing how they do business so that they can be competitive over the next decade. Ford seems to have done a better job of reorganizing, negotiating compromises with labor and suppliers and changing direction. GM has been forced to change leadership and may be forced into reorganization, but either way, the lesson is clear -- learn to make necessary compromises or disappear.
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