The changing UK corporate landscape and role of 'systematic ambition'
Authors Tunde Olanrewaju, Managing Partner for McKinsey's UK, Ireland and Israel offices, and Andrew Goodman, Senior Partner, provide their personal insights from McKinsey's latest report on how UK businesses can outperform.
Tunde Olanrewaju, Managing Partner for McKinsey's UK, Ireland and Israel offices
As we developed our research, a clear theme was the many underlying strengths of the UK. Despite being the 23rd largest nation by population, it is the second largest exporter of services globally, with a very strong business services sector – especially, financial services, insurance, and IT services. It has a vibrant innovation ecosystem, ranked fourth in the World Intellectual Property Organization’s Global Innovation Index in 2023. It continues to lead the way in terms of venture capital funding, and has generated 144 unicorns. That’s more than the rest of Europe combined.
The UK has a world leading position in development of clean technology, bioengineering and artificial intelligence - home to twice the number of AI companies vs other European nations. On top of these many assets, the English language, and English Law, have a strong position underpinning global business, in terms of communication and contracting, with the UK legal system being adopted by countries where some 30 percent of the world’s population live. The UK also remains a cultural powerhouse, recognised globally for the quality, diversity, and innovation of its arts sector.
These are underlying, enduring strengths that the UK continues to enjoy - which create a great platform for businesses to capture the full potential the UK has to offer.
Our research also uncovered how much the UK corporate landscape has evolved. One of the key shifts has been a rise in private ownership and shrinking of the listed landscape. In the last 15 years, the UK has attracted $1.8 trillion in private equity investments and $0.95 trillion in foreign direct investment much of which has been used to take listed companies private, or to buy and invest in un-listed ones. In total, 197 UK firms were delisted from the London Stock Exchange due to take-privates between 2016 and 2023, and only two have since re-listed (both in the US).
In addition, relatively few large, disruptive UK companies have emerged in the past two decades—five of the ten largest publicly-listed UK entities in 2000 were still among the top ten in 2023, compared with just one in the United States. And only six UK startups in the last 20 years have scaled to more than £3 billion in revenues.
Our report explored this changed landscape, and looked at how companies, whether listed or un-listed, were creating outperformance. We tested our insights with many CEOs and saw a common theme cutting through the most impressive success stories: systematic ambition.
Our report delves into what this looks like in practice, and what steps business leaders could take to realise stronger performance and valuation outcomes, as powerful technological, geo-political and economic forces continue to reshape the UK corporate landscape.
Andrew Goodman, Senior Partner
We looked at the 500 biggest UK companies, whether listed on the stock market, in private ownership or operating here as a subsidiary of an international firm, to build a picture of how businesses can truly succeed here.
Only about a third of these companies are listed, and the composite we created - the UK500 - gave us an alternative perspective on the UK's economic structure, and we believe an even more accurate understanding of how companies thrive in the UK.
What the data told us is that if you want to outperform over time, you have to be able to grow. You have to be able to grow your revenues and grow your EBITDA. There isn't really a model of ‘cutting your way to greatness’. That is certainly true of large companies.
So how do you achieve that growth? What we learned, by looking at the 500 largest companies in the UK, is that they grew by expanding into new technologies, geographies, and product lines. In the last 17 years, foreign markets have, on average, generated some 85 percent of the revenue growth of FTSE 350 companies.
It’s also vital to have a concentrated and aligned investor base. When there is that alignment, it enables companies to truly double down and reinvest in growth. That is a really important enabler. The same is true of aligning management incentives with that ambition for growth. In the US, CEOs receive much more performance-related compensation and that can translate into stronger growth.
We also make the point in the report that reskilling a workforce will be vital for UK companies to succeed. Up to 25 percent of time spent on current work activities in the United Kingdom could be displaced by automation by 2030, with demand growing in some but shrinking in other areas of the economy. As a result, around two million workers—around 6 percent of all employees—would likely need to transition to new occupations.
And, finally, there is a massive opportunity for companies to partner with leaders in innovation. The UK has 18 clusters of innovation and excellence, and three of these clusters—in London, Cambridge and Oxford—are competitive at a global scale. Partnerships with these clusters could be significant levers.
Are these challenges straightforward? No, they are not. They are cross-cutting challenges that are really hard to fix. But if you look at the evidence, in the US, and in some Nordic markets, for instance, there are powerful examples of companies who have brought about massive change. So I am realistic about the scale of the challenges that UK businesses face, but I also remain optimistic about what could happen.
