Service Now Counts With Fortune 500
Signaling for any doubters that the Industrial Era is over, Fortune magazine has retooled its famous Fortune 500 list to include service companies.
The change--evident in the May 15 issue, which hits newsstands May 1--means that hundreds of manufacturing and other industrial companies can no longer claim to be of Fortune 500 stature, while other breeds of businesses, from AT&T; to McDonald’s to Wal-Mart, now can.
Fortune attributed the change to fundamental shifts in the U.S. economy that have blurred once easy distinctions between industrial and service companies. General Electric, for instance, got 40% of its nearly $65 billion in revenue last year from service businesses such as mortgage writing and airplane leasing.
“Phone companies compete with broadcasters, software manufacturers offer personal finance services, airlines sell mutual funds, auto makers write insurance,” the magazine said.
For four decades, the Fortune 500 listing of the largest U.S. industrial companies--as measured strictly by sales--has been a prestigious club. Many companies have touted the connection in advertising and annual reports.
Fortune began publishing a separate list of non-industrial companies in 1956; that evolved in the early 1980s into a full-scale Service 500, published several weeks after the industrial list. But the ranking of service companies never carried the same cachet.
Times have changed, Fortune editors figured, and financial services giants and retailing behemoths warranted inclusion on a single list with their muscular industrial counterparts.
As it happens, service companies dominate the new list, with 291 entries, including three in the Top 10: Wal-Mart Stores Inc. (4), AT&T; Corp. (5) and Sears, Roebuck & Co. (9). Even so, General Motors Corp., with $155 billion in sales, again grabbed the top spot, as it has 31 times before.
AT&T; praised the change. “With the inclusion of service corporations, we think the new list more accurately reflects the reality of corporate America,” the company said in a statement.
As a result of the lists’ merger, many well-known companies, including B.F. Goodrich Co. and Clorox Co., no longer made the cut. Last year, the No. 500 position was held by a company with $614 million in revenue. This year, a company needed $2.2 billion in sales to make the grade.
Bounced companies attempted to make the best of being kicked out of the exclusive group.
“Certainly, it was great to be included,” said David Kaye, a spokesman for Thousand Oaks-based Amgen, the nation’s largest biotechnology company. “But they just added a bunch of bigger companies. They kind of changed the rules in the middle of the game.”
Clorox, the Oakland-based maker of household products, said the Fortune 500 listing is “not something we dwell on.” (On a competing list, the Forbes 500, Clorox did not warrant inclusion based on total sales or assets, but it did measure up on market value and profit margins, which it views as more indicative of strength and performance.)
Ethyl Corp., a Richmond, Va.-based maker of petroleum additives, said it was surprised and disappointed to be among the flock of also-rans, after about 30 years of inclusion on the nation’s best-recognized corporate A-list.
“We would mention (the Fortune association) in corporate descriptions where appropriate,” said spokesman Robert P. Buford IV. “It had its prestige for a lot of companies over the years.”
However, Buford noted, Ethyl does not regard sales as the most important measure of a company’s performance. In recent years, the company--like many others--has spun off operations in an effort to become more competitive. As a result, its sales have shrunk by about two-thirds from the $3 billion of three years ago.
But the company considers itself healthier for the downsizing.
Being part of the Fortune 500 was nice, Buford said, “but we’ll survive without it.”
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Here’s Your Hat ...
By inviting service companies to the Fortune 500 party, the magazine knocked a number of familiar industrial companies off the guest list. Companies needed $2.2 billion in 1994 revenue to make the new list, up from $614 million the previous year. The 10 biggest industrial firms bumped from the list and where they now rank:
B.F. Goodrich: 501
Rubbermaid: 503
Tribune Co.: 506
Advanced Micro Devices: 512
Quantum: 513
Arvin Industries: 514
Burlington Industries: 515
Great Lakes Chemical: 519
Tandem Computers: 512
Dow Jones: 523 Other bumpees include Amgen, BASF, Bausch & Lomb, Cisco Systems, Clorox, Ethyl, Hartmarx, Silicon Graphics and Zenith.
