Jan 182013
 

When developed economies slumped as a result of the financial meltdown which began in 2007, companies everywhere scrambled frantically to find new markets for their goods and services. Overnight, “emerging” markets (developing nations) became everyone’s target.

By the time of the crash, it was already clear that a massive economic shift was under way from the West to the East, and that future global growth would come more from developing nations rather than the established powerhouses: the U.S., Europe, and Japan.

From the earliest days of global trade, the lure of foreign customers in strange places has been a strong one. Following World War II, innovative technologies and logistics systems, the spread of democracy, and the increasing wealth of billions of the world’s citizens have led to fabulous opportunities for companies selling everything from cement to soap, from food to financial services. But it’s really only been in the past 30-odd years that emerging market mania has taken hold.

Ted Levitt at Harvard Business School alerted companies in 1983 to “The globalization of markets,” and the opportunities in marketing across borders. Jim O’Neill, chief economist at Goldman Sachs coined the catchy terms “BRICs” (Brazil, Russia, India, China) and “the next 11” (Mexico, Turkey, Egypt, Iran, Nigeria, Bangladesh, Indonesia, South Korea, Pakistan, the Philippines, and Vietnam). C.K. Prahalad wrote about “the fortune at the bottom of the pyramid.” New York Times columnist Tom Friedman’s books, The Lexus and The Olive Tree (1999) and The World is Flat (2005), were best-sellers. Many other observers spewed out analyses, reports, articles, and books on the same topic. And it gets hyped to the hilt at the World Economic Forum’s annual Davos get-together.

Growth in rich countries remains sluggish. All evidence suggests that developing countries are where companies will find the sales they need. So competition there will become increasingly hostile, and the demand for fresh thinking on it will rise fast.

But there are some realities that cannot be ignored.

A LITTLE THEORY GOES A LONG WAY

Interest in emerging markets has brought with it an outpouring of views on the attractions of specific countries and what it takes to succeed in them. Usually, these are couched in stirring tales of how this or that entrepreneur beat the odds to make a fortune in some poverty-stricken place; how companies from India, Mexico, or South Africa became admired multinationals; and how firms in rich countries found opportunities in poor ones. Much of what’s on offer is entertaining and even inspiring, but contributes little to a theory of emerging market strategy.

The need for advice on how to crack emerging markets is a big one, and its growth is explosive. So we shouldn’t be surprised if zealous researchers and managers underplay what is already known, and what expansionary firms have learned over many decades—even centuries. Breakthroughs are always more seductive than “the basics.”

A few experts have provided useful insights about emerging market strategy. But by and large, efforts to produce useful concepts or tools specific to this field have been less than fruitful, and will continue to disappoint.

As with other areas of management, there’s only so much that can be said. There will be some incremental advances, but executives should not expect revolutionary new models or frameworks. Those in the advice business will add most value by providing information about particular countries and sectors (context), and what it takes to win in them, rather than about strategy itself (concepts).

THE GLOBALIZATION OF … MANAGEMENT

As I pointed out in a previous post, virtually every market for everything is today an emerging market, in the sense that conditions are in flux, the future is unclear, competitive intensity is high, and the rules of the game are evolving. Strategies and business models that once worked well can quickly become recipes for failure, so both must be adjusted or maybe reinvented to meet new circumstances.

But it also means that whether you’re doing business in Europe or the U.S., or trying to get moving in Malawi or Myanmar, many of the challenges are fundamentally alike. And solutions to them will be much the same, too.

The principles of management that produce results are similar across industries. They’re also similar across countries. It may be fashionable to suggest otherwise, but the evidence is clear.

Management know-how has not only been commoditized, it has also been globalized. So instead of wasting time trying to reinvent this wheel, you can focus on the really hard work of getting to know the market you’re aiming at, and figuring out how to apply the best practices within it.

CONTEXT IS EVERYTHING

The first and most important question every firm must answer when it ventures into new territory is, How will we fit in? This is the make-or-break issue. Deep local knowledge makes all the difference. Personal relationships count for a lot. Most executives who’ve worked in developing markets talk about their steep learning curve, the time it took to gain traction there.

Wherever in the world you do business, you have to be wise to politics, culture, and economics; to the structure and character of whatever market you’re in; to customer expectations and behaviour; and to what competitors are doing. But in developing countries, three issues demand particular attention.

First, there’s the fact that “things don’t work”—or at least not as they do in developed nations. Companies are dogged by what Tarun Khanna and Krishna G. Palepu have termed “institutional voids”: poor infrastructure, dodgy regulation, weak capital markets, lousy services, a lack of skills, and much else. Unhelpful bureaucrats make things worse. Corruption may be a huge problem (although it also occurs in even the most advanced nations). Protecting intellectual property can be a nightmare.

Second, is the difficulty in connecting sellers and buyers. Informal trade is probably the norm; business ecosystems are ill-formed. There’s little information about customers or competitors. Promotions, logistics, and support all present hurdles.

Third, is the management of people. Individuals with appropriate capabilities and experience are in short supply. Productivity, quality, and customer service are not their priorities. They’re unfamiliar with sophisticated working methods. They have to be introduced to a host of new ideas—roles and responsibilities, technical systems, performance management, communication, disciplinary processes, and so on. So foreign executives need to be firm and persistent in providing new direction, while at the same time acutely conscious of local custom.

None of this should be under-estimated. No one should imagine that building a business in a developing country is a cake-walk. It’s folly to believe you can simply charge out of New York and set up shop in New Delhi.

Joburg and Lagos may both be in Africa, but South African managers who think they can easily crack the Nigerian market because “We are African, we understand Africa,” are in for a shock. Success in one country in Africa, Asia, or Latin America is no guarantee of success in others in the same region, let alone elsewhere. Sony’s notion of “glocalization”—”think global, and act local”—is as valid today as it was when it was coined about three decades ago.

Emerging markets—in the sense of developing markets in developing countries—offer exciting prospects for many firms. They differ in many ways from developed markets, but managers should not hope for fantastic new theories for entering them or competing in them. Instead, they need to do their homework, strike a careful balance between importing ideas that worked elsewhere and developing new ones, and recognize that as outsiders they have special responsibilities towards their hosts.

Strategy is always a learning process, and even more so in emerging markets. But emphasis needs to be on learning about these places, not about new strategy concepts or management tools.

IN SUMMARY

Success in these markets depends, more than anything, on putting the right people on the ground with all the support they need.

They should balance a core set of strategic principles and a proven management approach with a sensitivity to local attitudes, customs, and behaviours, and always be respectful of these.

They should understand the importance of local knowledge, and never stop searching for new insights.

And most importantly, they should couple these practical actions with a preparedness to do what it takes to fit in (within reason) and the determination to improvise through difficulties.

Tony Manning_Essentials for emerging market success

A CHECKLIST TO GET YOU GOING
  1. Mindset matters. Given the hurdles you’ll face, you and your people have to really, really, really want to try. You have to be bold, you have to be able to adapt, and you’ll need both courage and perseverance. Above all, you’ll need to be resourceful—your ability to “make a plan” will be constantly tested.
  2. Appoint people who’ll be happy there. Living in Luanda or Laos is not like living in Los Angeles or London. It can be tough. Especially on families. Everyone can’t do it. So give them every chance to understand what they’re taking on, and all the encouragement and support they’ll need.
  3. Go “where the warm armpits are.” As Ted Levitt liked to say, there’s only one way to really understand any market, and that’s to go there and immerse yourself in it. To watch the locals and listen to them. To get to know what turns them on and off, and to learn how things work.
  4. Remember the first principles. Just as focus, value, and costs must be your mantra in developed markets, so they must guide your every action in emerging markets.
  5. Explore, experiment and learn fast. No matter how you prepare, no matter how good your initial information seems to be, and no matter how carefully you think through your strategy, you will get things wrong. This is a fact of life in any market, and especially so in developing ones.
  6. Get stakeholders on your side. You have to gain the support of government, communities, workers—the same array of players you deal with in your home market. But in emerging markets you probably have to work much harder to educate people about business in general and your business in particular. They have to understand not just what you expect of them, but what you can do for them. “Out there,” they can make or break you.
  7. Develop local partnerships. In some countries, they may be mandatory. In many, they’re necessary to open doors, smooth your entry, build alliances, and facilitate your growth. Their knowledge, experience, and contacts can be invaluable and make the difference between success and failure.
  8. Clear values, no compromises. While adaptability is critical, you have to be certain about how you need to behave and what you will and will not do, or you’ll be jerked around constantly—and a sitting duck for crazy demands and corruption. So set the rules early, or someone with another agenda will set them for you.
  9. Be willing to build your own infrastructure. This may mean anything from a shopping centre to a power plant or a water purification facility, roads or runways, a sewage system, accommodation for your staff, or schools and clinics for communities. It could mean offering to train local officials or upgrade their IT systems. Or it could mean working closely with PR or advertising agencies, or other service suppliers, to develop their capacity.
  10. Try, try, and try again. Cracking an emerging market is not a quick process. It’ll take most companies a lot longer than they expect, and cost far more. If you don’t go in for the long haul, you’re wasting your time. If you can’t keep picking yourself up, and adjusting your strategy, you may as well stay at home.
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  •  18/01/2013
Jul 252012
 

The proof is everywhere: companies are better at talking than doing. They know strategy is important, and put a lot of effort into it, but then just can’t get the right things done. For all their action lists, KPIs, KRAs, compacts, dashboards and scorecards, their wheels keep spinning.

Tom Peters says 90% of strategies don’t get implemented and Kaplan and Norton, authors of the balanced scorecard, say the same. A study from Ernst & Young, cited in the December 2004 issue of Harvard Management Update, says it’s 66%. Research by Marakon Associates says firms lose about 37% of the financial potential of their strategies.

Precisely which number is right doesn’t matter. What does matter is that across the world and across companies there’s a yawning gap between good intentions and hard action. Almost every management team I’ve worked with in more than 25 years as a consultant has told me the same thing: “We’re good at creating strategy, but not at execution.”

Closing the gap must be a priority for any firm wanting to get ahead and stay there. The best ideas and plans of little value if you can’t turn them into reality. The costs of slippage are colossal. Besides, in a world of sameness, where it’s increasingly difficult to sustain a strategic position and avoid commoditization, operational effectiveness—also known as execution—might be your most important advantage.

Because execution is so hard, it’s tempting to look for a system, process, model, or other formula that might help. There are plenty of them around. Some are costly and most are complex. You’ll find one or more of them in most firms. But the fact that so many smart executives point to execution as a problem tells you something is wrong. The tools being used are clearly not working as they’re supposed to.

Executing strategy is not a once-off job. You’ll never excel in it by just instructing a few people to “do it.” It’s an all day, everyday activity that involves everyone, one way or another. It demands a simple, sound and practical approach, the involvement of key people, and enormous commitment. Above all it demands tough, determined, “in your face” leadership.

The good news is that with common sense and proven principles rather than fads and flashy answers, you can escape the execution trap. You can improve your organization’s ability to turn plans into action so you consistently get more done, faster, and possibly with fewer resources, than you do today.

GET A HEAD START

The time to think about how to execute your strategy is when you first think about making it. Not after the event when you have something on paper and need to make it happen.

The starting point is to recognize that your overriding challenge as a leader is to to take your people with you. Your brilliant vision is worth nothing if they don’t buy it and give it their all. Here’s where execution gets a kick-start—or failure gets baked in.

To help you win support, think about these two questions:

  1. WHAT MUST YOUR PEOPLE KNOW, SO THEY’LL BE ABLE TO DO WHAT THEY NEED TO DO?
  2. HOW SHOULD THEY FEEL, SO THEY WILL DO WHAT THEY NEED TO DO?

While the focus of these questions is different, they are inextricably linked. It’s almost impossible to effectively deal with one without at the same time dealing with the other.

To get your people on side, you have to ensure they understand what you’re trying to do, why it matters, what must be done altogether, who will be responsible for what—and what they personally need to do. So you need to provide a point of view (which may or may not yet be completely clear) about how you see the future. You need to ensure that they have access to whatever information will help them. And you need to solicit their opinions and ideas, and embrace those that improve your strategy.

At the same time, you have to inspire and energize your people to actually do the right things rapidly and well. And here’s good news. The very fact that you give them direction and information, and involve them in shaping your strategy, goes a long way towards winning their hearts and minds. The reason? People seek meaning in their work. They want a sense that they matter, they’re respected, and their opinions count.

GET THE RIGHT PEOPLE IN THE ROOM—AND THAT MAY MEAN EVERYONE

When I’m asked, “Who should be part of a strategy conversation?” my automatic answer is, “Everyone.” And I’m serious. (And yes, I do understand that it’s not always practical, may not be affordable, and you might need to talk about some particularly sensitive matters.)

It’s common practice for small teams of top people develop strategy, then pass it down for others to action. While there may be good reasons to confine initial choices and decisions to a just a few people, there are equally powerful arguments against doing so.

Here are some of them:

  1. When you invite anyone to a meeting, and particularly to one of high importance, you send them and everyone else a signal: “You matter; your contribution is valuable; we respect you and need to hear what you have to say; we trust you.” Not inviting them sends exactly the opposite signal—not an encouraging one!
  2. The top people in an organization may have a broad perspective of the world and the challenges they face, but they’re unlikely to know in detail what’s happening down in the trenches or out in the marketplace. First-hand insights from where the action is may be crucial to their decision-making.
  3. You never know where the best ideas will come from in an organization. Often, it’s from the unlikeliest people. But that only happens if they’re given the chance.
  4. Communicating a strategy is always difficult. The simpler a presentation, the more gets left out of it. The nuances of the conversation in which it was developed are lost. As a result, you may do a reasonable job explaining the “how”, but not the “why.” And it’s the why that helps people understand the significance of their efforts.
  5. Participation increases the likelihood of buy-in. Exclusion is a sure-fire way to make execution difficult.

Only by involving the right people early, and in a positive and constructive way, can you hope to either develop the best possible strategy or execute it effectively. For this is when your strategic conversation begins. The first discussions set the tone for all others. By focusing your attention here, you can sharpen your competitive edge and give your firm new advantages for the future.

We all know that strategy is an intellectual process, involving logic, analysis, decisions, and trade-offs. But that’s only part of the story. It is to a far greater degree a social process, involving people with all their strengths and weaknesses. Ignoring this reality, firms set themselves up for failure.

Without the insight and imagination of a critical mass of your people, you’ll never get the best strategy. Without their spirit and commitment, you’ll never execute your strategy. And the time to start work on getting their buy-in on Day 1—right up front.

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  •  25/07/2012
Jun 232012
 

No leader in their right mind would deliberately take their company on a suicide mission. No one would initiate projects, programmes or activities that would foul up their organization’s culture, operations or results. Or agree to major commitments that would be a deadweight on performance. Or assign valuable people to tasks they never should have been doing. Or waste their own time and energy confusing and demotivating their people. Or wear themselves out trying to drive an agenda that was full of flaws.

Or would they?

More often than they know it, executives are their own worst enemies. Their good intentions cause endless trouble for themselves and their firms. They create the very problems that they worry about. They pour resources down the drain and wonder why they never get the results they seek. And perhaps worst of all, they never discover just how well they might have done.

Here’s what I call The Performance Paradox: In trying to improve results, managers deliberately, systematically and at considerable cost apply measures that come back to bite them in the butt by hurting performance. 

If you think this is a hysterical rant with no foundation, think again. And look at how easily it happens—and why it’s so common.

Management’s cycle of self-destruction

Start with the fact that every leader wants to better yesterday’s results. Sales should go up. Costs and waste should fall. Productivity and quality should surpass previous levels. Innovation and improvement should take customer satisfaction to new heights and make it possible to capture new markets. Profits should rise.

Wanting all this, the first question is, “Why haven’t we got it?” So introspection and diagnosis begins. And inevitably—between comments about fickle customers, competitors playing foul, IT problems, a lack of resources and so on—answers like these pop up:

  • “Our strategy’s not working—we need a new vision, mission and values”
  • “Our culture is wrong, so we need to change it”
  • “There’s no teamwork—our people operate in silos”
  • “They’re disengaged”
  • “We have a skills shortage, so everything is up to the top team”

The second question is, “What should we do?” And the fixes seem obvious:

  • Get a new vision, mission and values (preferably through a companywide conversation)
  • Change the culture
  • Teach people change management and involve them in change management projects
  • Start some teambuilding
  • Become “customer-centric” by making speeches, running workshops for all staff and putting up some posters
  • Motivate the people—get a motivational speaker for the company conference, improve the canteen food, spruce up the place, set up coffee bars in open spaces, put happy faces on all screensavers, introduce “casual Fridays”
  • Have HR find a new performance management process
  • Make empowerment a way of life—spread the word about “servant leadership”, get an expert on “ubuntu” or offer some courses on personal branding and self-actualization

But are these the right fixes? Chances are, definitely not. The management field is abuzz with nonsense. Too many vendors peddle one-size-fits-all panaceas. Flaky fads and unproven “solutions” are a dime a dozen. There are more tools than can ever be understood or used—many of them utterly worthless. And for every one of them there’s sure to be a champion, all too eager to take charge of a budget, make work and build an empire.

Besides, what appears at first sight to be an obvious problem might not be where an intervention is needed.

Take culture, for example. What exactly might be meant by the sweeping statement, “We need to change the culture”? Is culture a proxy for lousy leadership, skills gaps, a toxic climate, a dysfunctional structure, uninspiring incentives, weak systems, inadequate performance reviews, poor communication or some other factor? And if one or more of these is the real problem, isn’t that where attention should be aimed?

Or take another favorite—team building—trotted out as the answer to almost all corporate ills. Is teamwork really a problem, and if so, why? Could it be that no one knows where “the hill” is, so they’re all picking their own? Do they understand the company’s priorities? Are roles and responsibilities clear, and do people know what to expect from others? Are the right people in the right jobs? Are there enough meetings, are they about the right things, do they include the right people and are they well managed?

Follow a poor diagnosis with inappropriate treatment—or treatment you don’t know how to apply—and it’s all downhill from there. In no time, you’re in a doom loop. The “solutions” that looked so smart either cause whatever problems might exist to become even more entrenched, or quickly lead to others. Suddenly, there’s a flurry of new activities all over the place and people are bogged down under their weight. Complexity increases, confusion mounts and frustration grows.

But hey—you’re busy, busy, busy! You’re being proactive! You’re taking action!

All of which costs money and distracts people from what they should be focused on. The same old problems keep coming up in meeting after meeting. And again and again, the same solutions are offered: work harder at the initiatives that aren’t working, or get another one … or a bunch more. Or make a video and some T-shirts to rally the troops and drive the message home. Or send some of the team to a course. Or … whatever.

So how do you avoid this cycle of self-destruction?

  1. Face reality. Get your diagnosis right. Separate facts from mere opinions. Be alert to how politics, agendas and emotions color things, and don’t let them get in the way or distort your views.
  2. Be especially wary of too quickly settling on the “vision, mission and values” issue, trying to change the culture, or teambuilding or “empowerment” projects.
  3. Don’t buy any initiative with a funny name. Avoid tools you don’t understand. Beware of hucksters selling quick-fixes, or wielding a hammer and treating everything as a nail.
  4. Take an inventory of projects already under way. What is essential (and why)? What’s showing progress? What’s not working, or simply lurking on someone’s desk? Stuff piles up. The old suffocates the new. You can’t do everything. So agree what you’ll stop doing to make way for what’s next. And chuck out whatever you can (which probably means more than you thought!) as fast as you can.
  5. Don’t launch anything new until you’re satisfied that what was on the agenda has been dealt with or no longer matters. When you do start something, be reasonably sure you can see it through to the end. Then, stick to what you set out to do. Don’t chop and change. Your people are watching. They’re cynical and skeptical.
  6. Agree on a very short to-do list with tight timelines and clarity about who will do what. Better to do a few things well than a lot badly. Better to act fast and learn quickly than to keep the wheels spinning while you plan for perfection.
  7. Clarify how you’ll communicate what’s going to happen next—and communicate like crazy.
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  •  23/06/2012
Jun 062012
 

The Bible tells us, “Where there is no vision, the people perish.” According to Steven Covey, one of the “seven habits of highly effective people” is to “begin with the end in mind.” Norman Vincent Peale, Tony Robbins, and countless other self-help gurus have pitched the message that if you focus enough on what you want, you’ll get it.

Obviously, this may or may not be true. But it’s a seductive idea, and since the mid-1980s, a chorus of academics, consultants, authors, motivational speakers, and business leaders have echoed the same theme. They assure us that the future will belong to companies that have a bold dream, a huge ambition, a stretch target, a strategic intent, a powerful purpose, a “BHAG” (“Big, Hairy, Audacious Goal”)—or, to use the commonest term, a vision.

At the same time, we’ve been told that visionary leadership is critical for success. So for a firm to be a winner, it needs a leader who has the foresight to sense where his industry is going and can figure out how to seize the juiciest bit of it. Who challenges convention and refuses to accept the status quo, abhors what others take for granted, sees possibilities where they see only problems, and has the courage to lay big bets and venture into unchartered territory.

This line of thought has become an article of faith in business. When a company does well, you can be sure the leader’s vision will be cited as a key reason. If things sour, the leader will be accused of lacking vision. No fix is worth considering if it doesn’t include work on a vision. Developing, reviewing, or tinkering with a corporate vision is normally the first step in a strategy process.

Often, when a CEO briefs me, he’ll say, “We need a new vision. We have to re-focus and re-energize the company.” What he’s looking for is a point of view about how to move forward: possibilities for product or service innovation, whether to get out of a mature business or into a new one, or whether to expand overseas, adopt a new technology, outsource work, restructure or re-brand his organization, or explore alliances. And he wants a set of words that will point his team in a new direction and fire up their spirit. (Clearly, he’s not sure of that vision himself.)

When I ask people lower down in a firm why it’s not performing, I know what to expect. “There’s no vision at the top,” they usually say. We don’t know where we’re going.” They couldn’t care less about a glitzy new vision statement. They want to know they’re being led by someone who knows what lies ahead and what to do about it, and will take them on an exciting and successful ride.

Visionary leadership has become a Very Big Subject—but for all the chatter, it remains a slippery one.

Vision, we’re told, is a quality that sets leaders apart from mere managers. Individuals who “have vision”—however you determine that—are highly valued. But vision is widely held to be a trait people are born with, not one you can teach. So if you want it, you have to find someone who’s already got it.

But wait. Before you take off on a quest for one (or more) of these rare birds, or dive into yet another “visioning” exercise, think about what you really need to do to improve your company’s prospects, and where you should focus your attention. You might be starting in the wrong place.

BACK TO BASICS

In theory, a company’s vision should spur it to explore new opportunities, outperform its competitors, and achieve far more than it has in the past. It should give employees a sense of meaning in their work, and inspire them to be fully engaged and passionate about it so they’ll perform to their full potential. All fine, stirring stuff!

In practice, most vision statements do nothing of the kind. In fact, they’re about as useful as an ashtray on a motorbike. Far from focusing and motivating people, they confuse them and make them even more cynical and distrustful than they were. And while they should lead to action, what they really lead to is snickers among employees who see them as just more management bullshit.

In practice, too, many so-called “visionary leaders” turn out to be value destroyers. They’re so busy peering into their crystal balls and making silly predictions about where their firms will be in five, 10, or 20 years that they fail to deal with issues that scream for immediate attention. They bog their teams down with new projects—that often don’t hang together. They mis-read how things will unfold, embark on lunatic ventures, and get high on their “blue sky” “out of the box” cleverness.

It is true that some firms struggle to do well, or get into trouble, because they lack vision. Or they run into difficulties because their vision is out of kilter with emerging realities. Or they set their sights too low and settle for ho-hum achievements. But I’m willing to bet that much more often the cause of their woes is nothing to do with vision, or a lack of it. It’s more immediate, more down to earth, and closer to home.

It’s that they just don’t do what they’re in business to do. They don’t understand the “rules of their game,” and don’t excel in them. They don’t deliver on their promises to customers. 

Simply put: they fail in the basics.

To use an analogy: think of a company as a car. Shareholders and management imagine that if it had wings it would take off and soar away from its competitors. But the real problem is that the driver doesn’t know how to drive. The engine is firing on four cylinders, not eight. The gas tank isn’t full. The tires are flat. So wings are not going to help.

Now, don’t get me wrong: every organization does need to know where it’s trying to go. A sense of purpose—of “why we exist”—is vital. You do need to look ahead for new opportunities. You do need to give your people some idea of which “hill” you’re aiming for, so they know where to focus. You do need to ensure that they “do the right things” and don’t  just “do things right.”

But the first task for the leaders of most companies should be to “do things right” and make today’s business work as well as possible. After all, that is their “growth engine,” and it has to generate or attract the funding needed for tomorrow’s ventures. What’s more, it probably has greater potential for further growth than is realized. Anything that distracts managers from getting it to peak performance should be treated warily.

This is especially important in these tough times, when sales are hard to come by and customers are skittish and shopping around. Your current customers are vital to your future. Keeping them is critical, as is winning their enthusiastic support. To lose them or piss them off because your “engine” is sputtering is daft.

Big dreams are important, but the biggest opportunities for most companies may lie in fixing the basics—and that also creates a solid platform for the future

This isn’t a message that goes down well. After all, it’s hardly a big turn-on, and thinking big thoughts is much more exciting. But it’s one you need to consider carefully before you shoot for the moon.

If you don’t think it worth your time, ask yourself:

Why do so many customers have such a hard time buying almost anything—from the very companies that spend so much trying to attract them in the first place? Why do they have such lousy experiences with the products and services they buy? Why are they so disloyal?

If that doesn’t convince you, ask this:

Why does product development always seem to run late in so many companies? Why do their inventories keep swelling, while their out-of-stock level of key items gets worse? Why do their sales people make so few calls, and why are their calls are so ineffective? Why do their debtors’ days keep moving up? Why do their suppliers let them down so often? Why do their machines keep breaking down? Why do their warranty costs keep rising? Why is there so much scrap and waste in their plants? Why is the volume of paperwork growing? Why do their teams work in silos? Why does the left hand not know what the right hand is doing?

And the list goes on.

Surely this doesn’t make sense. Surely it points to internal weaknesses that could and should be fixed. Surely it suggests massive opportunities—right under your nose—to make your organization stand out from the crowd and steal a march on your competitors. (And if you think your company is different, maybe talk to some of your customers, suppliers, distributors, or employees!)

If your business is in good shape, many things are possible. If it’s not, your most brilliant ideas will never take off.

BABY STEPS…AND ACTIVE WAITING

No strategy lasts forever. You have to prepare to change when it’s necessary. But you also have to acknowledge that:

  1. You know less than you think about the challenges and opportunities ahead
  2. There’s no way you can be sure that the direction you choose will turn out to be the best one
  3. The more radical your vision, the bigger your risks.

The fact is, most winning companies get there not by making bold leaps, but by methodically putting in place the building blocks for the future. They take one small step at a time, and they make every step count.

Track the history of almost any firm, and you’ll see there’s not a straight line from where it started to where it is today. A leader may intend to follow a specific path to a glorious future, but that seldom happens. Strategy is only partly about hard choices and trade-offs, and largely about adaptation to new circumstances. There are many detours, blind alleys, and dead-ends.

If there’s one industry in which vision should be a very serious matter, it’s information technology. Yet consider how four extraordinary leaders have dealt with the matter of vision:

  • Bill Gates labelled it “trivial.”
  • When IBM got into trouble two decades ago, analysts said that the only course was to break up the company and sell the bits. Lou Gerstner took the helm and spent six months travelling the world to talk to customers and staff. He faced enormous pressure to spell out a new vision for the company. But he famously told analysts, “The last thing IBM needs right now is a vision.” In his book Who Says Elephants Can’t Dance? he explains that “if you’re going to have a vision for a company, the first frame of that vision better be that you’re making money and that the company has got its economics correct …. execution is really the critical part of a successful strategy. Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future.” Gerstner did lay some big bets, but job #1 was to get on with making “Big Blue” a great computer company again, selling both hardware and software.
  • Steve Jobs was widely admired for his vision and his obsession with design. Yet he was always reluctant to comment on where he intended taking Apple. Instead, he said that he was “waiting for the next big thing.” And while customers, competitors, analysts, and others never let up on trying to figure out his “long view,” he was busy building one of the world’s most effective engineering companies, obsessed with detail and operational excellence.
  • When Mark Zuckerberg, the founder of Facebook, was asked why he wouldn’t sell shares in the company in its early years, his consistent answer was, “We have no idea how big this thing will become.” No amount of visionary thinking could have told him that or prepared him for where he is today. Neither he nor anyone else can possibly know what Facebook will look like tomorrow.

In each case, these leaders focussed the present, on doing a great job one day at a time. Not on making crowd-pleasing statements about a future nobody could see. The lesson is an important one. More companies and leaders would do well to listen up.

Visionary leaders can make a huge difference to a firm’s fortunes. They can also cause it to plunge to earth. You might think that visionary leadership is what your firm needs right now. But maybe it’s the last thing you should seek.

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  •  06/06/2012
May 232012
 

Every company today faces growing uncertainty and complexity. Executives are under increasing pressure. Employees are nervy, and many are not fully engaged in their work. So how do you stay competitive and keep producing results?

What you don’t need now is another complex formula. So instead, here’s a simple checklist to remind you of what’s really important and to keep you focused.

Keep it on your desk. Pin it on your wall. Share it with your team. Use it in your meetings and strategy review sessions. And if you think it’s just too simple, read it again, and ask, “Is this what I do?… Is this the way we work around here?… What must change?”

  1. Your #1 challenge as a leader is to take your people with you. So create a climate for high performance and engage them constantly in a rich, robust conversation.
  2. Accept complexity, but simplify everything you can. Cut through clutter and focus on the few things that make the most difference. You have limited resources and a lot to do, so don’t try to do everything and be everything to everybody.
  3. Know what you’re aiming for, and spell it out loud and clear and often. Make sure your entire team understands your purpose, strategy, values, and priorities. You can never communicate enough, so keep repeating yourself.
  4. Focus on your “right” customer … forget the rest. Create clear criteria for defining your “right” customer (industry, size, growth potential, reputation, buying power, ease of doing business, ability and willingness to pay, what they can teach you, etc.) Make these criteria clear to all your people. Be ruthless about customers that don’t fit—they’re a dangerous distraction and you can’t afford them.
  5. Get your “basics” right. Put “gas in your tank and air in your tyres” and do what you must to get your “engine” firing on eight cylinders, not four. Strike a balance between consistently meeting customers’ current expectations and surprising them with something new, better, or different.
  6. Relentlessly drive value up, costs down. It’s the only way to compete.
  7. Learn from everything you do, and share new insights with your whole team fast. The more you learn, and the quicker you do it, the more adaptable your company will become.
  8. Hold your course. Be boringly consistent and persistent. Don’t be tempted to zig-zag. Sustainable strategy might be an impossible dream, but you have to repeat yourself for some time to hone your performance and build key resources and capabilities.
  9. Be ready to change when you must … then do it with everything you’ve got. Gather all the information you might need. Think about what you might need to change, and how. Develop the strengths that will matter. Practice, practice, practice. And when the time comes, don’t dilly-dally—go for it!
  10. Pace yourself … when you think it’s time to make a new decision, ask, “Is this really the time? If it’s not, wait. Sometimes, doing nothing is best. In another day, week, or month, you’ll have more information and a clearer picture of what you need to deal with. And it’s quite possible the risks you see right now, or the challenges you think you need to respond to, will have come to nought.
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  •  23/05/2012
May 182012
 

The news out of Europe is terrible. Day by day, things get more dire. However difficult the past four years were, there’s much worse to come. As The Economist puts it (May 12), “the night terrors are back.”

First quarter growth for Germany came in at 0.5%; the Netherlands and France showed no growth; Italy contracted by 0.8%. Greece by 6.3%. The Eurozone as a whole came in flat. More than half of Eurozone countries are now in recession. Unemployment in the 17 hit 10.9% in March.

After years of dithering about what to do about Greece, it’s now clear that kicking that can down the road was always a bad idea. Policymakers have run out of road and hard decisions must now be made. U.K. prime minister David Cameron sees this as “make or break” time.

The only thing that came out of the recent Greek non-elections was proof—as if it were needed—that Greek voters can’t live with the tough conditions imposed on them by the ECB/IMF bailout package that was signed only a few months ago. Their economy has shrunk by 20% in five years. Their lifestyle has gone to hell in a hand basket. Many of them are struggling to survive. They’ve lost hope. The tragedy of their plight is captured in a headline in the New York Times“Increasingly in Europe, suicides ‘by economic crisis.'”

Greece has been in recession for five years, and can’t pay its bills without even more more help. The central bank now holds just $1.9 billion in cash. There are fears of a run on banks, as withdrawals rise. Even if everything goes Greece’s way from now on, it will take decades for the country to trade its way out of the hole. (Will tourism, olive oil, and goat cheese do the trick? Will Greece suddenly become a manufacturing powerhouse, a financial hub, or the next Silicon Valley?)

The elections failed to produce a new government and highlighted deep disagreement about the best way forward. No party won enough support to assume power, and despite days of intense haggling after the poll, politicians were unable to put together a coalition to govern. A judge has been sworn in as interim prime minister to “manage” the place until new elections are be held on June 17—and who knows what will happen afterwards?

Even though it seems most Greeks would prefer to stay in the Eurozone, most analysts believe Greece has no choice but to default on its debts and get out. The bust-up would be traumatic, and the impact nasty. There are massive legal hurdles, and no agreed way of making it happen.

BLEAK TIMES GET BLEAKER

The European dream is unravelling. Whatever Greece does, a long period of deep uncertainty and insecurity lies ahead. And while it drags on, the rest of the world will struggle to grow.

French and German voters have joined the anti-austerity chorus. Francois Hollande became France’s first socialist president in 17 years after defeating Nicholas Sarkozy, and centre-left voters in the German state of North Rhine-Westphalia hammered Angela Merkel’s conservatives. (Merkel’s overall support has plummeted from 34.6% to 26.3%.) Hollande has promised to stimulate growth; Merkel is holding her ground on austerity. So it’ll be interesting to see who blinks first.

Spain is a basket case. The banks are in terrible shape, and it’s getting worse. Moody’s downgraded 16 of them on May 16. Shares in the second largest, Bankia, fell by 29% after reports that customers had withdrawn €1 billion in less than a week. Writing in the New York Times (April 15, 2012), Nobel economics laureate Paul Krugman proclaimed the country to be “in full-on depression, with the overall employment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment at over 50 percent.”

The Spanish economy, of course, is much larger than that of Greece.

And then there’s Italy… and Portugal… and Ireland… and …

A VICIOUS CYCLE MEANS TROUBLE FOR ALL

Any country that sells into Europe is feeling the freeze. Demand in the region is weak, with finished goods, components, and raw materials all taking strain. Many suppliers are from emerging markets, and the slowdown is hurting their economies—just when they were seen as the growth opportunity of the future. So the ripples are spreading outwards. From India to South Africa to Latin America, growth forecasts are being cut.

GDP in the UK shrank by 0.2% in the first quarter, putting the country into a double-dip recession. The official forecast is for 0.8% for this year; and a return to pre-2008 growth is not likely before 2014. Mervyn King, governor of the Bank of England, is preparing for more fallout from Greece.

China’s growth has slowed month after month, and a Bloomberg survey shows it at a 13-year low. Pimco, the world’s biggest bond trader, now sees 7% as the likely number for 2012. Both imports and exports are sharply down. Domestic demand is sluggish. Bank lending in April was way below expectations. Investment in fixed assets is at level not seen in a decade. Foreign direct investment has fallen six months in a row. Electricity consumption, rail freight, and bank loans are all slipping. The property market is taking strain (house prices are falling at a record pace) as a result of government measures to avoid a credit-driven bubble, and the construction industry is in a funk. And to complicate matters, the inflation rate is heading upwards.

The U.S. economy seems to be getting some of its spark back, but there are still weaknesses. Growth this year should be around 2.2%, but a survey of economists had most of them confessing that their forecasts were probably too optimistic. Krugman says the country (like Spain) is in a depression, not just a recession. Economists warn of a “fiscal cliff” at the end of 2012, when the Bush tax cuts expire and new taxes must kick in, but in this election year, politicians will avoid committing to any action to deal with the problem. March jobs figures were disappointing—unemployment fell slightly to 8.1%, but only because more people have given up looking for work. One American in six can’t always get enough to eat.

Punting his latest book, Paul Krugman warns that the world is in a dangerous place and stimulus is the only way out

 A TEST FOR OPTIMISTS

I could offer many more facts to show just how shaky things are. I could toss in the gloomy views of any number of economists, think tanks, business people, and others worth listening to. But you only have to watch Bloomberg or CNBC, or read the daily news, to get more than enough evidence that the world is in a precarious state.

As I wrote in my February 28 post (“Where is the global economy going, and what does it mean to you?”) we’re in the middle of a colossal economic experiment, and while many people have strong opinions on what to do, there are questions about every “answer.” The past may or may not be a reliable guide to the future. Well accepted theories may or may not hold up in a complex new world.

Economics and politics are on a collision course. Society is caught in the middle and is thoroughly pissed off.  Any leader dispensing unpleasant medicine risks losing support and being voted out of office. But without unpleasant medicine, the Great Recession will run and run—and the entire world might be ungulfed by a new Great Depression before we know it.

There is no reason to think we might be in calmer waters anytime soon. There’s every reason to fear some dramatic event ahead that will be calamitous. And to accept that the difficulties we face right now are just the precursor of more to come. The Greek problem is Europe’s problem. Europe’s problem is everyone’s problem.

Here’s Krugman again:

“…it’s hard to avoid a sense of despair. Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy—and their society—off a cliff. And the whole world will pay the price.”

A NEW ERA IN GLOBAL COMPETITION

As I’ve observed many times before, competitive hostility has risen dramatically in recent years. But if companies thought they were walking through fire in the past four years, that was just warm-up time. There’s a new array of daunting challenges ahead. They’re coming from all directions, and they’re coming thick and fast.

Firms in many countries are sitting on piles of cash, too nervous to lay new bets. They face the hard choice: seize the moment and invest in the hope of capturing today’s opportunities and preparing for tomorrow’s, ahead of the herd; or preserve their war chests in case more bad stuff hits the fan. But one thing they cannot avoid is taking another clear-eyed look—and another, and another—at the world around them.

Some companies will sensibly decide to continue with their current strategies, perhaps with some incremental changes. Others will have to pursue a more radical course. And for many, a bit of both will be best.

What no management team should bank on is that their business performance will soon get a lift from either an economic upswing or a breakthrough in strategy. What they should do is:

  1. Stay tuned in to their environment so they quickly sense significant changes.
  2. Get back to basics, dump any activities that weigh them down or distract them, and shorten their “to-do” lists.
  3. Focus on making a difference that matters to the “right” customers.
  4. Fine-tune their business models to deliver, and keep innovating and improving.
  5. Make sure there’s clarity—across their organization—about what they must do, 30 days at a time.

Strategy is always about laying bets for a world you can’t see. That’s becoming trickier by the day.

  •  18/05/2012
May 112012
 

During April, I went to see Edvard Munch’s famous 1895 artwork, “The Scream,” which was on display at Sotheby’s in London, prior to being auctioned in New York.  It was a theatrical experience. Getting to the picture meant enduring three layers of security checks. Finally, in a darkened room, there it was, embedded in a black wall in its original gold frame. Very dramatic!

At the time, Sotheby’s estimated it might sell for $80 million. But as the clock ticked towards the sale date, some art experts speculated the price might go even higher—perhaps reaching the $106 million record fetched by Picasso’s “Nude, Green Leaves and Bust” in 2010. On May 2, “The Scream” was knocked down to an anonymous buyer for $119,922,500 million dollars (including commission) after 12 minutes of bidding. Meanwhile, outside on the street, there was a protest by Occupy Wall Street and the Teamsters.

The sale catalogue for this iconic pastel proclaimed it “the second most immediately recognizable art work in the world, after the ‘Mona Lisa.’” It appears all over the place—on T-shirts, coffee mugs, posters, and elsewhere.  And the publicity it’s now getting will see it even more widely reproduced.

"The Scream," Edvard Munsch, 1895

So what’s this got to do with business, you ask?

Nothing, directly. However, “The Scream” depicts a moment of awful uncertainty and anxiety—the “zeitgeist” of the late 19th century. (Sotheby’s describes it as “the visual embodiment of modern anxiety and existential dread.”) And the mood that Munch captured is similar to the one that has now settled across so much of the world.

Munch produced four versions of his picture. The other three are in public collections, so only this one was available for sale. And only this one has these words, written by Munch, on the frame:

“I was walking along a road with two Friends

the Sun was setting—the Sky turned a bloody red

And I felt a whiff of Melancholy—I stood

Still, deathly tired—over the blue-black

Fjord and City hung Blood and Tongues of Fire

My Friends walked on—I remained behind—

shivering with anxiety—I felt the great Scream in Nature—EM”

In this age of uncertainty, mass unemployment, austerity, and customer frugality, there’s a screaming opportunity for companies to offer comfort, confidence, predictability, flexibility, and affordability.  But there’s also a need to surprise and delight customers, to meet their needs in unexpected ways, to enable them to have fun, to lift their spirits and make them smile and feel good about themselves.

There are countless ways to do this. It might be through offering innovative new products and services. Or by bundling your current offerings differently, repackaging and re-branding them, or promoting them differently. Or by adding new “bells and whistles”—or taking something away to make things easier for customers and perhaps drive down costs and prices, too.

But it always begins with focusing anew on just doing what you promise. On simply getting your “basics” right. So that should be the central debating point in any strategic conversation.

“The Scream” fetched its astonishing price in a room full of the world’s glitterati, in an art sale which fetched a total of $330 million—another Sotheby’s record. Speculation was that the anonymous buyer might be a museum or a possible donor—or, quite likely, a private collector from Asia or the Middle East. The rich have gotten richer. There are lots of them around. They’re customers for lots of stuff. And they’re spending furiously.

Consider, too, that the harsh new conditions now affecting people in Europe, the U.S., and other countries which have enjoyed decades of relative prosperity are normal for most people on the planet. They’ve never known anything else. So while you’re thinking of ways to keep satisfying your traditional customers, what about these others? The market opportunity is enormous.

This is a time to expand your horizons, discover customers you’ve ignored, and invent products and services that give them a shot at a better life. By changing what you do and how you do it for today’s customers, you almost certainly will meet some of the needs of tomorrow’s.  And in discovering new kinds of value to offer those unfamiliar customers, you’ll doubtless be able to bring some new offerings back to the markets you know.

In short, the worst of times might actually be the best of times. Finding out is surely worth a focused and determined effort.

Some questions:

  1. How has your customers’ behavior changed?
  2. What do they need and want now, that might be different from what they sought in the past, and how well do you meet those demands?
  3. How are your competitors responding, and what might they do next?
  4. How do your people feel, and what might you do to keep them focused and energized?
  5. What’s happening to your business partners, and what might you do to keep them on side, motivated, and sustainable?
  6. What else is happening in your world that demands change from you (think demographic shifts, regulation, politics, etc.)?
  7. How well do you deliver on your promises, and what must you do to lift your game?
  8. What can you do altogether to make the most of today’s mood and realities?
  9. What new market opportunities should you explore (and what ideas can you bring back from undeveloped markets into the markets you know)?
  10. What should you stop doing, because it’s no longer appropriate or working?
  11. What should your priorities be for the next 12 months?
  12. What must you do in the next 30 days to get things moving in a new direction?

“Value for money” means different things to different people at different times. How they see it changes constantly. To keep up with them, you have to walk in their shoes and see things the way they do.

Right now, many are being forced into a lifestyle they never expected—downscaling, skimping, saving, hunting harder for bargains. Their shopping behavior is not what it used to be and they’re killing firms that can’t shift with them. On the other hand, there’s a generation of enthusiastic new consumers who are enjoying better lives—and are shopping as if there’s no tomorrow.

“The Scream” is a vivid portrayal of the anxiety that is so much part of the human condition. And a harsh reminder of just how tough these times are. But it doesn’t tell the full story.

There are both problems and possibilities all around us. So while Edvard Munch’s remarkable artwork is notable as a comment on the state of the world, you might also see it as a catalyst for change, and an inspiration to make a difference in new ways.

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  •  11/05/2012
Apr 202012
 

Governments and business everywhere live in a state of tension. Neither behaves exactly as the other would wish. They have different agendas and different ways of meeting their goals. They need each other, but mostly don’t like each other.

In some countries, they do work reasonably well together. Some governments do try hard to create a business-friendly environment. But more often, the relationship is an uneasy one.

When a prominent business leader speaks out against his government—and more so in a country like South Africa, still struggling to escape its past, and where politicians are prickly and many are socialist or harbor deep anti-business feelings—he needs to think carefully about what will follow. The outcome is unlikely to be what he wishes for. The response from those he’s criticized will be defensive and angry. His peers in business will duck for cover. His own business may be negatively affected.

This is exactly what we now see unfolding in the drama between Reuel Khoza, non-executive chairman of Nedbank, and the ANC-led government of South Africa.

Khoza lit the match with this comment in his chairman’s statement in Nedbank’s latest (2011) annual report:

“UPHOLDING OUR CONSTITUTION

“SA is widely recognised for its liberal and enlightened constitution, yet we observe the emergence of a strange breed of leaders who are determined to undermine the rule of law and override the constitution. Our political leadership’s moral quotient is degenerating and we are fast losing the checks and balances that are necessary to prevent a recurrence of the past. This is not the accountable democracy for which generations suffered and fought.

“The integrity, health, socioeconomic soundness and prosperity of SA is the collective responsibility of all citizens, corporate or individual. We have a duty to build and develop this nation and to call to book the putative leaders who, due to sheer incapacity to deal with the complexity of 21st century governance and leadership, cannot lead.

“We have a duty to insist on strict adherence to the institutional forms that underpin our young democracy.”

The ANC/government immediately struck back at Khoza. The attacks—labelled in the media as “boorish,” “hypersentive,” “paranoid,” “personal,” “inappropriate,” and “illogical”—ensured that the matter got wide publicity, and may have done more damage to SA than anything he’d said. Various commentators called for open and polite discussion of the issues he’d raised. Khoza visited the ANC’s headquarters to discuss the matter, and the movement issued a statement afterward, saying:

“We are happy that this interaction took part in a cordial atmosphere and was fruitful.

“The meeting resolved what was perceived as a stand-off and addressed a variety of issues related to governance and business leadership.

“We are encouraged that a variety of options in terms of engagement were considered. The meeting resolved that there will be more meaningful interaction between the two parties in future.”

OK. And what now? What might “more meaningful interaction” mean? Is all forgiven? Has Khoza’s message been given short shrift or taken to heart?

Will there be further chats…or actual changes of leadership…more careful recruitment of future leaders…leadership development programs…? Is Khoza now going to back down and pretend he didn’t really mean what he said? Or will he repeat it the next time some journalist asks him if he was serious? How will he deal with questions about this matter that will surely be lobbed at him when next he speaks at a conference?

While all this was happening, Garth Griffin, outgoing chairman of Absa, wrote in his own bank’s annual report that SA needed less talk, more action. Then Nicky Newton-King, CEO of the Johannesburg Securities exchange (JSE), told the Cape Town Press Club that investors wanted certainty from markets, but Khoza’s views reflected uncertainty about the direction of South Africa’s policies.

Some people saw these as signs that “business” was starting to speak out, and hoped for more.  But that’s not been the case.

While there were murmurs from the corporate sector about government being wrong to expect business to stick to business and stay out of politics, hardly anyone said Khoza was right. That was left to “outsiders” like Institute of Race Relations CEO John Kane-Berman, the indomitable Business Day letter writer, Dr Lucas Ntyintyane, and the CEO of the SA Chamber of Commerce and Industry.

Massmart CEO Grant Pattison saw Khoza’s comment as having hit a nerve because it was “too close to the truth.” But when the Sunday Times sought comment from other captains of industry, most became unavailable or refused to speak.

Corporate SA has once again been cowed.

SO WHAT EXACTLY HAS BEEN ACHIEVED?

Reuel Khoza was brave to do what he did. He stuck his head above the parapet to say what many other people think. Nick Binedell, dean of the Gordon Institute of Business Science (GIBS) said he was “a bit provocative” but “should be commended for getting the debate out in the open.”

The political climate in SA has soured badly in recent years. The national conversation has become toxic, uncivil and destructive—and will get more so in the months ahead of the ANC’s December policy conference at Mangaung, as power struggles intensify. Politicians and bureaucrats worldwide get slammed for their behavior, but ours are drawing more and more negative attention.

Relations between government and business have never been good since the 1994 transition, and are marked by mutual suspicion and distrust. While government struggles to deliver on its mandate, and desperately needs business investment and assistance, too many of its policies, actions, and words add up to a different message and have the opposite effect.

One objective of the Nedbank Group strategy is, “Becoming the public sector bank of choice.” But the threat has been made that the ANC might need to review its dealings with the bank, and with ANC cadres so firmly entrenched across the public sector, this doesn’t even need to become a formal position to have some impact.

Nedbank also aims to become the leader in business banking, and its retail unit has been performing well. But again, in both of these areas, ANC supporters may be turned off by Khoza’s criticism.

Although he opened his chairman’s statement by emphasizing the importance of sound corporate governance, Khoza then waded into risky territory—in the name of his company. Strange, given that one of Nedbank’s “Deep green aspirations” is to be “worldclass at managing risk.” And that in the risk management review in the annual report, it states:

“Nedbank Group has a strong risk culture and follows worldclass enterprisewide risk management, which aligns strategy, policies, people, processes, technology and business intelligence in order to evaluate, manage and optimise the opportunities, threats and uncertainties the group may face in its ongoing efforts to maximise sustainable shareholder value.”

So what risks has Khoza exposed the bank to? Did Old Mutual, Nedbank’s parent, know this was coming—and what was their view about it? Did Nedbank’s board have advance warning—and what inputs did the members make? Who else in the bank saw the statement before it was published?

QUESTIONS FOR THE FUTURE

Past experience has shown the ANC/government to be extremely sensitive to business statements it doesn’t like. So if one thing was guaranteed in this case, it was that the response to Khoza’s opinion would not be calm, respectful, or kind. He pulled no punches, and the fact that he had been close to the Mbeki administration was probably an added irritant.

However, some of the country’s political leaders may think carefully about what he said, and may even try to change their ways and try to get people around them to change, too.

South Africa badly needs all hands on deck, and government and business to work together to create the much vaunted “better life for all.” Now, that is either much more or much less likely. Much depends on whether government is able to tone down its anti-business signals, convince business that it really does value it, and do whatever is needed to make SA a good place to do business. Without that context, business will always be reluctant to invest, create jobs, or contribute in all the other ways that it can.

So here we have an interesting case study for business leaders—and for business schools. With some difficult questions:

  1. What should characterize the relationship between government and business?
  2. How freely and openly should business speak about national affairs?
  3. Should business leaders speak out personally, and under the banner of their firms, or should they leave comment to the organizations that represent them (chambers of commerce, Business Unity South Africa, the Black Business Council, the Black Management Forum, etc.)?
  4. Should they engage publicly with government about contentious matters, or should they do it behind closed doors?
  5. How should companies evaluate the risks of making statements critical of government?
  6. How should they manage the flak that flies when things go badly?

We live in testing, touchy times. Creating a “burning platform” might be the only way to get some things done, but it can also take you down. This saga could have a happy ending. It would be a pity if it ended in tears.

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  •  20/04/2012
Apr 162012
 

Managing a business of any size is a hell of a job. The world is a complex and dangerous place. Change is constant. There are surprises around every corner. And there’s unending pressure to perform through good times and bad.

Companies are complex, too. And the bigger they get, the more complex they become. Coordinating their efforts was always a challenge. But today, many firms sprawl across the world, so there are facilities, people, and many other factors to worry about. Just-in-time production, a growing amount of outsourced work, and intricate networks of suppliers all add logistical challenges. Relations with governments and regulators are of increasing concern. Investors, analysts, unions, environmentalists, lobbyists, and a host of other stakeholders all demand attention. And of course, there’s always the need to drive innovation, improvement, and cost cutting; to adopt new technologies and ways of delivering world class quality, productivity, and customer service; and to survive the daily deluge of seemingly trivial matters which may quickly explode.

Executives face a stream of dilemmas with no easy answers. Their to-do lists keep getting longer. They’re torn this way and that by people with competing agendas, and bogged down by meetings, video conferences, phone calls, e-mails, and so on. Many of them also have grueling travel schedules. Time is their scarcest resource.

It goes without saying that any war on complexity must be fought with a determined drive for simplicity. That in itself must be an ongoing effort with targets, projects, champions, regular reviews, and whatever else it might take. But on its own, it’s not enough. For there’s an over-arching problem of managers themselves creating conditions in which complexity flourishes. They introduce ideas and activities that often don’t line up, won’t produce the results they expect, and lead to unnecessary work, waste, and costs—all as a result of how they manage.

With few exceptions, they’d do well to ask themselves:

Why they so readily make life even more difficult, with management ideas, practices, and tools that in theory should help them, but in reality make little sense?

Why they keep searching for new answers to their management questions, when the answers they need are probably already well known?

Why they develop strategies that are either too vague to be useful, or too complex to explain?

Why they’re such suckers for buzzwords and bullshit when they have so much on their plates, and so many people expecting guidance from them? 

These are questions that have bothered me for the past 30-odd years. During this time, I’ve read countless management books, scholarly journals, and popular articles, and talked to many of the most prominent thinkers in the field, trying to learn three things:

  1. How should firms compete?
  2. What causes some succeed over the long term, and others to fail?
  3. Why do some executives produce better results than others?

You’d think by now the answers would be clear and widely accepted. But apparently not. For the quest for new ones is accelerating, not slowing. Or, at least, the amount of stuff published on these matters is growing by the second. And someone is grabbing all those books off airport bookstands!

Whatever you want to know, a Google search will instantly yield tens of thousands, if not millions, of links to possible answers. Authors of business books and articles slice and dice management issues into ever narrower opinion. The internet gives voice to anyone and everyone who has anything to say about strategy, structure, organizational behavior, people management, change management, analytics, leadership, IT, systems thinking, six sigma, values, culture, presentation skills, or whatever.

With all this “expertise” to hand, it’s little wonder that firms are jammed up by initiatives, or that managers are totally shell-shocked from being bombarded with information and advice about their world and their craft. The exploding volume of management flim-flam has made managing increasingly difficult.

Executives get in their own way because they’re always looking for another answer to their management questions—a quick fix or “silver bullet”—when the answers they need are right under their noses. And to compound their problems, they radically over-complicate things, and cause much of the mess and muddle that bogs things down. They also continually introduce new initiatives—or allow others to do so—while seeing few to a sensible end. And even as the pile deepens, they chop and change their priorities so fast that their people haven’t a clue what’s going on or what they should focus on.

Put differently, only by getting back to basics, simplifying things, lightening your load, and sticking to one view of how to manage will you ever make the progress you want.

I’m willing to bet that, right now:

  • you’re using management-speak that you don’t fully understand
  • your strategy is a mystery to many or maybe most of your people (and possibly to you, too!)
  • you struggle to turn your strategy into action
  • your priorities are not really what you should be focusing on
  • your people are doing things for reasons that aren’t clear to them, and don’t make sense to them
  • they’re expected to use tools that they don’t grasp
  • there are too many projects in your firm, many of which should never have been started, and many others past their sell-by date
  • quite soon, you’ll latch onto some new management idea, and launch a flurry of new initiatives to replace the ones you haven’t properly finished
  • there is a better, simpler way to get the results you want.

Sound crazy? A lot of nonsense? Well, think about this:

  1. When I ask company employees or participants in my business school classes why their firms’ strategies don’t work, the number one reason is, “We don’t know what the strategy is.” Many say, “We don’t have a strategy” (they probably do, but no one told them or they just weren’t paying attention).
  2. Companies love strategy documents. And usually, the thicker the better. I read these things for a living, and when I get to the end of many of them I have no idea who is supposed to do what. They’re heavy on detail that should have been left on a functional manager’s desk. A clutter of thoughts, lack of logic, poor structure, big words, and long sentences make them murky. So they say too much, but explain too little.
  3. Management tools are mostly not all they’re cracked up to be. They’re as fashionable as hemlines. As Bain Consulting’s periodic tools survey shows, usage and satisfaction scores go up and down. Besides, very few tools are truly new, based on sound research, or proven across industries, companies, or even functions; and what works at one time, in one set of conditions, may not work when things change. The catchy language that management “thinkers” use to draw attention to their recipes should be cause for suspicion.
  4. When a new tool is adopted, others that are already in place tend to stay there. So the pile grows. Each new idea creates a blast of activity, and sucks time, attention, and money from others. It becomes a nightmare trying to figure where to focus, how to integrate all this work, and what comes first, second, or third. And it becomes impossible to know which intervention caused what result.
  5. Explaining strategy is a never-ending job. I once heard a senior manager ask former GE chairman Jack Welch, “How often do you have to tell people what your strategy is?” Said Welch: “You have to explain it, and explain it, and explain it, and explain it, and explain it, until you drive yourself crazy. Because nobody is paying attention!”

So where to from here?

For starters, clarify your own point of view about what you’re trying to do. Think of strategy as the frame through which people see your company’s future. What exactly do they need to know? Answer: not much. In fact, the four things here tell the whole story.

Framing your strategy – keep it simple, or you won’t make it work!

Get this story right, and you have a good chance of success. Get it wrong, and you make a really bad start. So keep it simple. Keep it short. Cut to the chase. Maybe, at last, your team will get the message.

And what comes next?

First, a few tools, carefully chosen, well understood, and relentlessly applied so you and your people become expert in their use. (I’ll talk more about these in a future post.) Toss out anything you don’t really, really, really understand; anything you can’t use properly; anything that doesn’t produce the results you expect. And any duplicates.

Second, make a list of all the initiatives currently in your organization. (Some will be in use, others just lurking somewhere, and probably at some cost.) Ask: what do we really need to do? Which of these initiatives helps us? What should we kill right away? Then, zap as many as you can, fast, and slam the door on new ones.

Third, keep reminding yourself—and drum it into your colleagues—that whatever approaches, methods, models,tools,  or processes you go for, all work hinges on conversation. On what you talk about, how you do that, and who you involve. So make sure you talk about the right things, in the right way, to the right people.

Above all, understand that everything follows from your point of view. And the surest way to cut complexity is by avoiding it in the first place with your ideas about managing.

Life is hard. Managing is one of the toughest jobs around. There’s no point in making it harder for yourself.

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  •  16/04/2012
Apr 082012
 

The market shares of South Africa’s four big banks—Standard Bank, Absa, First National Bank, and Nedbank—go up and down, but with few big swings. Despite government pressure to do more for the bottom end of the market, and some stabs at doing so, all have continued to focus on their traditional middle- to upper-end customers. That, they’ve held, is where the money is.

And it’s true, that’s where the money was. But growth in that sector has slowed. Profits are under pressure. So the giants been forced to look downmarket, where there are an estimated 8 million “unbanked” and “unsecured” customers, and plenty of growth to come.

The fight will be brutal. They’re all charging into the same arena at the same time, so they’re tripping over each other. The big banks have clout, and are deadly serious about this new venture. But they’re stepping onto the home turf of two smaller banks—African Bank and Capitec—which know how to fight there.

These two operate in different niches. They’ve been growing fast, and extending their presence into new areas with appealing offerings. They’re also solidly established, and far from rolling over under the current onslaught, they now have no choice but to become even smarter and more aggressive.

The bigger of them, African Bank, hardly advertises at all, but has many years of hard-earned experience at the lower end of the market, a sophisticated approach to credit management, almost 16,000 highly motivated people, and a large pool of customers who are real fans and not just locked-in by some gimmick.

Capitec is a younger business, but its promise of simpler, cheaper, and more convenient banking has strong appeal. After initially aiming at poorer black customers, it’s now opening branches in wealthy areas and attracting whites, professionals, and suburban housewives.

There’s a classic disruption strategy at work here, as described by Harvard Business School professor Clayton Christensen:

  1. Incumbent firms keep improving what they’ve been doing, assuming they’ll keep customers happy by doing more of the same better.  But they do lots of stuff customers don’t care about. As they add more and more bells and whistles, their costs rise and they create a “price umbrella” for upstarts.
  2. One or more newcomers sneak in under that umbrella. They focus on customers the dominant firms have overlooked or underserved, with products tailored precisely for “the job they want done.” Unencumbered by entrenched mindsets and legacy policies, practices, and infrastructure, they’re able to keep costs and prices low. They go unnoticed while they fine-tune their processes and build awareness, capabilities, experience, and muscle.
  3. Stuck with a price disadvantage and lots of baggage, the big players struggle to move downmarket. At the same time, the disruptors start moving upwards, to pick off their customers.

The current process has a way to go. The latest phase in the banking war illustrates just how hard it is to stand out in the marketplace today—and why “sustainable advantage” is for more and more companies an impossible dream. It highlights the importance of delivering a “difference” that really is different, but also that matters to customers so they’ll pay for it.

THE DELIBERATE DESTRUCTION OF DIFFERENCE

Virtually in unison, the big guys have announced a flurry of new products and services (or re-promoted existing ones), and started to move downmarket. They’re hoping for the best of several worlds: to keep customers they’ve got, while also stealing some from each other—and to snatch business from African Bank and Capitec, while also luring unbanked customers in that territory.

Since March, print media have been stuffed with one page of ads after another extolling the promises of three of the Big Four: Absa, Standard Bank, and First National Bank.

Absa promises “Better banking”:

IMMEDIATE PAYMENTS…STAMPED BANK STATEMENTS…APPLY ONLINE…SCAN AND PAY…SEND CASH AROUND THE WORLD…FREE eSTATEMENTS…CELLPHONE BANKING…CASH ACCEPTING ATMs…UNIT TRUSTS ONLINE…OPEN ACCOUNTS ONLINE…OVER 8 000 ATMs AND 900 BRANCHES…RECHARGE WITHOUT CHARGE…LOW-COST BANKING…REAL BUYING POWER…REAL CASH REWARDS…

Turn the page, and there’s Standard Bank “Moving forward:

THE CONVENIENCE OF 18 450 PLACES YOU CAN DO YOUR BANKING…HELPING CUSTOMERS SAVE UP TO 50%…ELITE BANKING COSTS R99.00 A MONTH…YOUTH…STUDENT ACHIEVER…GRADUATE AND PROFESSIONAL BANKING…ACHIEVER ELECTRONIC…PRESTIGE BANKING…PRIVATE BANKING…

And without a gap, you get First National Bank, answering its “How can we help you?” slogan with its own laundry list of promises, and its claim to be the industry innovator:

INNOVATION…VALUE…PAY2CELL…KRUGERRANDS…ONLINE FOREX…FNB LIFE COVER…SLOW LOUNGE…eBUCKS…SELF-SERVICE BANKING…INCONTACT…INSTANT ACCOUNTING…FNB BANKING APP…SHARE INVESTING…FUEL REWARDS…MULTICURRENCY ACCOUNTS…eWALLET…TABLET & SMARTPHONE OFFER…

Now, as a customer, what do you make all of this? What’s the difference—or is there really any difference? What does it mean to you? Are you impressed by this growing range of offerings? Or overwhelmed? Or perhaps you just don’t care.

The South African banking industry ranks among the healthiest in the world—thanks to tough regulation. But banks have long been accused of over-charging, lousy service, and bullying tactics. Nobody I know is excited about dealing with their bank. Nobody has ever recommended their bank to me.

As a customer myself, I have absolutely no idea what sets banks apart. I deal with them because I need to, not because I want to. They make a lot of noise, but I can’t hear what they say.

Bank strategists would do well to pay close attention to Beating The Commodity Trap by strategy professor Richard D’Aveni of the Tuck School of Business at Dartmouth. Because that’s exactly the trap they’re creating for themselves—at huge cost, and despite their desperate efforts.

Describing why firms get into a commodity trap, D’Aveni writes:

“…the reasons most companies find themselves in the trap in the first place is because they failed to innovate early enough to avoid it or they later differentiated and cut prices so much that they have exacerbated the trap.”

They’d also to well to heed to these words of Harvard Business School professor Youngme Moon in her excellent book Different:

“Competition and conformity will always be fraternally linked, for the simple reason that a race can only be run if everyone is facing the same direction.”

“…the way to think about differentiation is not as the offspring of competition, but as an escape from competition altogether.”

“There is a kind of difference that says nothing, and there is a kind of difference that speaks volumes.”

Making a “difference that speaks volumes” has always been a challenge to companies and their ad agencies. It’s getting harder as competitors crowd into a field, and as they watch and learn from each other, benchmark themselves against each other, recruit people from each other, attend the same industry events, read the same publications, buy from the same suppliers, and so on. They strive to be different, but do everything possible to look alike.

First National Bank has seized an advantage by not just re-segmenting the market, but by using product innovation as its differentiator and a character called “Steve” to grab attention in broadcast media. But how long will it be before others do the same? Technology constraints might slow some of its competitors down, but they’re sure to fix that. So the rapid reinvention of business models will continue. Future ad campaigns will surely become both more factual and more emotional.

If experience from other industries is anything to go by, the banks have started what could be a costly “race to the bottom” (and not just the bottom of the market). Together, they’re transforming their world. The best they can hope for is that none of them does anything really silly, and that the market stays reasonably stable. They also need to hope that their efforts don’t create a credit bubble and provoke their regulator to clamp down on them.

Whichever way things go, we’re about to see:

  • What difference strategy can make, vs. the importance of being able to think on your feet, change direction in a blink, and run faster than your enemies.
  • How important real product innovation is vs. vaguer corporate branding.
  • Whether conventional forces can take on guerrilla fighters and win, and what it takes.
  • How guerrillas can withstand an onslaught from multiple well-armed attackers.

There will be important lessons here for all managers, so  this is a battle worth watching closely. (More on this in a coming post.)

 Capitec and African Bank have given the South African banking industry a long-overdue wake-up. Now, watch the shake-up.

 

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Apr 042012
 

When Samsung announced in mid-2010 that to grow its business in Africa, it would design products specifically for Africa, it confirmed two facts about global competition today:

  1. As growth in developed markets gets more difficult, firms must seek and exploit opportunities in developing markets.
  2. To succeed there, they need to “act local.”

Explaining Samsung’s plan, George Ferreira, COO of Samsung Electronics SA, said:

“In line with our key value of co-prosperity, coupled with our business and development sector partnerships, we have a vision of developing technology that is built in Africa, for Africa, by Africa”…We will over the next few years be allocating more local R&D investment for further local product planning, design and development.”

A press release from the company added:

“Samsung have undertaken extensive research and development (R&D) to develop technology innovations, specific to the African consumers’ needs. These include, TVs with built in power surge protectors, triple protector technology for air conditioners to ensure durability, power surge protection and safeguarding against high temperatures and humidity, deep foam washing machines that are 70% energy efficient – saving up to 30% water use, dura-cool refrigerators with cool pack – allowing the refrigerators to stay cool without power, as well as dual-sim technology and long battery life phones with battery standby times of up to 25 days.”

According to a report on Moneyweb, “The electronics group hopes to attract the African market with a range of television and refrigeration products that are designed to withstand power surges, dust particles and humidity and camera and camcorders that are designed to take “better” pictures of dark toned people.”

In one example of how it will pursue its strategy, Samsung has teamed up with the University of Cape Town (UCT) in South Africa and Strathmore University in Kenya to develop unique mobile phone applications for Africa. Such collaboration is sure to yield ideas that the company wouldn’t develop on its own, and to speed up the time-to-market process.

However, what the electronics giant did not say was that innovations in developing markets may prove valuable in developed markets (a process known as “reverse innovation” or “frugal innovation”). This has been the experience of companies producing products as diverse as soap, tractors, and medical scanners. And innovations may include not just new products, but also processes and business models.

Innovations from developing markets give firms new opportunities in developed markets by providing simpler, cheaper products

Reverse innovation will be one of the most important trends of coming years. It opens many new opportunities for developing markets and for the companies and innovators in them. And it provides new reasons to go to places you weren’t really sold on, to invest there, and to make a deliberate effort to learn whatever you can from being there.

Champion of the movement is V.J. Govindarajan, professor of international business at Tuck School of Business at Dartmouth College, and the first professor in residence and chief innovation consultant at General Electric. His October 2009 Harvard Business Review article, “How GE is disrupting itself,” co-authored with GE chairman and CEO Jeff Immelt and Chris Trimble, another Tuck faculty member, won the McKinsey Award. His new book, Reverse Innovation (co-authored again with Trimble), will probably draw similar praise—and stoke interest in the concept. They provide many examples of how firms have gone about it, plus advice for those who want to.

In an interview with [email protected] (April 2, 2012), Govindarajan explained some of the rationale behind the concept:

The fundamental driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. The per capita income of India, for instance, is about US$3,000, whereas it is about $50,000 in the U.S. There is no way to design a product for the American mass market and then simply adapt it and hope to capture middle India. You need to innovate for India, not simply export to India. Buyers in poor countries demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and “good enough” quality.”

“Poor countries will become R&D labs for breakthrough innovations in diverse fields as housing, transportation, energy, health care, entertainment, telecommunications, financial services, clean water and many more.

Reverse innovation has the potential to transform wealth in the world. Growth in developed countries has slowed down. Much of the growth is now in developing countries. The 2008 financial crisis and the more recent debt crisis [in Europe] have only exacerbated this situation. As such, we are likely to see the center of gravity for innovation shifting from rich to poor countries.”

Questions to ask now:

  • What will developing countries do to promote not just their market opportunities, but also their innovation opportunities?
  • What will local firms in those countries do to take advantage of this trend?
  • How will local universities and other potential partners respond?
  • How can you exploit this idea?

The entire world is a learning laboratory. No place has a monopoly on ideas. Today, it’s foolish—and potentially costly and risky as well—to be myopic.

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  •  04/04/2012
Mar 282012
 

If there’s one topic that gets more than its share of airtime today, it’s the shift in economic power from West to East, and the importance of emerging markets to companies seeking growth. This had to happen given that more than half the world’s population lives in those regions and have recently joined the mainstream of commerce. Three-and-a-half billion new customers are not be be sneezed at.

The Great Recession has given new urgency to capturing those shoppers. Hypercompetition affects all but a few industries, and managers everywhere are in a dogfight over customers. Sales have slowed in the big developed markets—the U.S., Europe, and Japan—so must be found elsewhere. Asia, Latin America, Africa, and central Europe now look particularly attractive.

Not too long ago, developed countries ran surpluses, while developing ones ran deficits. Now, the picture is largely reversed: many developing nations run surpluses and export capital, while developed ones have racked up huge deficits. And whereas infrastructure in many developed nations is in a sorry state, developing nations are spending vast sums on it. They’re also becoming more amenable to foreign investment, sucking up resources from everywhere, and rapidly advancing up the competitiveness ranks.

A key message from the World Economic Forum’s January 2012 Davos shindig was that emerging markets are where many firms will find their future growth. This is hardly news, as we’ve heard the same thing from countless commentators for at least the past 30 years. But repeating it yet again will surely spur more executives to leave their comfort zones and venture into new territory.

Before they rush ahead and do this, though, they should think hard about what it might mean. They should beware of doing it while starving the opportunities that exist where they already operate. They should be careful not to overlook the treasure that’s right under their noses in their own backyards. And they should ask themselves a critical question:

“Are the ‘developed markets’ we think we know not in fact ‘emerging markets’ that we need to learn about fast?”

A BRIEF LOOK BACKWARDS

The term “emerging markets” was coined in the early 1980s by Antoine Van Achtmael, an economist at the World Bank’s International Financial Corporation, to draw attention to investment opportunities in low- to middle-income countries. Then, after the Berlin Wall fell and eastern Europe opened up, and as southeast Asia began its own economic revolution, things started to get interesting.

Democracy and consumerism spread and firms became increasingly keen on globalization. They started to shift from focusing purely on exports to setting up their own facilities across the world. New technologies made it easier for them to coordinate complex networks of suppliers; and new logistical systems enabled them to move raw materials, components, and finished products swiftly to wherever they were needed.

In 2001, Jim O’Neill, chief economist at Goldman Sachs (he’s now chairman of Goldman Sachs Asset Management) invented the “BRICs” acronym—Brazil, Russia, India, China. These four populous and economically ambitious countries, he said, would propel the growth of the global economy in coming decades. So they offered huge opportunities for both investment and business.

That story got wide coverage and created a lot of interest. Then, in 2002, two business school academics, C.K. Prahalad and Stuart L. Hart, added both impetus and an important insight to it with an article in Strategy+Business which they seductively titled, “The fortune at the bottom of the pyramid.” Their unremarkable observation was that the populations of poor countries comprised a few wealthy people at the top of the pile, and untold millions mired in poverty at the bottom. Individually, the bottom lot had little spending power; but taken together, they made up an attractive target.

In 2005, O’Neill’s team sought to identify another group of developing countries that would follow the BRICs closely, and came up with the “Next Eleven,” or N-11—Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey, and Vietnam.

Six years later, O’Neill decided that “emerging markets” was no longer the right label for the BRICs or four of the N-11—Indonesia, South Korea, Mexico, and Turkey. “These are now countries with largely sound government debt and deficit positions, robust trading networks, and huge numbers of people all moving steadily up the economic ladder,” he says (Jim O’Neill, The Growth Map, New York: Portfolio/Penguin, 2011). “I decided that a more accurate term would be “Growth Markets.”

This new language of “BRICs” and “BOP” (bottom of the pyramid), of the “N-11” and “growth markets,” has provided plenty of inspiration for new ventures. Executives trot the terms out at every opportunity. Companies that not long ago were nervous about operating in backward and unfamiliar places are now trying it. And every day there are more good reasons to do so.

The spread of industrialization is creating a new global middle class. Angola, Estonia, Cambodia, and Argentina are exploding with newly affluent shoppers.  More and more people, including large numbers are women, are finding steady employment. Income and education levels are rising in one country after another. Medical advances and healthier living mean more ageing people (many with savings, welfare support, or even pensions). And at the same time, new media, new distribution processes, and new branding strategies are changing buyers’ behaviour and encouraging them to experiment, shop around, and flaunt what they buy—and in the process, to keep moving the marketing goalposts.

These markets are a complex mix of young and old, rich and poor, sophisticated and unsophisticated consumers, who buy both branded goods and commodities. They’re mostly served by local businesses, but increasingly by outsiders, too. Their attraction is that they bulge with potential customers who’ve largely been overlooked or underserved. And a big plus is that competition may not be as tough as in developed markets.

There is absolutely no doubt about it: the BRICs and the N-11 merit close attention. As do many even less developed countries. And there’s a case for moving fast, for in no time at all the fight for customers in all these places will intensify.

But companies should not ignore the opportunities in their traditional markets. For that’s where they’re comfortable and where they earn the bulk of their profits today. That’s also where they are most vulnerable right now.

Customers in rich countries like the U.S., Europe, Britain, Japan, and Sweden have a lot of spending to do. Losing them will come at a heavy cost.

EVERYTHING IS UNFAMILIAR, EVERYWHERE
Anyone contemplating a foray into developing countries should consider two facts:
  1. Doing business there will be harder than you think.
  2. It will distract you and divert resources from where your priorities should be and where your best opportunities may lie—in the developed markets you already know.

Developing countries might look exciting, but they present a host of major problems: political interference, bureaucratic blockages, institutional voids, poor or nonexistent infrastructure, lousy services, entrenched social traditions, widespread poverty, health issues, security, crime, and corruption. Key skills are in short supply. Many industries are immature, and often hard to break into because of vested interests or old relationships. Supply chains are unreliable. Distribution channels and media are not what they should be. Protecting intellectual capital is a nightmare. Customers must be taught the value of new products and services, and companies must learn how to deliver them. So altogether, getting things done may be extremely difficult—especially for executives used to places where things work.

But look at the changes under way in developed countries. In virtually every market for every kind of product or service, the game of business is being turned on its head. “The new normal” is not “the old normal.” Conditions have changed in untold ways, and there’s novelty all around.

There are new political realities, new regulation, new infrastructure. Populations are ageing, shrinking, and moving; and migrants are radically changing their structure, language, beliefs, and habits. Old ways of life are giving way to new ones. Competition is hotting up and new strategies are making old ones obsolete. Technology makes possible new offerings and new ways of reaching and satisfying customers. And just as in developing nations, there are new customers with new needs, values, expectations, and behaviour.

Today, in the most advanced markets, there’s probably not a company whose managers can say, “Nothing has changed for us in the past decade or two.” Neither would they be smart to think, “There aren’t any major changes ahead, so we don’t have to do anything drastic.”

The reality is that selling almost anything, to almost anyone, anywhere in the world is a brand new challenge.

Few products or services—or the companies that sell them—have made it into this new era without significant innovation. Further progress will demand even more of it.

Yesterday’s business models can’t be expected to deliver the same results as they used to. The shelf-life of today’s models is limited. A tweak here or there will undoubtedly help some companies do better, but sooner or later more radical change will be vital. And for growing numbers of firms, the time for that is right now.

It’s time for a strategy reset!

INDUSTRIES IN TURMOIL

To make the point, some examples:

  • Think media—where’s it headed? Do newspapers have a future (and what about the paper industry and the printing press manufacturers that serve it”) What further impact will technology have on it? Where are social media taking us? What about “citizen journalism”? How will the widespread availability of ultra-fast wi-fi change things?  What’s the future of television in an age of Tivo, PVRs, and streaming video?
  • Think photography—How will cell phones with high-resolution still and video cameras affect makers of stand-alone digital cameras? What breakthroughs lie ahead in lens technologies, sensors, and storage devices? What new post-processing software is on the way?
  • Think laptop computers—who needs them when tablets are so handy? What might they be used for tomorrow? What will new processors and memory technologies enable them to do? How much smaller can they get, and how much sharper and brighter can their screens become? What new battery technologies can we expect? How will applications be sold?
  • Think fast-moving consumer goods—what’s going on with formulas, packaging, distribution, promotions, pricing, recycling? What will be the impact of new health concerns? How important will store brands become?
  • Think autos—how much smarter, lighter, more economical, and safe will they become? What new energy systems can we expect (and what is the prospect for “green” cars?) Where will vehicles be produced? What further mergers and acquisitions can we expect, and how will they alter the industry’s structure? How will traffic congestion be managed, and what might that mean for vehicle makers?
  • Think clothing—what are the fashion trends to watch … and what can be ignored? What new fabrics are coming? What new production technologies lie ahead, and where will garments be made?  How much more time can be cut between design and in-store display? What will be the future role of haute couture and fashion shows?
  • Think retail—what shopping trends are emerging, and what might be next? What are the prospects for online sales, and what changes will we see in that area? What’s the outlook for malls … big discounters … speciality retailers … small independent stores? What new stock control systems are down the line? How will customers pay?

These questions address just a few of the changes already under way. And of course, there’s also the impact of new regulation, of environmentalism, and  of a host of other factors that are restructuring the business landscape. So this you can be sure of: there’s massive change to come. The market you’ve come to know so well—whatever sector you’re in— is not the one you’ll play in tomorrow.

Much of what we though we understood about “developed” markets is no longer useful. Almost all of them are today, in effect, emerging markets. Not in the sense of being poor and backward, but rather in the sense of taking shape, of not being fully understood, and whose potential is unclear.

This process has been under way for some time. Buyers of everything have been learning about new ways to satisfy their needs and wants, communicate and participate, enjoy and express themselves, and shop and pay. They’ve discovered that just as quality should be a “taken-for-granted” fact, so should low price. They’ve taken to buying portfolios of products and services, some bearing names like Louis Vuitton, Ford, Swatch, Tumi, Gap, Hyundai, or Samsung, and many with names you’ve never heard of, but offering “good enough” design, feel, durability, and so on—often at rock-bottom prices.

Recently, the spread of financial trouble has had a dramatic impact on customer behaviour. Collapsing asset prices, government austerity programs, and rising unemployment have forced shoppers to save rather than spend. Companies serving them have had to do the same. So prices and costs have become more important than ever. Buying down is the new norm. “Frugality” is today’s reality.

 HOW (AND WHERE) WILL YOU COMPETE TOMORROW?

Dramatic changes are under way in even the richest, most developed parts of the world. They present both breathtaking opportunities and deadly threats to virtually every business. And the one thing you can be sure of is that the situation will get more challenging.

Today, there’s no shortage of new market possibilities. The growth prospects offered by what we call emerging markets are phenomenal. But developed markets are the most important markets for most major companies today—as they will be tomorrow.

Your traditional competitors are not the only ones you should worry about. You’re probably surrounded by upstarts from down the road. Emerging market multinationals are swarming into rich nations fast and aggressively to eat the lunch of local champions. Protecting yourself in your backyard is getting harder by the minute—but doing so is imperative. This is a turf war you shouldn’t lose.

So how will you compete tomorrow? Which customers should you focus on? What do you need to learn about them (what do they value?… how, when, and where do they shop?… what media do they use?… what influences their decisions?) How should you reach them? What should you promise them? What kind of business model do you need to capture and keep them?

For many firms, developing countries are where the future lies. But think before you label those “emerging” and the ones you’re in right now “developed,” “traditional,” or “mature.” There are obviously differences, but here’s what’s the same everywhere:

  1. The rules of tomorrow’s game aren’t clear.
  2. You don’t understand them.
  3. They will keep changing.
  4. You will face more competition—and more hostile competitors from all over the world—than you think.

Developing regions that you don’t know may look extremely appealing. But the ones you’re familiar with—those where you trade now, that you see as “developed,” and that maybe bore you—have their own possibilities. However, to take advantage of them, you need to start by accepting that you don’t really understand them, and then spend the time getting to know them from scratch.

Every market is now an emerging market. We’re all feeling our way into the future.

WHAT”S YOUR NEXT MOVE?

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  •  28/03/2012