Growing in the New Normal - Global Frontier...

Growing in The New Normal

Preface

• Business cycles are not new. The new variable is the closer correlation of regional economic cycles because of greater globalization

• Fuelled by easy access to credit, last decade’s asset bubbles have resulted in Japanese-like stagflation (or worse) and deleveraging in the U.S. and throughout Europe that may linger for years and constrain growth across the world

• While growth has become a challenge for many companies, there are regional and global companies who are still thriving in this new normal. If history is an indicator1, they will retain a massive performance advantage over the coming years

• These leaders are using the current crisis as an opportunity to strengthen their position, build real options and position themselves for an upturn in the cycle

• In this paper, we outline some of the habits of these growth leaders and strategies that can be deployed to help you rediscover growth

Driving Growth in The New Normal 2

(1) Indexed to 1932, the stock price of the top performers during the Great Depression, outperformed others by 34% over a 5 year period Source: Literature review; MXV Case Database

From the Accelerator to the Brakes

3 Driving Growth in The New Normal

CAGR (06-08)

29%

11%

15%

18%

27%

20%

15%-20%

10%-15%

5%-10%

<5%

CAGR (08-11)

7%

4%

10%

12%

71%

20%

15%-20%

10%-15%

5%-10%

<5%

In the lead up to 2008, 29% of the Forbes 2000 recorded growth rates above 20%

Since 2008, that number has dropped to a mere 7%

Source: Forbes Global 2000; MXV Analysis

Barely 5% of companies have

shown a consistent y-o-y growth of 2% or more between

2006 -11

Macro-Economic Conditions Will Remain Difficult

Decreased consumer spending

• Widespread and continued unemployment1 • Increased price sensitivity and focus on savings2 • Deferral of purchase decisions • Focus on the necessities

Liquidity and supply constrains

• Continued worries over the future of the Eurozone • Reduction in bank credit • Tightening of capital markets • Overall reduction in capital stock formation

Heightened competitive activity

• Many firms struggling for survival • Increased price competition, margins under pressure • Emergence of Asian multinationals • Consolidation threats loom large

In this environment, it is almost natural for companies to focus on cost- reduction and sacrifice innovation and growth


(1) Unemployment rates are at historically high levels of 8.3% in the US and 8% in the UK while at a record 11.3% in the Eurozone. These numbers do not include disguised unemployment or the people who have withdrawn from the labour force. At 4.1%, even China is near its highest unemployment rate since the 1980s

(2) The personal saving rate in the US has increased from 2% in Aug 2007 to 4.4% in Jun 2012 Source: Government Statistics; Literature review; MXV Analysis

“ “Providing the world with quality affordable healthcare”

• Continued focus on store brands • International growth • 45 new products planned in 2012 • Acquisition of Can-Am

Several Companies Have Bucked the Trend

5 Driving Growth in The New Normal

Source: Literature review; MXV Analysis

19%

“ “Focus on deeper customer relationships”

• Higher focus on a few business verticals • Introduction of “three-in-a-box” global delivery model • Increased investments in sales and consulting capabilities • 8 acquisitions since 2008; significant capability building

42%

“ “Focused on the long term, obsessed over customers”

• Continual enhancement of the business model • Increased product categories and international geographies • Relentless focus on execution and customer service • Focus on digital products (e-books) and services (cloud)

48%

“A brand and business defined by it’s youth, not it’s age”

• Accelerated growth of Trademark Coca Cola • Higher investments in sales and marketing (Olympics) • Improved product portfolio; re-building of fountain business • Improvement in cost position

25%

“World class services for the growing middle class”

• Focus on retail customers; shift from corporate • Strengthening of technology leadership • Analytics driven cross-sell capabilities; strong execution • Strong revenues from non-fund based business

28%

“Growth using a total tobacco portfolio”

• Most comprehensive tobacco portfolio • Strong gains in emerging markets • Significant investments in innovation • Acquisition of Altadis in 2008

24%

X% Revenue growth rate (2007-2011)

These Companies Are Thinking Differently


Indiscriminate cost cutting

________________

• Erosion of customer base

• Lack of investment in growth options

See the crisis as an opportunity

________________

• Defence and offence • Reinvest in the core • Build new positions • Emerge stronger

Growth at all costs

________________

• “Catch-up” acquisitions

• Uncompetitive cost positions

Managed growth rates

________________

• Focus on business sustainability and margins

• Organisation building

LEADERS

FOLLOWERS

FAVOURABLE

ENVIRONMENTS

ECONOMIC

DOWNTURNS

The 5 Habits of Growth Leaders

1. They play defence and offence: Besides protecting their market position, these companies are still looking to strengthen their strategic position

2. They actively seek growth: Growth leaders continually work on the three axes of the “Growth Cube” – new customer segments, new products or services (innovation) and new geographies (emerging markets)

3. They continue to invest in the core: Instead of milking the core business during difficult times, they further sub-segment their markets, re-evaluate the customer portfolio, renew their marketing spends and enhance their customer service levels

4. They re-visit the customer value equation: Growth leaders capitalise on changing customer requirements to re-create their business and/or pricing model and capture a higher share of consumer spending

5. They stay nimble and opportunistic: Recognizing competitors’ weakness, they will thrust forward as others withdraw or retrench. M&A becomes a more efficient tool for growth as assets become cheaper


Sustaining a company’s performance during a recession is not just about survival, but also about ensuring that the company is well positioned for an upturn in the cycle

Are You One Of Them?

Please score your level of agreement Strongly Disagree

Strongly Agree

Growth-focus

1. Is growth still at the top of your strategic agenda? 1 2 3 4 5

2. Do you have a game plan to grow through the current environment? 1 2 3 4 5

3. Are business units systematically increasing their market share? 1 2 3 4 5

Customer-centricity

4. Are you constantly evaluating your customers needs within the context of emerging trends? 1 2 3 4 5

5. Are you using this crisis as an opportunity to strengthen ties with customers? 1 2 3 4 5

Investing

6. Are you investing in strengthening your brand or developing new services? 1 2 3 4 5

7. Is your company entering new markets or geographies at a brisk pace? 1 2 3 4 5

8. Are you exploring ways to create differentiators for yourself for the post-new normal world? 1 2 3 4 5

Being Opportunistic

9. Do you know your competitors’ vulnerabilities and what opportunities this creates? 1 2 3 4 5

10. Recessions create cheap assets. Is your company trying to capture them? 1 2 3 4 5

Optimizing resources

11. Is your firm using internal and external data to better understand market conditions? 1 2 3 4 5

12. Is your firm deploying new frameworks to uncover opportunities or better sales efforts? 1 2 3 4 5

TOTAL SCORE


12-25 Your company is losing ground; urgent corrective actions may be required 25-45 You are making sporadic efforts at growth; a coherent strategy may be missing >45 You are positioned to be a growth leader; effective implementation is your priority area

Four Ways in Which We Can Work Together

1

2

3

Opportunities across the Growth Cube Micro-market domination Emerging markets strategy Low-cost business models

• New customer segments • New offerings • New geographies

• Sub-segmentation • Customer portfolio

analysis • Country analysis • Assessment of fit •Market strategy

• Redesign customer

experience • Tiered pricing


4

1. Opportunities Across the Growth Cube: Methodology And Approach

Three-step process to identify new opportunities that leverage our existing capabilities and provide attractive and feasible options for growth

Identification of new opportunities • Given our existing offerings and geographical reach,

what new customers can we serve? • Given our existing customers and reach, what new

offerings can we introduce? • Given our existing customers and offerings, what new

territories can we explore?

Market sizing and attractiveness analysis • Evaluate all the opportunities on basis of their market

size, growth potential, competitive activity, technology trends, capabilities required, etc.

• Identify opportunities which match the growth aspirations and capabilities of the client

Market entry plan • Prepare a detailed plan for new market entry or launch of

new services for the recommended opportunity

1

2

3


Geographies

Customer segments

Products or services

Case Study

OBJECTIVE: An IT services company was looking to develop a new service line. The objective of the project was to develop a strategic approach towards the market and customizing the solutions accordingly

• Evaluated several verticals for the launch of new service line. • Conducted several industry interviews to understand adoption

trends in all of these verticals • Shortlisted three verticals for next-level analysis

STEP 1 : Opportunity identification and assessment

STEP 2: Targeting

Impact: The client used the findings to secure board approval for the chosen strategy and set up a separate business group for the same. They have subsequently built on their go-to-market strategy and are in the process of launching the new service. Early indicators suggest that they are at the right place at the right time

• Created a dash board with several relevant growth parameters for all the three verticals

• Prioritized the market entry of verticals based on dash board analysis

• Developed a detailed plan for market entry

Driving Growth in The New Normal 11 Source : MXV Case Database

2. Micro-Market Domination: Methodology And Approach

Five-step process for micro segmenting a market, analyzing each segment for its growth potential, shaping the approach and allocating resources accordingly

Define micro-markets: Find criteria to micro segment the market. For e.g. If an earlier segmentation was based on geography, it can be further segmented by income levels or usage behavior

Estimate growth potential: Analyze each micro-market for its market size, growth rate, level of competition and other relevant factors; classify them as high, medium or low potential areas

Calculate market penetration: Calculate our market share for each of these micro-markets, study the good performing and bad performing markets, and identify the key success factors for the business

Identify opportunity areas: Map each of the markets on the success factors and identify the ones with high potential of growth and the ones where the chances of success are higher

Prioritize growth pockets: Identify the high opportunity markets and re-allocate resources to extract maximum possible growth from each micro-segment

1

2

3

4

5


Source : HBR, MXV Case Database

Case Study

OBJECTIVE: A leading service player was experiencing stagnant growth. Our charter was to analyze their market, identify new opportunities of growth, and shape the offerings to suit the new market characteristics`

Segment 1 Segment 2 Segment 3

Segment 1

Segment 2

Segment 17

100 30 30 110 80 20

IMPACT: Company was able to realign its product and segment portfolio to achieve 22% growth in the next year. They made deep inroads into previously ignored segments and have reduced their dependence on one segment. The product

portfolio has been strategically realigned in anticipation of market needs

Client’s offerings were designed to target three market segments

Our work revealed 17 sub-segments, with a significantly larger market opportunity and several new growth areas

Market share: High Med Low

Saturated segments Medium growth segments High growth segments


Relative Segment sizes (total 160) Relative Segment sizes (total 210)

Declin

ing s

egm

ents

Source : MXV Case Database

3. Emerging Markets Strategy: Methodology And Approach

Preliminary market

feasibility analysis

Detailed market analysis

Strategic Planning

• A preliminary assessment is conducted as a precursor to a detailed market study

• This analysis is generally conducted using a checklist / tool that forces an assessment of all the key issues

• Develop the market entry strategy, based on alignment with corporate strategy, market dynamics, internal capabilities/ resources, risk assessment and organizational impact (legal, R&D etc)

• Plan the operational details of the market entry strategy developed in Phase II

1 2 3

14

Implementation Roadmap

4

• Arriving at a Go/No-Go decision by conducting a detailed assessment of the market attractiveness and fit with company capabilities

Driving Growth in The New Normal

Case Study: International Market Strategy


Objective

A retail client wished to expand into international markets. The objective of this project was to factually analyze all the possible markets and identify markets with strong market potential with reasonable levels of competition

Define criteria to fit the client’s decision-making requirements

Prioritise countries based on a multi-factor evaluation process

Select target markets based on a detailed examination of priority countries

Mark

et

att

racti

ven

ess i

nd

ex

(M

ark

et siz

e,

gro

wth

, pro

fita

bili

ty,

risk)

Difficulty of market entry (Competition, synergies, regulation)

International Market Prioritisation

Priority 1 markets Attractive opportunity, with relatively lower competition

Source : MXV Case Database (data modified to protect client confidentiality)

IMPACT: Client was able to develop a coherent international strategy. Opportunities that did not fit the overall game plan were de-prioritized and the company focused its attentions on a few markets. It has now developed a strong, sustainable

presence in international markets and has significantly outgrown its competitors

4. Low Cost Business Models: Methodology and Approach


What is the size of the opportunity?

What do consumers truly value?

What are the implications on the business model?

Retention of consumers who may otherwise

defer spending

Unlock opportunity

in under-penetrated segments

Expand into more

price sensitive emerging markets

Product features

Brand and self image

Service experience

How do we redesign our offerings to capture the

opportunity?

How do we manage or reposition the brand?

How do we restructure our costs to

profitably service the

market?

• The new consumer reality and the opportunities in emerging markets often demand a complete review of the business model. Simply reducing price points and product features can have serious negative consequences for the brand • Harman International is a case study of a company that re-engineered its products for China and

India to be half the price and a third of the costs – while retaining the functionality of existing products. 18 months after launch, these new products are generating $3Bn in additional sales

Case Study: Low-Cost Business Models

Cost Index

-

50

100

150

200

Client

(existing)

Competitor A Competitor B Competitor C Client (new)

OBJECTIVE: A premium services provider wished to expand it’s market opportunity by tapping lower income group consumers and expanding into price-sensitive, emerging markets

IMPACT: Client was able to develop the lowest cost business model in the industry and launched the new offering under a separate brand (while retaining an umbrella brand). The new business model has contributed to 70% of new sales in the first year of launch; resulting in a top-line increase of 17%. The original brand has experienced no negative impact

Rethinking of the consumer experience and product requirements

Redesign of the offering, leveraging lower cost materials and smarter technology

Repositioning of the brand to accommodate differential price points

Driving Growth in The New Normal 17 Source : MXV Case Database (data modified to protect client confidentiality)

60% reduction

in cost structure

Key Takeaways

Adversity is the true test: Many companies manage a growth trajectory during economic expansion. True leaders manage growth even during market slowdowns

These companies think aggressively: Empirical evidence shows that a purely defensive strategy is deeply flawed. Leaders play a combination of offence and defence

Rewrite the playbook: Revisit the growth cube, explore micro-markets, tap emerging markets, and constantly revisit the consumer value equation

Stay nimble and keep moving: Use this deleveraging cycle to emerge as a winner. Half of the current Fortune 500 companies were founded during a recession or bear market


Moving Forward

Issues Definition Meeting

Draft A Proposal

Create a straw man Statement of Work (“SOW”) to discuss the initial scope and approach for the project

Confirmation

Prepare the final version of the agreed upon SOW and develop a detailed project plan


Discuss your business objectives and desired project outcomes

20

About MXV Consulting

• MXV Consulting (www.mxv.in) is a strategy and management consulting firm based out of Bangalore in India. Our focus is on building sustainable competitive advantage for our clients and helping them become industry leaders

• We have the experience of working across multiple industries and functional areas - enabling us to bring in fresh ideas and a strategic perspective to every engagement. Our insights are backed up by a rigorous process of analysis and solution development. This ensures that our recommendations are well researched, practical and tailored to an organisation’s requirements. In many instances, we also take on the role of implementation managers

• Our clientele includes leaders across various industries. We believe in long term relationships with our clients, and have worked on multiple engagements with most of them

• MXV’s team has worked with more than 60 leading companies on a 110 assignments till date. Our clients are global in nature – including India, the US, Middle East, Europe and Asia

http://www.mxv.in/

Recent Experience on Growth Related Assignments


Client Project overview

Industrial battery company Identification and evaluation of micro-market opportunities

Leading infrastructure group Emerging market strategy and opportunity identification

Long steel manufacturer Strategy for extending downstream services

Systems integrator Growth strategy; focus on cross-selling and new service opportunities

Beverage company Product portfolio strategy

IT infrastructure provider Strategy and go-to-market assistance; focus on adjacencies

Electrical products company Strategy for expanding into household solar products in rural economies

Telecom reseller Domestic and international growth strategy

IT services company Strategy for diversification into new business area

Education services provider Strategy for extending across the value chain and into new business areas

Assessments company Long-term growth strategy; focus on micro-markets

Marketing services company Opportunities across the growth cube; vertical specific strategies

Entertainment company Low-cost business model; aimed at expanding the customer base

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Contact Details

North America and Europe

Kim Bingham

[email protected]

+44 (0) 20 3129-5379

+1 (773) 936-4591

Asia Pacific

Amit Garg

[email protected]

+91 98451 69365

mailto:[email protected]

mailto:[email protected]

Growing in the New Normal - Global Frontier...

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