Over the past few weeks, I have been posting some of the key takeaways from a recent Executive Breakfast on the topic of strategic planning in emerging markets. The event, hosted by Frontier Strategy Group in Singapore, was attended by a group of nine senior Asia-based executives. In this third and final post (you can find part one here, and part two here), I wanted to touch on some of the highlights on the topic of investments – both in terms of financial capital as well as human capital – in the context of strategic planning.
Incentives were discussed as a possible tactic for countering short-term thinking by local teams. Many companies have considered using “plan accuracy” as a KPI for evaluating managers’ variable compensation, but one executive from the pharmaceuticals industry felt that this led to managers being overly conservative in their planning and execution in order to ensure that targets could be consistently met, which could result in missed opportunities and lost market share. Another executive shared that he has found success in providing highly attractive long-term incentives to instill long-term thinking, as well as to fight attrition. For example, one general manager on his team received a bonus equivalent to a full year’s salary for developing and then successfully executing an aggressive four-year strategic plan.
Beyond the question of human capital, financial capital was naturally a key topic of discussion. For many executives running an emerging markets portfolio, operations often do not yet have the scale necessary to self-fund new initiatives, so the case must be made to corporate headquarters for additional investment. FSG has recently profiled The Coca-Cola Company’s approach of creating a global opportunity fund (as distinct from an emergency fund), contributed to equally by each business unit, to which requests for funding could be submitted via a rigorous and competitive application process.
Another approach, used by several companies attending our discussion, is to ask managers to submit “layered” plans, consisting of baseline plan supplemented by one, two, or more layers of “what if” scenarios. For example, local managers are asked to provide details into the specific investments that would be made, and incremental opportunities captured, if corporate were to invest $1 million above the baseline plan, $2 million above baseline, and so forth. The downside risk discussed to this approach is whether such a methodology encourages managers to submit overly optimistic plans as they make the case for additional resources. Here again, the group came to consensus on the need for a high degree of discipline to checking progress against plan milestones on a frequent and structured basis.
Although having the right capabilities in place is necessary to achieve success, capabilities alone are not sufficient. The right incentives and adherence to processes are also key to ensuring that time spent planning is time well spent.
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