Emerging Markets Insights

Earlier in the week we covered the topic of strategic planning with insight from Cécile Bernheim, an experienced strategy and business planning expert in Europe.  Continuing the conversation of strategic planning, Cécile reiterated the importance of collaboration as it relates to portfolio management and client segmentation.

Portfolio Management, or how resources are allocated across business lines and geography in relation to potential for growth, needs to be done in collaboration in order to be accepted. It has to be a collaborative work among the different organization levels and across departments including the operations/business units. The best results are generally derived from common tools with local data provided by the region themselves.  The data should cover both macroeconomic and industry data.  All in all, the success of portfolio management resides in good cross-functional collaboration and alignment, common tools and local data and last but a good education process on benefits to the company of the approach.

Interconnected to portfolio management is the understanding of your customers, a vital process of strategic planning.  For Client segmentation, it’s important to understand the business of the customer or client of which you’re engaged with to evaluate segmentation: Within which channel are they operating? What’s the client size and degree of internationalization?  If you take the larger companies of the world, they’re very international and well poised for partnership, whereas smaller companies might have better proficiencies with local and region specific talent to consider.  Furthermore, it’s also helpful to identify the strategic role of the client: Are they adversarial, ready to partner, or interested in driving business? These are all key questions to ask when evaluating client segmentation.

Frontier Strategy Group is pleased to welcome Cécile to our Expert Advisory Network and we look forward to many more content-rich conversation with her.  To listen to or download the podcast, click on this link to access the iTunes store.

Share/Bookmark

Cécile Bernheim, a well-versed and experienced strategic business planning expert, provided some key insight to developing cross-functional strategic plans that position companies for cohesive success.  Frontier Strategy Group CEO Rich Leggett recently chatted with Cécile to gain further advice on building successful plans in FSG’s Emerging Markets Insights Podcast Series.  The conversation was so fruitful and opulent with content this will be a two-part post with the  first half concentrated on the strategic planning side of the conservation and the second half more focused on portfolio management and client segmentation for business.

As with any corporate initiative, it’s important for strategic planning to be very organized and well-disciplined in order to be successful; a notion Cécile firmly stands behind.  Any company can have a well-structured hierarchy of function and responsibility, but the critical element in any structure is communication and necessary integration among company levels.  Cécile attributes a lot of the organizational success to the cross-functionality and communication of teams.  Cécile attributed her team’s success to, “the integration of planning among all three levels of the company.  The whole organization was well-aligned on the same strategic framework and was then able to adapt their strategic framework to local specificities.” In other words, they were empowered local teams but aligned with global strategy – each region had their must-win battles but all working towards the same global goal. Cécile continued, “I tried to make sure all strategic plans were cross-functional as a holistic response to a situation and strategy that was decided.”

Because the majority of FSG’s clients operate a business portfolio over both developed and developing markets, we often hear that the strategic planning proves more difficult in developing countries due to the rapid pace of change, volatility and unexpected events.   Therefore, it’s important to note two differentiating factors: process v content.  From a process point of view, adding long-term strategic framework and annual global plans should remain somewhat similar between developing and developed regions, at least as far as the process is concerned. The content, on the other hand, will certainly vary based on the level of adaption by country.  Strategic plans, according to Cécile, need to be flexible in order to adapt so every annual plan allows enough room to balance, or re-balance, throughout the year.  Cécile mentioned that one of her key learnings was to develop and implement adaptable tools to assist efficient portfolio management.  This allows the function of the tool to remain the same, but easily reworked to use different sets of data to providing a new output for a different region.

“Strategic planning is not just one person sitting in an office making strategy on their own. Truly good strategic planning and portfolio management is the product of cross-functional initiatives that are discussed with local and regional teams so that they can recognize the data – ensure senior management is on board and of course, explain, explain, and explain the process and the benefits. At the same time, depending on organizational limits, give the regions sufficient freedoms.” – Cécile Bernheim

Perhaps that’s a lesson all global strategy planners can use: global alignment with local autonomy – using flexible tools so that they can be used at different levels of the organization.  Look for further discussion on portfolio management and client segmentation in a subsequent blog post derived from the insightful Podcast with Cécile.

For the full discussion, click on this link to access the iTunes store.

________________________________________________________________________________________________

Frontier Strategy Group is pleased to introduce Cécile Bernheim as one of the newest members in FSG’s Expert Advisors Network.  Cécile brings over 20 years of experience from The Coca-Cola Company in Europe where she was the former Strategy and Business Planning Director, as well as other roles varying from general management, strategy and commercial.  Cécile is a senior business executive with solid blue-chip fast-moving consumer goods background and international experience in highly competitive and changing environments.  Prior to Coca-Cola, Cécile was a strategy consultant at Bain.  Cecile started her career in R&D in the Pharma industry and is also a qualified pharmacist and biologist and holds an MBA from IMD in Lausanne.

Cécile is available to FSG clients for consultation and her key areas of expertise are technical processes related to customer management, sales and marketing, strategic planning, as well as anything that’s related to B2B or B2C functions in an international setting.  Furthermore, Cécile has a great understanding of the dynamics between corporate and regional business units and fostering cross-functional collaborations to streamline business and communication.  Please contact your account manager for further information or contact us at sales@frontierstrategygroup.com.

Share/Bookmark

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.

Share/Bookmark

I would venture a guess that it’s not exactly common for multinational executives to make an analogy between their local managers and schoolyard recess.  Clearly one group is comprised of precocious adults, while the other group, well, is not.  However in the strategic planning process, Frontier Strategy Group has identified a surprising amount of similarities in behavior.  Often times when local managers engage in the planning process, they are tempted to act as what we have playfully called either victims or bullies.

The “victims” play defense, focusing on keeping expectations on the low end so they can make sure to meet or exceed them.  This can manifest in managers consistently providing overly pessimistic forecasts, and constantly communicating upwards regarding current and anticipated market constraints.

The “bullies,” on the other hand, tend to be concerned with expanding their own little fiefdoms, regardless of whether that is the right answer for the organization as a whole.  “Bullies,” tend to show up a little less frequently than “victims,” but they may still be a concern in certain pockets of your organization.  Bullies are found arguing for expanded operating budgets and are often overly optimistic regardless of whether targets are met in the short-term.

What you want, of course, is for each of your key team leaders to be in a healthy place in the middle of this pendulum.  You want them to serve as trusted partners in the planning process with the freedom to speak their minds, the energy to propose some creative and courageous proposals, and the best interests of the health of your overall organization as their guiding concern while planning.

To achieve that end, Frontier Strategy Group has identified a number of strategies that are built on the foundation of:

1. Capturing the wisdom on the front lines

2. Ensuring plan morale stays high

One unique strategy for ensuring that plan morale stays high is the result of an insight that many companies overlook – employees can simultaneously be highly engaged, demonstrating high enthusiasm, and yet be poorly aligned to the strategic direction is trying to work towards.  In this case, one Frontier Strategy Group client refers to these types of employees as “Loose Cannons”.  Loose Cannons are people you really want to keep in your organization, but they need to be reoriented so that their energy and ability is helpful than potentially damaging or just wasted.

In my next post, we’ll discuss more about how companies are equipping their team leaders to spot and correct Loose Cannons, as well as other strategies for improving overall local team buy-in to the strategic plan.

Share/Bookmark

“Knowledge of local markets should not reside only in local markets.  Institutionalizing knowledge is critical in light of the high attrition of local talent in Asia.” –Head of Asia, Food & Beverage Company

Last week, I shared the first post in a small series on key takeaways from the recent Executive Breakfast hosted by Frontier Strategy Group in Singapore.  I had the opportunity to join nine senior APAC executives for a robust discussion on managing the strategic planning process despite the volatility and distance from HQ that characterize doing business in emerging markets.

One of the most important capabilities for multinational companies to possess is an effective and efficient process for capturing the insights and wisdom of front-line managers when formulating strategic plans.  In Asia, the fact that highly capable local managers are so difficult to retain for more than a few years before they leave for a big pay increase being offered by a competitive firm, or that many managers have relatively little multinational work experience, adds an extra layer of complexity to an already thorny challenge.

Furthermore, we discussed the fact that constantly churning local teams may lack a sense of ownership of plans developed by predecessors.  And, that when employees expect to have short tenure with the organization, it can be hard to incentivize them to invest in developing and implementing long-term plans that may not maximize short-term personal benefits.

A leading packaged food company in attendance of our discussion has responded by attempting to institutionalize local market knowledge at the regional and corporate headquarters (where employee tenure tends to be longer and strategic capabilities tend to be more consistent) by developing a strategic planning Center of Excellence within each business unit to own the process of long-term planning, and gives local teams ownership (and accountability for) short-term planning and execution.

Another executive, from the fashion/retail space, chimed in to mention that his company has used a similar Center of Excellence strategy, with the added tactic of segmenting focus by channel as well as business unit.  Some of the executives in attendance questioned the obvious drawback of not involving local teams directly in long-term planning, but acknowledged that this approach may be a realistic compromise in markets suffering from particularly high attrition.

An executive from the medical devices industry has shrunk the planning horizon for country teams to just two months; longer-term planning is done at the regional level.  In his view, the key to executing in this type of bifurcated planning environment is a highly structured discipline of communication between regional and country teams, and strict accountability to meeting mutually agreed upon strategic milestones.

Another important consideration when it comes to managing the human element of planning is of course incentives.  I’ll touch on some of the highlights of our discussion on that front in my next post.

Share/Bookmark

“One of our senior corporate strategic planners just took on a general management role in India.  Now he gets it!” –Head of Asia, Healthcare Company

In the late 19^th century, Prussian military officer Helmuth von Multke famously remarked that, “no plan survives first contact with the enemy.”  Many managers in emerging markets might agree with Multke.  Strategic planning is often a frustrating and time consuming process, which is complicated in emerging markets by heightened volatility, scarcity of data, and front-line communication hindered by distance and time zones.  These three challenges often converge and result in strategic plans that do not last for more than a few quarters before being scrapped or forgotten.

Multke, however, was actually a meticulous planner.  He developed a planning process that considered a wide range of variables and potential outcomes in order to provide front-line officers with a framework to guide battlefield decisions, despite rapidly changing and unpredictable front-line developments.  As a general manager in emerging markets, your mandate is similar: to implement a planning process that results in plans that 1) guide day-to-day decisionmaking of employees, 2) are robust enough to withstand volatility, and 3) are reflective of local market dynamics despite the scarcity of granular data and the fog of distance.

Last week, I met with a group of nine senior Asia executives from a range of industries over breakfast at the Fullerton Bay Hotel in Singapore to discuss their best practices for strategic planning in emerging markets.  Much of the conversation centered on recognizing and responding to the capabilities and constraints of local teams relative to corporate teams.  We spoke a bit about incentives.  And, we touched on the question of how to best make the case for investment and additional “plus plan” funding.

I’d like to take a few blog posts to share some of the key takeaways of our discussion in the coming weeks.  Watch this space.

Share/Bookmark

To pick a timely analogy, let’s use the Olympic Games as a backdrop for understanding how difficult strategic planning tends to be for emerging market executives.  Competing in a hypothetical Olympic archery duel is one executive from a developed market, and one executive from an emerging market.  The goal of the contest (as usual) is to precisely and accurately hit the target. Rather than laminated plastic foam, their target is business growth.

Armed with years of practice and experience (historical performance data), and the best equipment money can buy (robust and high quality market data), the developed market executive is able to hit his target a majority of the time.  Repetition and knowledge of his sport has made him a master at predicting his performance.

On the other hand, you have the emerging market executive.  Given almost no time to prepare (little to zero historical data), a bow and arrow fashioned from a dying oak tree (poor market data), and essentially spun around while blindfolded and told to shoot…how do you think you would do?  This is the situation many emerging markets executives face while attempting to harness data in their strategic planning process.

When data is unavailable, strategic planners have to rely considerably on estimates and assumptions.

Emerging markets often have limited granular market data sources, making analysis for potential market share, growth, and opportunity extremely problematic.  Even data that is available may be outdated or inaccurate, increasing uncertainty.

In response to this problem, FSG has recently compiled a set of core principles and best-practice strategies executives can use to mitigate the challenge of data availability and quality, based on the key abilities of being able to effectively quantify and compare opportunities in the planning stage, and efficiently check assumptions on a periodic basis during plan implementation.  One of the core insights is that while desired data may not be readily available, there are ways to equip your team to collect proxy data which is directionally helpful and far better than shooting blind.  With these tactics at their disposal, we anticipate our clients will feel they are able to take off their blindfolds and improve the accuracy and precision of their strategic planning process, despite the persistent challenge of playing what is essentially a different game than planning in developed markets.

Share/Bookmark

A simple mathematical function can help describe the root-cause behind many companies failed efforts at strategic planning.

It is a common pitfall that companies first create their targets and budgets, and then develop their strategic plan around that foundation.  In essence, the strategic plan becomes a function of targets.  In this type of strategy, promoting accountability becomes almost impossible in volatile and unpredictable emerging markets.  With the budgets and targets setting the direction and path forward instead of the strategic plan, many companies become victims to their own financial urgency and end up laying the groundwork for their own demise.

A subtle yet clear swap from the first model results in a much more reliable strategic plan, and NACCO’s Managing Director of Asia Pacific Andrew Satterley is one of the few bright minds capable of distinguishing this difference, and changed his company’s planning into the more effective model.  In this model, the strategic plan exists as its own entity, and targets are derived from the pre-established and overarching growth strategy.  Andrew was willing to sit down with Frontier Strategy Group and share three of his best practices for ensuring that his employees buy into the strategic plan, can execute on the initiatives, and manage results on an ongoing basis

1) Know where you stand

With NACCO’s Asia Pacific headquarters managed from Australia, Andrew recognized that they were losing touch with core marketing leads in different countries due to lack of contact.  One of Andrew’s first steps was to not only localize the regional headquarters closer to the region, but to do a thorough examination of NACCO’s local business.  He spent months observing organizational structure and sales processes, and also implemented external surveys of customers as well as staff to understand how they were perceived in market.  Afterwards, Andrew used the results to create a robust SWOT analysis and develop a vision for their plan of attack in the future.

AS: “We decided we needed to document where we are, where we want to be, and how we want to get there.  A lot of the times it’s always about the next sale etc, but I need to understand our overall objectives, numbers should be an outcome of our strategic direction”

2) Give employees the strategic plan…literally

For Andrew, every single person in the organization gets a copy of the strategic plan, from the head of a business unit to the person working a factory line job at 4am.  Every single person gets walked through the plan and the why/where/when/how, going through the relevant details line by line.  This has led to tremendous amounts of idea-generation through employee feedback.

AS: “I take them through why we are sitting down, what we expect, and depending on who I am talking to we will take them through the relevant parts of the plan (accounting gets accounting, warehouse manager gets warehousing).  When I listen to my front-line people react, I have heard some fantastic ideas”

3) Improve succession planning, transparency, and visibility

Employees who only receive cascaded down information often struggle to make the connection between their purpose and corporate objectives.  Andrew realized that a mandate-down approach doesn’t yield the desired employee alignment, so he made a concerted effort to give employees a clear view into why changes were being made.  By improving employees understanding of the strategic plan, how they fit in, and how they can grow with the company, Andrew was able to achieve improved employee engagement and alignment.

AS: “Some of the best ideas come from people on the floor, when I speak with someone who is in it every day it can really change the thinking.  A lot of it [employee alignment] is improving succession planning and training.  We want to give them as much information as possible to that they have confidence in not just the company but also themselves”.

Share/Bookmark

The following three posts are an essential resource to assist senior executives in their strategic planning process for emerging markets:

1) Is the traditional strategic planning process too reliant on faulty assumptions or incomplete data in emerging markets?

2) Do companies adopt a strategic planning process that is too industry-specific that fails to account for the rapidly changing economic environment in emerging markets?

3) Are mid- and lower-level managers placing enough priority on strategic planning, and am I doing enough to improve their planning capabilities?

Share/Bookmark

In recent posts, we’ve taken a look at two critical questions senior executives need to be asking themselves as they undertake the strategic planning process in emerging markets.  First, we questioned whether the planning process may be too reliant on faulty assumptions or incomplete data.  Second, we challenged the traditional industry-specific and insular planning processes that fail to take into account the rapidly changing external market and macro environment.  Today, we wrap up this series of posts by posing a third critical question: Are mid- and lower-level managers placing enough priority on strategic planning, and am I doing enough to improve their planning capabilities?

Senior emerging markets executives are likely managing a very different team than just a few years ago.  Companies have sharply reduced the percentage of expatriate managers in their emerging markets organizations and shifted more decision-making to local teams.  A recent survey of Frontier Strategy Group’s clients indicated that more than one in ten of their mid-level managers were expats two years ago.  Two years from now, our clients expect this number to be reduced by one third.  The same survey data has also shown us that decentralizing decision-making around setting prices, developing marketing strategies, and managing human resources is highly correlated with more rapid growth.  However, decentralization and local empowerment can come at the cost of so-called “corporate DNA” and can loosen ties between front-line management and corporate or regional headquarters.

For senior emerging markets executives, the strategic planning process presents an opportunity to leverage the front-line teams’ local knowledge for strategic advantage in the market, but it also requires executives to spend more time and energy ensuring that local teams are bought into and aligned with the strategy.  The challenge, of course, is that time and resources are precious commodities, and asking the team to spend more time on planning could be interpreted as asking them to spend less time on execution.

Many companies have therefore looked to external consultants as a way to lighten the load.  Unfortunately, FSG’s clients report mixed results at best after spending hundreds of thousands of dollars to outsource strategic planning to well-respected consultancies.  At the conclusion of these engagements, executives inevitably recognize that they cannot outsource areas of their own teams’ core competencies, such as deep knowledge of customers, products, and markets.  These executives have told FSG that external consultants add the most value when they provide the methodology and rigor necessary to ensure that the team is spending its time in the most efficient and effective way possible to bring these competencies to bear.

Consultants can also play an instrumental role in ensuring that individuals and planning committees are being held accountable for hitting key delivery milestones.  One company that FSG works with in the consumer healthcare space used an external consultant to help define the framework for the strategic planning process, but then to ensure that its internal teams were following through on execution, the company built milestone-based KPIs into the incentive structure for managers, thus ensuring that managers felt personally accountability for executing on the plan.  One aspect of the planning framework is an 18-month rolling planning cycle.  Compensation is tied to setting and achieving milestones in the 12-month time horizon, and the remaining 6-months of the 18-month time horizon are intended to allow for a more strategic and forward looking perspective.

In summary, strategy and execution are not mutually exclusive.

A common view among executives is that time spent on planning is time taken away from execution.  What we have seen among the most successful companies stands in stark contrast to this view: leading companies have demonstrated that prioritizing strategic planning results in superior execution in emerging markets. Leveraging the perspective of front-line teams, overcoming the scarcity of hard data, securing buy-in and alignment from organizational stakeholders, and holding individuals accountable for delivery are hallmarks of a successful strategic planning process and directly translate into improved results.

Share/Bookmark