Archive for the ‘Growth’ Tag

Going global the smart way

Canadian companies need to look to global markets to drive growth, or even survive, in today’s economic climate.

The impetus for companies to go global is driven by a number of trends. The country’s market is relatively small, fragmented and grows slowly. Many firms face threats from emerging markets and rebounding American competitors, all spurred on by globalization and falling trade barriers and tariffs. At the same time, it’s never been a better time to export thanks to a weaker dollar, extensive ties between new Canadians and their home countries and the world-shrinking impact of technology.

How can companies prudently go global without incurring undue risk and blowing the budget? Consider this 5C strategy framework:

1. Country acumen

Companies need to deepen their analysis of target markets beyond counting the number of potential customers or identifying competitors. Businesses need a granular understanding of customer habits, distribution channels, pricing and regulations.
2. Competitiveness

Business will never take off if it’s not able to design and deliver a competitively priced product tailored to local needs. Expect to go through multiple executions to find the winning product and an approach to marketing it.

3. Connections

In many markets success hinges on finding and working with politically connected, reliable and experienced business partners. They’re vital to establishing initial credibility, overcoming hurdles and helping secure early customer acceptance.

4. Capital

Companies need not break the bank when exporting, especially when they’ve done their homework and have the right partners. However, managers shouldn’t be too frugal either. Business risks can increase when you under-spend in critical areas like customer care, logistics and local professional services.

5. Commitment

As with other major investments, having unrealistic short-term goals can lead to disappointment. Patience and fortitude are needed, particularly in the less developed markets where things that could go wrong often do.

Learn from others

Plenty of Canadian companies have successfully gone global and offer what they learned to those considering the exporting plunge. CSR Cosmetic Solutions, a medium-size firm based in Barrie, Ontario, is one such example.

CSR is a contract manufacturer competing in the global cosmetics and personal care product industry. It was established in 1943. Almost 80 per cent of the business is exported to Costa Rica, France, Germany and the U.S. among other countries. Here are a couple of top tips that helped them.

1. Raise your game

CSR believes companies have to be competitive on a global basis over the long term, regardless of fleeting advantages like favorable exchange rates. Businesses should also deliver superior products to compete against incumbents in their home markets.

CSR also raised its game by doing the right things, right. For example, they regularly aim to improve competitiveness by stripping out unnecessary costs, training employees and prudently leveraging new, productivity-enhancing technology and equipment.

2. Pick the spots that play to your strengths

CSR is very strategic in terms of which markets they target and how they penetrate them. They only choose markets where their corporate strengths – product innovation, organizational agility and delivering tailored solutions – can deliver a winning value proposition.

Furthermore, CSR minimizes risk by deeply understanding their target market including cultural norms, regulations and customer buying behavior. Finally, CSR strives to eliminate the client’s impression they are dealing with a foreign supplier. For example, in the U.S. the company uses American consultants for business development and account management. Marketing is tailored to reflect regional needs. And CSR’s logistics strategy is designed to virtually eliminate any border issues.

Steve Blanchet, CSR’s president and chief executive officer, says he tries to make its global trade seamless for the company and its customers.

“We continually review and understand the changing market conditions and regulations in our export markets,” Blanchet says.

There is no silver bullet strategy to winning in foreign markets. Instead, success is about keeping an eye on the fundamentals: being bold, doing your homework, demonstrating agility and focusing on continuous improvement from a cost and product perspective.

Mitchell Osak is the Managing Director, Strategic Advisory Services at Grant Thornton LLP, a leading Canadian advisory, tax and assurance firm. He can be reached at Mitchell.osak@ca.gt.com and on Twitter @MitchellOsak

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Preempting strategic decline

For the last five years, companies have been struggling to cope with stagnant growth, shrinking margins and reduced product differentiation. The next five may be downright dangerous, especially given today’s powerful headwinds. For some organizations like Volvo, Canada Post, Barnes & Noble and Olympus, their very reason for being is increasingly in doubt. To prosper, all companies need to soberly assess whether its time for a strategic reset — before it’s too late.

A strategic reset is a deliberate (but not rash) pivot away from a stagnant market towards new growth market(s), often driven with a revitalized business model and management practices. Resets are often needed for mature brands, divisions and even entire companies. Many firms like IBM, Cisco, Apple and Xerox have adroitly managed these pivots while others like Blackberry, The Wall Street Journal, and Live Nation are currently struggling to pull them off.

Symptoms of decline usually include deteriorating financial returns, limited pricing and channel power and high levels of customer dissatisfaction. According to our experience and research, firms should start worrying if they find themselves facing:

Falling market attractiveness: The size of the market by revenue and volume is flat or declining. At the same time, your costs continue to grow leading to shrinking margins.

Minimal brand differentiation: Customers perceive little, meaningful difference between products and tend to switch often.

Looming external threats: Large markets are appealing for disruptors when barriers to entry are falling and incumbents appear complacent.  New players (think Apple’s iTunes circa 2003) unencumbered by legacy assets or culture can exploit new technologies and channels to leapfrog incumbents and reorder markets to their advantage.

An underperforming business model: In many cases, your business model is not delivering a sustainable competitive advantage. For example, your patents have expired or have been bypassed; it is difficult to maintain cost competitiveness or deliver meaningful product innovation; and, finally, the way you create value has become obsolete due to industry developments like the emergence of open-source software.

The strategic danger is further magnified by the economic realities of the day such as globalized competition, increasing regulation and the rapid dissemination of new ideas. Declining internal performance combined with this dynamic environment can create a perilous situation where adverse changes in a firm’s competitive position can come quickly and out of the blue.

Yet, decline is not inevitable and management is not powerless. The saying “adversity brings opportunity” holds much truth. Many firms — even those on life support — will still retain key competencies and assets such as intellectual property, customer relationships, cash reserves, trusted brands and institutional knowledge that can be leveraged into other products and markets. Moreover, a fear of decline can be a powerful wake up call for organizational transformation.

To strategically reset their business, we recommend CEOs follow these six steps:

Acknowledge the strategic challenge: All executives need the facts and courage to face reality, as well as the alignment and perseverance of the organization to move forward.

Know your core competencies: Pivots are easier and faster to execute when you leverage your core capabilities. It is vital to understand what these are in terms of skills, assets and market relationships.

Find a winning value proposition for an appealing market: Recognizing your future is not an easy process and should be undertaken as an iterative strategic and innovation process, not a static exercise. Not surprisingly, successful pivots will target your existing customers in existing or new segments.  You will need to deeply understand their current and unmet needs to fashion a powerful, new value proposition.

Redesign your model: Winning in your target market will often require a re-tuned business model to profitably deliver your new value proposition. To move forward smoothly, it may be necessary to cast aside traditional management practices such as how you determine ROI, organize your staff and measure results.

Move boldly but prudently: A reset involves a balancing act between safeguarding current revenue and investing and re-organizing around a new business. Furthermore, it will not always be clear where the next home run will be. Savvy managers will test a lot of promising innovations before making any big bets. Given the risks and urgency, firms will need to foster world-class execution efforts.

Nothing breeds complacency like success. The CEO and board cannot let this happen. It is better to manage your destiny than wait for events to overtake you. A strategic reset, however, will take guts and guile. Most managers will find it easier to ignore realities and resist change than to embrace it. A healthy first step is to recognize that renewal is about building a bridge to the future without burning the bridges from the past.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

 

Create categories and profits

Many CEOs grapple with a fundamental problem:  how do you profitably build revenues in low growth, hyper-competitive markets?  Grabbing business from a competitor is a difficult and expensive proposition.  Raising your prices — unless delicately handled — can be risky.  Driving incremental product innovation is a common strategy but one with low odds of success when the value-add is minor and the product remains comparatively undifferentiated.  There is a better approach to reigniting growth:  create your own category.

Pursuing incremental innovation is a tough road to travel.  Various estimates put the success rate of each new product or upgrade at only 10%-20%, resulting in wasted investment, unhappy customers and damaged careers.  However, there is a superior alternative for exploiting innovation.  It is called Category Making (CM).  This proven innovation approach combines cutting-edge product and business model innovation to create an entirely new offering, which by itself establishes a new category. There have been many successful examples of CM including ultra-low-cost, portable ultrasound machines for the Chinese market (GE), Minivans (Chrysler), Xbox Live Gaming system (Microsoft), Greek-style yogurt (Chobani) and iTunes/iPad (Apple).

According to research published in the Harvard Business Review, category makers generate much higher financial returns than incremental innovators.  Specifically, 13 ofFortune’s 100 fastest-growing U.S. companies between 2009 and 2011 were considered category creators.  They alone accounted for 53% of incremental revenue growth and 74% of incremental market capitalization growth of the top 100 over those three years.

Category creators do many things right to produce their industry-leading returns.  First and foremost, they appeal to consumers by:

  • Providing a unique offering that delivers compelling packaging, convenience, functionality or experiential benefits.  Xbox, for example, enables friends to play each other over the Internet.
  • Creating a new pricing model that is attractive to consumers.  For example, iTunes allows consumers to buy only what they want (i.e. individual songs) at a low price.
  • Re-engineering how a product is delivered and distributed.  Consider how Netflix revolutionizes the delivery of movies by leveraging internet-based, home delivery.

Secrets of their success

As a go-to-market strategy, pursuing CM innovation makes a lot of sense for companies:

Less competition

Most incremental innovations launch into existing categories — and right into the teeth of competition.  Category makers seek to outflank competition by introducing a new product into new market space.  This enables the innovator to secure ‘first mover advantage,’ thereby rapidly attracting customers while establishing barriers of entry around distribution, brand image and business partnerships.

Differentiated value

Incremental innovation often comes up short because it does not add enough extra value (or incentives) for consumers who are typically reluctant or unwilling to change behaviour.  On the other hand, category makers rely on a novel customer offering and value proposition. These products can more easily get the market’s attention and deliver compelling benefits previously unavailable.

Better use of scare capital & time

Often, the scope of innovation is dialed back in order to minimize capital outlays, limit market risk or because of managers’ risk aversion.   This  “penny wise and pound foolish” approach can hamper the initiative, reducing its chances of success. Category makers see risk but cope with it differently.  They focus on fewer but bigger ideas, and make sure they are properly supported by the organization’s culture and systems.  Raising the internal stakes ensures adequate investment, diligence and management attention.

Making it work

Becoming a CM requires firms to alter their visions, change the way they view risk, and allocate sufficient resources and capital.   Not surprisingly, they will look at innovation in a comprehensive fashion.  For example, category creators:

  1. Use financial, distributional or technological constraints as a catalyst for breakthrough thinking (GE)
  2. Investigate offerings that exist at the intersection of different but complementary technologies and business models  (Apple’s iPad).
  3. Look beyond existing consumer requirements to explore unmet or emerging needs, future trends and adjacent segments (Chobani, Chrysler, P&G).
  4. Seek out the best delivery and distribution model, either by building in-house, purchasing another company or partnering with a complementary firm.  It is not uncommon for organizations to leverage all three (Microsoft)
  5. Think creatively around how they generate profitable revenues without alienating consumers (Apple iTunes)

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Revenue strategies for a zero growth world

A ‘new normal’ is hindering the revenue generation plans of many North American firms. This climate is characterized by zero (or negative) market growth, margin compression, and cutthroat global competition. Historically, price increases would be a manager’s number one weapon to drive incremental revenue. In this environment, however, it is extremely difficult to do this and still maintain market share. Moreover, most attempts to drive revenues through new product innovation end up failing. And, most markets continue to experience downward price pressure due to product commoditization and a growing private label segment.

To crack their revenue problem, managers should look to other industries for lessons on what works, as follows:

Go where the profit is

Many companies are discovering that higher margins and profits may lie, not in their delivered product or service, but in ancillary services that consumers need and competitors ignore. For example, Apple quickly figured out that its iTunes music service was easily as profitable, scalable and “sticky” with consumers – to the tune of $1.5B in revenues – as selling MP3 players and computers. Rolls-Royce, a leading jet engine manufacturer, discovered that servicing its engines and providing spare parts delivered higher margins and more predictable revenues than engine sales alone. Services now account for over 50% of Rolls-Royce’s revenues.

Super size your solutions

Managers understand that providing products and services deliver higher revenues than products alone. However, what is different today is the nature of these newfangled solutions. Industries as diverse as professional services, transportation, publishing and retail are creating novel solution bundles that take their businesses in new directions. For example, IBM, UPS and Amazon are leveraging their considerable IT and supply chain capabilities to offer client’s innovative performance enhancement solutions that include services like data analytics, consulting, cloud computing services and logistics management. For providers, these new solutions can improve operating leverage, deliver recurring revenue and increase client stickiness. At the same time, these new solutions are subtly redefining the provider’s mission and business model turning them away from a product-focus to an information and IT-driven businesses.

Monetize your latent assets

Content-based firms are beginning to mine the dormant value of their assets, brands and capabilities. Specifically, media companies are evolving from content producers to content custodians and facilitators. For example, leading publications like Bloomberg and The Economist have begun charging higher fees for their subscriptions and have enacted online pay walls. Importantly, they are also exploiting their extensive content and analytics capabilities to deliver research and knowledge leadership services.

Consider new pricing models

Pricing innovation can be cross-pollinated across many sectors. A variable pricing model – where the price changes in real-time based on demand, time or other factors – already proven in the airline industry can be applied to the hospitality, retail, software and entertainment industries. For the past decade, the big aircraft engine companies, including RR, has been providing engines at no charge but billed on a pay-per-time basis (plus support, of course). More than 80% of RR’s engines are now sold this way. New micro payment models like Zipcar (subscription-based and hourly car rentals from staggered locations) and iTunes (purchase 99 cents songs versus more expensive albums) allow consumers to purchase things in small increments from multiple parties, based on their unique needs. Very often, this model spurs product demand, delivers higher margins and increases revenue per use.

Pricing innovation can significantly impact a company’s business model. For a gaming firm like Microsoft, a change could involve the shift from a single X-box game launch every 1-2 years to a 365-day business, with packaged good launches sustained by frequent updates, downloadable content and extensions into social and mobile platforms.

Raise your prices

Contrary to conventional wisdom, it is possible (and essential with rapidly increasing input costs) to raise prices in low growth environments. However, managers need to be smart about how and where they do it. Opportunities to increase prices often exist in sleepy or price inelastic product categories where the firm faces weak or non-existent competition and channel partners, where their pricing is not aligned (i.e. it is too low) with value delivered or where the switching costs of leaving one supplier for another are high.

Organic revenue growth is very possible if leaders are willing to rethink their business model, better understand their customer’s needs & habits, and refine their product and service offering. All that is needed is curiosity, an analytical approach and courage.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Using IT to drive Insurer growth

Despite an improving economic climate, Canadian insurers continue to face considerable challenges including growing price competition, rising distribution & delivery costs and increasing competition from banks.  At the same time, consumers – particularly younger, more educated and more affluent ones – are rapidly turning to online tools to purchase and service products.

Emerging technologies offer Insurers the potential to increase market penetration, grow share of wallet and reduce sales, marketing and support costs.  However, Canadian firms are appreciably behind when it comes to using IT to drive revenues and bolster customer service.  There are understandable reasons for this conservatism.  As an industry built on trust developed through personal connections, Insurers are hesitant to adopt arm’s-length ways of developing relationships.  Moreover, with up to 20% of its operating budget spent on technology and its supporting services, Insurers tend to frame IT as an expensive cost center prone to high-priced cost overruns not as a strategic business driver.

Yet, many global insurances companies are using new web and mobile technologies to drive revenues and outflank competition.  In particular, four areas offer rich rewards for those company’s that can truly understand their customer’s needs, make IT a strategic imperative and execute with excellence.

1.  Establish new sales channels

New wireless platforms like the iPhone, iPad and BlackBerry enable Insurers to reach customers more effectively and efficiently.  In one case, South African Metropolitan Life is piloting a new short-term life insurance product, Cover2Go, which allows new customers to purchase a contract by simply by sending an SMS.

2.  Leverage Social Networking

Popular sites such as Facebook and LinkedIn offer tremendous potential to build brand communities, enhance the customer experience and engage a national workforce. In one example, State Farm is using Facebook as a national training platform.  Approximately 17,000 agents have mobilized into groups of “friends” to discuss new products and exchange best practices around customer service and claims processing.

Some Insurers have invited customers into their product development process. Allstate has set up social-network forums to facilitate interactions among motorcycle customers and enthusiasts. The forums solicit customer feedback and use it to inspire new products and services.

3.  Develop custom products

Forward-thinking insurance firms are using powerful data analytics capabilities to identify unexploited customer segments and then target them with tailored, “mass customized” products.  One large Insurer I know is combining sophisticated “rules-based” algorithms with high performance computing to enable product designers to adapt policies both to customers’ preferences and to specific market regulations.

In another case, some auto insurers are using IT to develop dynamic coverage models based on driving patterns and behavior. One leading carrier in the United States, for example, uses GPS technology to monitor drivers and then apply discounts to policies as a reward for safe driving.

4.  Streamline customer service

Even with extensive IT, insurance remains a labour intensive and complex business.  However, a growing number of firms are using off-the-shelf technology to streamline customer service. For example, AXA and Zurich Insurance have location-based iPhone applications that enable customers to use their phones to record damaged areas and then to send the accident photos to reporting centers to expedite claims handling.

In the future…

Social networking has the potential to reorder the traditional Insurance business model. With its ability to mobilize people quickly, sites like Facebook could quickly spawn large affinity groups which can negotiate preferential insurance rates much like Groupon has been offering since 2008.

To use IT as a growth driver, executives need to look beyond their industry in order to identify promising business opportunities that are enabled by new technologies and business models.

For more information on our services and work please visit the Quanta Consulting Inc. web site.