March 20, 2018
As promised; I continue with the second article on Billion Dollar Dilemmas of global CPG companies. Last one was about how to get out of quarterly TSR (Total Shareholder return) juggling and go after a long-term shareholder return strategy, a balanced activity system and resource allocation to make it happen. This article is about how to structure a winning organization around another dilemma.
Global vs. Local –
Have you ever thought how and why some people with military background make great business people? or why there is so many words in marketing nomenclature (i.e. Target, Deploy, Campaign, Flanker etc.) inspired of warfare? or why a book called “Art of War” written by Sun Tzu (Chinese Military Strategist from 5th Century BC) is sold next to business books not in history section?
I am sure one of the big reasons is the operational discipline and resilience soldiers got indoctrinated during their training and service which is also of great importance in business success. But more importantly, warfare strategies and tactics they excelled to beat the enemy usually works to win vs. competition in business life. Concepts like analyzing the market landscape and analyzing the battle ground, knowing your own and your enemy’s/competition’s strengths and weaknesses, designing charges/initiatives targetting rival’s weaknesses and capitalizing on your strengths are not much different than eachother in war and business.
One of the big learnings of the warfare history again and again is how difficult (if not impossible) and expensive for big organized armies to win a guerilla war i.e. US Army vs. Viet Cong, Colombian army vs. Farc Guerillas etc. This is the reason why US is so reluctant recently in putting boots on the ground and prefers to train and arm local proxies via special forces to fight the guerilla wars they used to take head-on.
Unfortunately, like many other warfare concepts, the same applies for big organized companies against smaller local rivals or start-ups.
Looking at the strengths of local companies and start-ups; they are better placed to know the local landscape and consumer insights, they have local product development, marketing, production and supply chains to turn them into consumer/customer propositions faster. They have lower cost structures and usually lower margin targets. They provide higher trade margins. They have higher appetite to take risks. They are more agile in decision making as they are mostly run by a single founder, friends or families.
Looking at the big global players all above comes as weaknesses at local level for all good reasons of the winning global model. With centralized (global or regional) organizations (management, R&D, marketing, product supply, finance) it is safer and cost effective (esp. Tax wise) to roll-out product lines with blue print -globally standardized- best practices to more white space market category combinations. You need an organization with more empowered brains (generals) centrally to innovate, design and make decisions and more of muscles (infantry) locally to execute with narrowly defined boundaries. This includes not only local in-house people but also the 3rd party vendors used in the market as the extension of other global organizations you work with (ie. global advertising agencies). Unfortunately the global model would reach its limits when 1) there is not enough white space left for existing categories/brands/variants 2) there is not much of disruptive global innovations that are not easy to be replicated by small players 3) market entry barriers lowered with the help of new technologies enabling disrupting business models, cheaper production, and advertising, more venture capital financing and e-commerce / DTC (direct to consumer) distribution enabling local companies and start-ups to flourish 4) ultimately there is a more sophisticated local consumer who is more connected, aware of more choices, with different and/or higher expectations from the products and companies provide them.
If the first 2 conditions do not materialize for any global company (which we will cover the reasons and solutions in another article); then it is time to become more local and learn to fight accordingly. This does not necessarily mean to abolish total global organizations and go to a complete local one. It is about being aware of your strengths and weaknesses in a local fight and enabling your local organizations to be able to fight a guerilla war when and where needed.
What would be strengths of big global companies vs. smaller rivals? They would have bigger pockets to invest into R&D, to pay more and hire the best talent, they would play in more categories and brands creating economies of scale if used properly, they would have vast amount of knowledge and experience from all around the world to share and re-apply elsewhere. How can they can leverage these strengths at local level ?
Obviously, they need to be able to turn the ground troops listed from the finest into special forces armed with the best close combat weaponry. They become the experts of the territory with higher authority to make decisions and execute them on their own and/or use local militia where and when needed.
If you are disrupted by local product offerings where your global ones are not winning anymore in a given market, you may need more local market intelligence to create local insights, local marketing experts and local production capabilities to turn them into winning products and communication fast enough. You may need to work with reliable local 3rd party vendors (i.e. contract manufacturing, advertising, specialty distributors) to help turn the insights into winning products faster and with lower cost. This is especially more critical in emerging markets where the spending per capita on consumer goods is still well below vs. developed markets and affordability is lower for globally designed (imported) products.
If you are challenged commercially then you may need a more empowered commercial organization and/or a full-service distributor on ground who is able to assess the situation, decide the course of action and being able to respond to it with the needed speed where it matters allot in guerilla warfare. This would require a more flexible market management which is more about tracking total company P&L targets vs. controlling each brand as a company and each cost bucket in silos. This will enable the local commercial management to leverage the company scale at local level better and channel their scale against where it matters more to win as a total company.
Your global/centralized organizations can still be utilized as capability builders for those markets in R&D, local manufacturing, design, brand equity, enabling financial/tax models, global technology hunting, share and re-apply for faster learning and roll-out.
Last but not least; more empowerment should come with more accountability, financial and career recognition for the ones delivering results. There will be less room for excuses, finger pointing and office politics. There will be more meaningful work, and satisfaction. This will make the local organizations be able to attract and retain better local talent which is not only crucial for succession in local ranks but also for global business units to come with more relevant market experience.
ps. I hope my war analogies will not create any hard feelings with the readers as we have so many war thorn places around the world. I am not pro-war at all and wish with all my heart all the technology and innovation were only used to make our lifes better not to make wars.
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