Profitability risks after the acquisition of informal players

McKinsey has a nice example from Brazil, but not only – Russia also has similar examples – where formal supermarkets have found that they can’t profitably acquire informal players, because of the unearned cost advantage. Although supermarkets could increase the productivity of the acquired businesses, their net margin goes to zero once tax obligations are paid:

They also show that in Turkey dairy processors enjoy informality-related cost savings of almost 20%, so these companies survive despite their low pro-ductivity. Informal software companies in India appropriate innovations and copyrights without paying for them. If software piracy rates fell to US levels, the industry’s productivity and profitability would soar by nearly 90%.

Restructuring checklist #3

Retaining key talent

• Can you identify your key talent today?
• Are you prepared to put a retention payment system in place to ensure that key talent does not leave your organisation?
• What will be the effect of such a programme on employees who are not covered by it? Are you ready to manage the consequences?

Reward effectiveness

• Is this the time to review remuneration structures and to consider increasing the variable and/or deferred element?
• Have salary sacrifice cost reduction opportunities been fully explored?
• Can you use this opportunity to maximise the financial efficiency of current and future incentive arrangements?

Flexible working

• Should you review flexible working policies to drive down cost and extend the concept for specific areas of the business?
• Would it be appropriate to open up part-time working opportunities to employees who might not qualify under the existing policy arrangements?
• Is this the time to introduce policies for unpaid leave, career breaks and sabbaticals?

HR effectiveness

• Do you need to review effectiveness of your HR function, its restructuring capabilities and future role?
• Do your HR business partners have a clear understanding of the commercial realities facing your business?

You may also want to read:
- 10 guiding questions to help restructuring initiatives
- Restructuring checklist #1
- Restructuring checklist #2

Restructuring checklist #2

Managing your employment brand

• Have you thought about how best to minimise the negative impact of restructuring on your employment brand values?
• Do you need to reinvigorate your employment brand initiatives for future talent acquisition?
• Do managers know what you are expecting of them when it comes to maintaining the equity of your employment brand?

Communication

• Do all your stakeholders (shareholders, employees, suppliers, community) know what your vision is for the organisation going forward?
• Is the message clear and supportive to your business plans?
• Have you considered the customer perception of your restructuring actions?

Consultation steps

• Have you considered what your employee relations strategy needs to be during a restructuring phase?
• Have you built in the time necessary for consultation in all the markets in which your business operates?
• Do you need the approval of any employment inspectorates before you implement your restructuring proposals?

Hiring freezes

• Are you prepared to stop external hiring to ensure that future employment opportunities are available to your existing employees first?
• Are you required to stop hiring in some markets where you are implementing compulsory redundancies?
• Are you going to police the consistent application of any hiring freeze you announce?

You may also want to read:
- 10 guiding questions to help restructuring initiatives
- Restructuring checklist #1
- Restructuring checklist #3

Restructuring checklist #1

Business drivers

• Which parts of the business are growing? Which are shrinking? How do you respond to both?
• Does your business evolution require new capabilities? If so, do you have a strategy for putting these capabilities in place?
• What is the acceptable pay-back time for any restructuring programme in your business?

Organisational redesign

• What should your future organisation look like in its customer-facing activities?
• Should you explore alternative channels of distribution to optimise customer reach?
• Is there scope to rethink your support structures? Are they providing you with the mix of cost efficiency, speed and customer orientation that your business requires? Have you benchmarked these features against your competitors?
• Is there an opportunity to rethink your operating principles to reduce costs through virtual teamwork, outsourcing and/or centres of excellence?

Cross-jurisdictional consistency

• Is your business operating in multiple jurisdictions? If so, have you thought through the differing legal requirements which restructuring activities prompt in these locations?
• Do you have an overarching commitment to consistent treatment of employees?
• Have you consulted appropriately at international level as well as at local levels?

Maintaining engagement

• How do you plan to maintain engagement levels in your business? Have you considered the retention challenges that may be prompted by restructuring?
• Are the challenges and associated time-frames you are setting out for your business attainable?
Do you have clear measures in place to ensure that you can respond swiftly to downturns in engagement levels within your business?

You may also want to read:
- 10 guiding questions to help restructuring initiatives
- Restructuring checklist #2
- Restructuring checklist #3

10 guiding questions to help restructuring initiatives

Image via Wikipedia

Turbulent economic times are making many organisations consider restructuring. Theoretically, a company that has been restructured effectively will be more efficient, better organised, and better focused on its core business. However, in practice, many restructuring initiatives fail as a result of overlooking “insignificant” issues or taking an unrealistic approach of the reality of restructuring across multiple countries and markets.

Here are some key points you should consider before and during a restructuring initiative that may help you thrive in challenging times:

Adding value to your company

1) What are the business drivers behind your restructuring requirements?
2) What should your redesigned organisation look like?
3) Are you obtaining function efficiency and true value for money for your spend?

Engaging effectively with your employees

4) Is your approach to your restructuring consistent with your declared values?
5) Have you got effective communications plans in place?
6) Are you engaging with employee representatives in an appropriate manner in each of your markets?

Balancing your short and longterm risks

7) How do you manage your employment brand in such challenging times?
8) Is there a risk of any proposed measures damaging your future business strategy?
9) How do you retain key talent now and in years to come?
10) How do you continue the development of tomorrow’s people whilst restructuring?

You may also want to read:
- Restructuring checklist #1
- Restructuring checklist #2
- Restructuring checklist #3

Ten tech-enabled business trends to watch

Image by inju via Flickr

Two-and-a-half years ago, McKinsey described eight technology-enabled business trends that were profoundly reshaping strategy across a wide swath of industries. Since then, the technology landscape has continued to evolve rapidly. The dizzying pace of change has affected those original eight trends, which have continued to spread (though often at a more rapid pace than anticipated), morph in unexpected ways, and grew in number to ten:

1. Distributed cocreation moves into the mainstream

By McKinsey’s estimates, when customer communities handle an issue, the per-contact cost can be as low as 10 percent of the cost to resolve the issue through traditional call centers. Other companies are extending their reach by using the Web for word-of-mouth marketing. However, since cocreation is a two-way process, companies must also provide feedback to stimulate continuing participation and commitment.

2. Making the network the organization

The recession underscored the value of such flexibility in managing volatility. McKinsey believes that the more porous, networked organizations of the future will need to organize work around critical tasks rather than molding it to constraints imposed by corporate structures.

3. Collaboration at scale

Across many economies, the number of people who undertake knowledge work has grown much more quickly than the number of production or transactions workers. While the body of knowledge around the best use of such technologies is still developing, a number of companies have conducted experiments, as one may see in the rapid growth rates of video and Web conferencing, expected to top 20 percent annually during the next few years.

4. The growing ‘Internet of Things’

Assets themselves became elements of an information system, with the ability to capture, compute, communicate, and collaborate around information – something that has come to be known as the “Internet of Things.” Embedded with sensors, actuators, and communications capabilities, such objects will soon be able to absorb and transmit information on a massive scale and, in some cases, to adapt and react to changes in the environment automatically. These “smart” assets can make processes more efficient, give products new capabilities, and spark novel business models.

5. Experimentation and big data

McKinsey affirms that some companies haven’t even mastered the technologies needed to capture and analyze the valuable information they can access. More commonly, they don’t have the right talent and processes to design experiments and extract business value from big data, which require changes in the way many executives now make decisions: trusting instincts and experience over experimentation and rigorous analysis. To get managers at all echelons to accept the value of experimentation, senior leaders must buy into a “test and learn” mind-set and then serve as role models for their teams.

6. Wiring for a sustainable world

Companies are now taking the first steps to reduce the environmental impact of their IT. Information technology is both a significant source of environmental emissions and a key enabler of many strategies to mitigate environmental damage.

7. Imagining anything as a service

In the IT industry, the growth of “cloud computing” (accessing computer resources provided through networks rather than running software or storing data on a local computer) exemplifies this shift. Consumer acceptance of Web-based cloud services for everything from e-mail to video is of course becoming universal, and companies are following suit.

8. The age of the multisided business model

Thr advertising-supported model has proliferated on the Internet, underwriting Web content sites, as well as services such as search and e-mail. It is now spreading to new markets, such as enterprise software: Spiceworks offers IT-management applications to 950,000 users at no cost, while it collects advertising from B2B companies that want access to IT professionals.

9. Innovating from the bottom of the pyramid

Hundreds of companies are now appearing on the global scene from emerging markets. For most global incumbents, these represent a new type of competitor: they are not only challenging the dominant players’ growth plans in developing markets but also exporting their extreme models to developed ones. To respond, global players must plug into the local networks of entrepreneurs, fast-growing businesses, suppliers, investors, and influencers spawning such disruptions.

10. Producing public good on the grid

Technology can also improve the delivery and effectiveness of many public services. At the UK Web site FixMyStreet.com, for example, citizens report, view, and discuss local problems, such as graffiti and the illegal dumping of waste, and interact with local officials who provide updates on actions to solve them.

For detailed analysis see McKisey Quarterly

Why do most companies fail on cutting costs?

Companies are cutting costs all over the world but only a few say their cost-cutting programs were successful over a three years period.

Why did they fail? You may find some answers in the article bellow (Romanian only):

Online: www.zf.ro

The world in 2020: 79% of CEOs said they would be changing their strategies for managing talent as a result of the downturn

Image by Ian Sane via Flickr

A recent PwC report – Talent Mobility 2020 shows that in the next 10 years companies will have a greater need to deploy their talent around the world, and as a consequence, international assignment levels and overall mobility will increase significantly. Having access to the best talent continues to be a challenge for CEOs and business leaders – with 97% of CEOs in PwC’s annual global CEO survey saying that having the right talent is the most critical factor for their business growth. In addition, 79% of CEOs said they would be changing their strategies for managing talent as a result of the downturn – and 55% said they would look to change their approach to global mobility including international secondments. In the wake of a foreseeable upturn, the winners and losers of the next decade will be defined by those who are able to attract, retain, and deploy their key talent globally. The sentiments outlined above are well aligned with PwC’s key findings:

• Assignee levels have increased by 25% over the last decade; PwC predicts a further 50% growth in assignments by 2020. There will be more assignees, more business travel, more virtual tools, and especially more quick, short-term, and commuter assignments.

• The growing importance of emerging markets will create a significant shift in mobility patterns, as skilled employees from emerging markets increasingly operate across their home continent and beyond, creating greater diversity in the global talent pool.

• Mobility strategies will need to become more sophisticated and complex as organizations meet growing deployment demands, while simultaneously managing the very different needs and expectations of three generations of workers.

• Governments and regulators will accept the economic benefits of talent mobility to stimulate economic growth. This acceptance will lead to greater collaboration between governments and businesses, and within the business community, to remove some of the barriers to mobility around the world.

• The millennial generation will view overseas assignments as a rite of passage, an outlook that will change the way workers and organizations approach overseas opportunities in the future.

• Organizations will adopt “destination pay and local plus” remuneration methodologies as compensation levels across some skill sets and industries will begin to harmonise across the globe.

• Technology will play a key role in global working arrangements and help to support compliance obligations; however technology will not erode the need to have people deployed “on the ground”.

The nature of overseas assignments has changed significantly since the 1970s. Businesses, like the population, seam to continue adjusting their operations, nature and geographic location of the workforce, as well as their fundamental structure and roles.

How an organisation responds to these rapid changes will be critical. Business and mobilisation strategies will need to progress quickly to keep ahead of both changes in the organisation’s geographic landscape, and the further increases in assignee numbers that will result. The winners of 2020 will be those companies that adjust their strategies now.

For details see PwC’s report

Aristotle and economy

Almost 90% of worldwide executives made cost cuts during 2009, a percentage that is not surprising at all considering the economic downturn. However, according to PwC’s “2010 Global CEOs Survey”, almost 80% of executives realised that they need long term results, not just short term liquidity.

What does this have to do with Aristotle? You may find the answer in the article bellow published in the last issue of “Capital” (Romanian only):

Online: Capital.ro

60% of executives say R&D will be top priority this year

Image by Nestlé via Flickr

Research and development has risen sharply on the corporate agenda in the wake of the global economic crisis, a McKinsey survey finds. Four in ten respondents report that both R&D budgets and activity levels are up this year relative to 2009. What’s more, executives are remarkably optimistic that the R&D moves their companies made during the downturn will serve them well in the coming three to five years.

Moreover, nearly 60% of executives say R&D will be either the top priority or among the top three priorities this year – significantly higher than the 47% of executives who said the same last year. Despite the increased levels of spending and activity, companies are taking a wait-and-see approach to R&D hiring. Relatively few respondents say their companies are hiring or firing; the most common approach is a focus on retention.

Executives recognize that delaying, reducing, and eliminating R&D projects can limit long term competitiveness. Still, 42% of respondents say their organizations cut R&D costs in 2009, perhaps reflecting the lengths to which some companies needed to go in order to survive the recent economic turmoil. Further, when compared to the moves companies had made in spring 2009 (when McKinsey’s first R&D survey was conducted) with the moves they made by year’s end, it becomes clear that for many R&D organizations, conditions worsened steadily. Far more companies eliminated projects, delayed spending, and instituted hiring freezes as the year progressed.

These actions may well haunt some companies for years to come. A significant share of executives whose companies cut costs expect that these moves will have adverse effects in the coming three to five years. The problems respondents are most likely to expect include reduced market share, a loss of technological ground to competitors, a weaker R&D talent pool, a loss of institutional knowledge, and damage to morale.

Meanwhile, a significant number of companies appear to have used the downturn as an opportunity to add a measure of discipline to their R&D organizations, infrastructure, or processes. Among the most frequent changes in 2009 were increased accountability for performance and spending, increased collaboration with outside R&D groups, increased use of global R&D resources, and the streamlining of core R&D processes. All these moves should help companies innovate more effectively over the long term.

Moreover, high performers in the survey appear more attuned to the “softer” aspects of R&D than other companies are. Executives at high-performing companies, for instance, are significantly more likely to say their organizations are focusing on retention of key employees (40% versus 29%). And while the majority of high-performing companies didn’t cut R&D costs in 2009 — 63% of high performers didn’t, versus 56% of the others — those that did are far more likely than other companies to fear weaker R&D talent pools, a loss of institutional knowledge, and damage to company morale. Finally, high-performing companies appear to be markedly more proactive than the others in two operational areas that represent significant long-term investments: the streamlining of core R&D processes and the expansion of R&D infrastructure.

You may find more details at:
https://www.mckinseyquarterly.com