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):
Following a year of decline in 2009, the global E&M market, as a whole, is forecasted to grow by 5% compounded annually for the entire period to 2014 reaching US$1.7 trillion, up from US$1.3 trillion in 2009. Fastest growing region throughout the forecast period is Latin America growing at 8.8% compound annual rate (CAR) during the next 5 years to US$77 billion in 2014. Asia Pacific is next at 6.4% CAR through to 2014 to US$475 billion. Europe, Middle East and Africa (EMEA) follows at 4.6% to US$581 billion in 2014. The largest, but slowest growing market is North America growing at 3.9% CAR taking it from US$460 billion in 2009 to US$558 billion in 2014.
Consumers seam to embrace new media experiences with staggering speed. The advancing digital transformation is driving audience fragmentation to a level not previously seen. However, the current wave of change is of a different magnitude from previous ones both in its speed and its simultaneous impact across all segments.
Although there is consistency in the inevitable migration to digital, the ways in which this presents itself and the pace of change continues to vary by market. Regional and country variations in current market size and future growth reflect local factors around infrastructure, access availability and consumer behaviour. For example the mobile internet explosion has already happened in Japan, accounting for some 53% of global spending on mobile Internet access in 2009 while other markets are still at the bottom of their growth curve.
Advertising on the rebound
Advertising revenues have been particularly hit by the turbulent markets and while there are signs of a rebound, this is still fragile in nature. Spend is unlikely to return to former levels. By 2014, the US advertising spend is expected to still be 9% below its level in 2006. Overall, global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Internet advertising will join television in 2014 as the only media with spending in excess of US$100 billion.
The projections reflect the fragmentation of the market and behavioural changes of consumers. The advertising industry is responding to consumers’ shifting attention and has embarked upon a long-term journey towards total marketing or total brand communication. Brands are changing their focus from advertising on a medium, to marketing through, and with, content.
Conversing with consumers
Consumer feedback and usage provides the only reliable guide to the commercial viability of products and services, and the global consumer base is being used as a test-bed for new offerings and consumption modes. However, as responses are still evolving it is up to the industry to anticipate and identify where they are heading and pre-empt the needs and wants of consumers. PwC believes that three themes will emerge from changing consumer behaviour:
The rising power of mobility and devices: Advances in technology and products will see increasingly converged, multi-functional and interoperable mobile devices come of age as a consumption platform by the end of 2011. Consumers are increasingly demanding “ubiquity”, with content flowing across different devices to support ever-greater interactivity and convenience. They are using mobile in new ways, and downloading ever-increasing numbers of mobile applications (“apps”) to support their lifestyles. The ability to consume and interact with content anywhere, anytime—and to share and discuss that content experience with other people via social networks—will become an increasingly integral part of people’s lives.
The growing dominance of the Internet experience over all content consumption: Using the Internet is now one of the great unifying experiences of the current era for consumers everywhere—and their expectation of Internet-style interactivity and access to content will continue to expand across media consumption in every segment. This trend is initially at its clearest in television. Equally, people are already consuming magazines and newspapers on Internet-enabled tablets, and streaming personalised music services such as Pandora in preference to buying physical CDs or even digital downloads.
Increasing engagement and readiness to pay for content—driven by improved consumption experiences and convenience: Ongoing fragmentation means that media offerings will need greater consumer engagement and quality to get themselves heard – and paid. Consumers are more willing to pay for content when accompanied by convenience and flexibility in usage, personalisation , and/or a differentiated experience that cannot be created elsewhere. Local relevance will also become important once again as an aspect of convenience and relevance.
Revolutionising the business
Digital migration and the changes in consumer behaviour have put extreme pressure on existing business models. It has caused the industry to radically rethink its approach to monetising content as it strives to capture new sources of revenue, be it from transactions or from participation with others operating in the evolving digital value chain.
Inevitably this results in individual companies searching for where to position themselves in the new digital world. Partnering with other organisations is becoming imperative in order to create viable commercial content offerings while sharing the costs and risks. Increasingly potential partners are being found from a diverse set of industries.
Whatever the partnership or collaboration PwC identifies seven critical factors for operating succesfully in the new value chain:
• Strategic flexibility
• Delivery of engagement and reationship with the customer through the consumption experience
• Economics of scale and scope
• Speed of decision-making and execution, with the appetite to experiment and fail
• Agility in talent management
• Ability to monetise brand/rights across platforms
• Strong capabilities in partnership structuring and M&A targeting and integration
2010 – 2014 Media Outlook in numbers
• There were 12 countries in 2009 with E&M spending above US$20 billion, led by the United States at US$428 billion and Japan at US$164 billion. Of the leading countries, the People’s Republic of China (PRC) will be by far the fastest growing with a projected 12% compound annual increase, fuelled by a vibrant economy and large increases in broadband penetration that in turn propel other segments. Japan will be the slowest growing of the leading countries at 2.8% compounded annually.
• Internet access is a key driver of spending in most segments. Increased broadband penetration will boost wired access while growing smartphone penetration and wireless network upgrades will drive mobile access. Spending on wired and mobile Internet access will rise from US$228 billion in 2009 to US$351 billion in 2014.
• PwC expects a relatively flat market in aggregate global advertising and consumer/end-user spending in 2010, improved growth in 2011 and a return to mid-single-digit gains during 2014. Overall global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Overall consumer/end-user spending will rise from US$688 billion in 2009 to US$842 billion in 2014, a 4.1% compound annual increase.
• Globally, the video game market will grow from US$52.5 billion in 2009 to US$86.8 billion in 2014, growing at a compound growth rate of 10.6%. This will make it the second fastest-growing segment of E&M behind internet advertising wired and mobile, but will be the fastest-growing consumer/end user segment ahead of TV subscriptions and license fees.
• The global television subscription and license fee market will increase from $185.9 billion in 2009 to US$258.1 billion in 2014, a CAGR of 6.8%. This will outpace TV advertising, which will grow at a CAGR of 5.7%. The biggest component of this market is subscription spending and this will increase at 7.5% CAR to US$210.8 billion in 2014. Asia Pacific will be the fastest-growing region with a 10% compund annual increase rising to US$47.1 billion in 2014 from US$29.2 billion in 2009.
• Total global spending on consumer magazines fell by 10.6 percent in 2009. PwC projects an additional 2.7% decrease in 2010, a flat market in 2011, and modest growth during 2012–14. As a result, spending will total $74 billion in 2014, up 0.7 percent compounded annually from $71.5 billion in 2009.
• Electronic educational books will grow at a CAGR of 36.5% globally throughout the forecast period yet will still only account for less than 6% of global spend on educational books in 2014.
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.
Transform is the bi-annual magazine of PwC in Central and Eastern Europe (CEE). It covers the latest business trends in 25 markets across the region, from the Czech Republic to Kazakhstan. Each issue of the magazine goes out to 10,000 business leaders, financiers, politicians and opinion formers in CEE.
Within the last issue, PwC brings the regional CEOs of three leading companies – Siemens, Orange and the ROLF Group – together to debate this issue and asks Romanian business veteran Dinu Patriciu for his insight. Staying in Romania, PwC features an exclusive interview with Bogdan Dragoi, Secretary of State at Romania’s Ministry of Public Finance, on how the government is trying to get the economy there back on track.
Also, in the wake of the World Eonomic Forum’s annual leaders summit in Davos, Switzerland, in the New Year, PwC turned to four commentators with expertise in the region for their thoughts on what CEE’s business and political leaders should be tackling this year.
The McKinsey Quarterly surveyed 494 senior executives around the world in February and March 2009. Results show that research and development remains a strategic priority for executives, even in turbulent times: 40% of the respondents say their companies are actively seeking to reduce R&D costs – far fewer than are cutting operational costs overall (according to other McKinsey research). Some 34% of the executives report that R&D budgets are lower in 2009 than they were in 2008. Further, a large majority indicate that their companies are taking a new approach to R&D in the current economic circumstances; many are turning to shorter-term, lower-risk projects or focusing on minor changes to existing products.
While this tendency toward caution is understandable, other findings indicate that many companies may be overlooking longer-term opportunities to innovate. Notably, the companies that get the greatest benefit from innovation appear to be taking a different approach. The respondents from them not only indicate that, during the past 5 years, they have had high rates of organic growth as compared with competitors but also attribute more than 30% of that growth to new products developed in house. In the areas just described, these high performers are taking a very different approach – one that seems intended to fortify their existing competitive advantages.
Respondents at high-performing innovators are nearly twice as likely as the others to regard the current economic situation as an opportunity to upgrade R&D (24%, compared to 14%) and are more likely to say their companies are expanding some R&D activities (30% versus 21%). Indeed, they are more than twice as likely as other respondents to report that their companies’ R&D budgets are either “higher” or “much higher” this year than last (35% versus 17%). As for setting R&D goals, executives at these companies are more likely than others to say they are focused on creating new products to meet changing consumer needs and new products or services to take advantage of competitors’ weaknesses. Most notably, these companies are more than twice as likely as the others to seek projects that combine higher risks with higher returns.
R&D trends based on survey results:
Although the urge to reduce R&D costs is understandable, not all cuts are created equal. Top companies save money by optimizing and upgrading R&D processes and making them leaner – a path that improves the bottom line while raising productivity and speed to market.
A rigorous portfolio approach to managing R&D projects helps senior executives focus on strategically promising efforts while uncovering moribund projects that may otherwise go undermanaged – or even unnoticed.
Widespread layoffs and industry restructuring, though painful, offer opportunities too. An unprecedented pool of specialist engineering talent – for example, in the automotive industry – is available for companies looking to steal a march on competitors.
I received today McKinsey’s survey on „Measuring marketing”. The survey was in the field in January 2009 and generated responses from 587 C-level executives representing the full range of industries and regions.
It was not quite surprising to find out that many companies, as the survey shows, don’t use basic best practices such as clearly allocating (or even defining) marketing spending across the whole company or regularly reviewing the results. Further, companies typically allocate their marketing budgets based on historical allocation levels and product-level priorities, rather than campaign effectiveness or the goals of the company as a whole.
The survey results begin to quantify another bit of common wisdom: consumer-focused companies are stronger marketers. Indeed, the results show that these types of companies are much likelier to use most of the best practices. Further, though reaction to the economic downturn is varied, consumer-focused companies are more likely than others to be planning to increase their marketing spending. Regardless of where they focus, companies that use best practices (such as ensuring that marketing spending is clearly allocated and well understood across the whole company) are also likelier than others to have plans to increase their spending.
According to McKinsey, nearly three-quarters of all companies are cutting operating costs in response to the global economic turmoil. However, the survey shows that marketing isn’t as hard hit: only 45% of companies said that they will decrease their marketing spending in the next 12 months, while 20% expect an increase. Executives at consumer-focused companies are far more likely to say their companies will increase their spending than executives at companies focused on selling to other businesses.
Among the companies that plan to decrease their marketing spending, 40% are making across-the-board cuts. Comparing all responses with those at companies where marketing spending is clearly allocated and understood across the company highlights that companies in the latter group make cuts that are more targeted, and, almost certainly, more effective.