Competing for growth
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Competing for growth



How business is growing

How business is growing
beyond boundaries



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Competing for growth Competing for growth Document Transcript

  • Competingfor growthHow business is growingbeyond boundaries
  • In this reportExecutive summary — how business is growing beyond boundaries 2New markets — how high-performing companies are approaching 4rapid-growth marketsNew products and services — how high performers are innovating 16for successNew talents and skills — how high performers are capturing and 26retaining the talent they needAbout this report 36The benchmark findings for this report are drawn from two studies conducted betweenJanuary and February 2011 in parallel for Ernst & Young by the Economist IntelligenceUnit. To explore what companies were doing as they entered new markets and innovated,we interviewed some 400 C-suite and marketing professionals. To explore how companieswere addressing talent management, we interviewed 400 C-suite and HR directors. Aswith our earlier study, we have factored out the impact of sector and distinguishedbetween the top third highest performers — in both revenue and EBITDA growth — and thelowest third to see if we can identify distinctive patterns of action that might explain thesuperior performance.
  • The new economy is more competitive than the old.Greater variation in market performance, sharpermarket volatility, ceaseless pressure on marginsand demanding stakeholders have made for anincreasingly interconnected — and interdependent —global economy.In our first Competing for growth report, we interviewed some 1,400 companiesfrom around the world to see how they were responding. Our study showed thatsuccessful players — the top quartile in both revenue and EBITDA growth – havefocused on executing four drivers of competitive success:• Customer reach — to optimize their potential market• Operational agility — to maximize their effective response• Cost competitiveness — to optimize their profitability• Stakeholder confidence — to secure both talent and support for achieving their goalsThis report seeks to test and build on these findings, by exploring how the drivers ofcompetitive success are being applied to the three fundamental sources of organicgrowth: entering new markets, creating new products or services and developingthe new skills required to deliver enhanced, or cheaper, offerings.By digging deeper into what successful companies are doing, we can draw insightand offer guidance on how they are achieving their success. Broaden product/ Prioritize service offer markets Focus on Reinforce key segments brand Customer reach Accelerate Inform speed of response pricing process Create flexible work/delivery High Sustain cost reduction platforms Operational performers Cost agility competitiveness do better Master Pass on innovation on … cost pressure Improve Optimize collaboration capital Stakeholder confidence Identify and Re-engage with explain risks internal talent Enhance Anticipate reporting regulatory complianceFor each of the four drivers — customer reach, operational agility, costcompetitiveness and stakeholder confidence — higher performers have adopteda distinctive set of actions, or have made further progress, in implementing eachprogram. Competing for growth How business is growing beyond boundaries 1
  • Executive summaryHow business is growing beyond boundariesThe Competing for growth model is an effective framework to help management understand its comparativeposition in responding to the new economic reality. The challenge is great, but competitive success is morelikely for those companies that achieve the optimal balance between their customer reach, operationalagility, cost competitiveness and stakeholder confidence.Our most recent research has reinforced our belief in the value of resonates in the market and with both internal and externalthe framework. Its application can be seen to drive high stakeholders. For positioning, like market leadership, is a toolperformance in achieving profitable and organic growth from the rather than just a goal. It is the result of management action andthree core sources: can be changed. By studying the actions of others, management can be better placed to improve their own position.In new markets For the purposes of our research, we have treated the threeHigh performers approach new markets through a deep sources of organic growth as separate, but in reality, they overlapunderstanding of their target customers. They have broadened the into a suite of connected opportunities and challenges. To growrange of their products and developed them close to their markets successfully, companies need to look beyond these boundariesto better meet their needs. They move pricing as close to the — indeed way beyond their own current boundaries — to identifymarket as possible and as much under their control as possible. their future path.And they take their stakeholders with them — through clear andspecific communication about both markets and challenges. Going forward, Ernst & Young plans a number of future studies to drill down further into the global growth agenda.In product and service innovation marketsHigh performers approach new product and service development Newfaster and closer to the market so that they can get further up thevalue curve and secure better prices for their efforts. They achievethis performance through more inclusive innovation approaches Customer reachthat extend beyond product development. And they take theirstakeholders with them by sharing more detail on the potential oftheir innovation — and the progress they are making with it.In talent management Operational Cost agility Growth competitivenessHigh performers approach their talent resources with the same New printensity that they approach their customers. Successfullyaccessing wider groups allows them to build the diversity that they tsneed. Recognizing that their talent is an asset to protect, they odu lenselect carefully and pay more to retain — while recognizing that payis only part of the implied contract that such talent demands. Stakeholder ct ta confidence s ewThe actions within these three areas may differ, but they all result Nfrom a company having an integrated view of its distinctive growthopportunity and executing it effectively across their organization.This, in turn, stems from having a powerful positioning that2 Competing for growth How business is growing beyond boundaries
  • How successful companies are driving their growth New markets New products New talents Choosing markets carefully Being driven by current Building the right team to • Preferring India and China demand activate quickly — these countries dominate • Increasing product ranges • Paying greater attention to globally, but there are clear significantly — some 30% of high technical and operational roles regional approaches, performers have increased their in setting up new operations particularly with regard to the product range by more than • Going outside the organization next generation of rapid-growth 20% in the past two years Customer and traditional sources for markets reach • Focusing on current customers management and skills • Going beyond the figures to and employees as primary develop a deeper understanding sources of innovation of the real nature of their target market • Being clearer as to their target segment within each market Being flexible, but cautious Moving quickly from idea to Being more selective, but • Achieving sales more quickly market faster to develop and deploy — using sales agents for quick • Following a formal process for • Investing significant time and entry, but seeking management innovation, but with greater effort to recruit senior control of longer-term clarity on “go/no go” criteria management, while moving operations and process oversight by quickly for rapid-growth Operational • Being flexible as to their business management opportunities agility approach to market entry, but • Adopting a structured “from • Putting greater focus on fast seeking to learn from thought to finish” process with routes of staff development experience launch and review built into the • Moving resource into markets, plan from the start but with an explicit knowledge transition expected Seeking control of price and Acting to capture more value Engaging in a battle for talent profit • Structuring cost base to • Experiencing higher staff • Moving pricing closer to the capture value — increasing turnover and challenges in target market to capture more marketing spend to capture getting the talent they need Cost opportunities margin • Being willing — and able — to competitiveness • Achieving greater control of • Locating innovation closer to pay for talent but recognizing cost bases target markets — increasingly in this is only part of the equation rapid-growth markets • Moving production closer to the target market Being more transparent Taking their stakeholders with Being more engaged with through detail them on the journey engagement • Finding market entry more • Providing more detail to • Starting from a better position costly than expected in terms of external stakeholders on to grow — handled the Stakeholder cash and time opportunity and risk challenges of the recession confidence better • Sharing more detail about their • Identifying and rewarding new market strategy innovative talent • Focusing on engagement through commercial effectiveness Competing for growth How business is growing beyond boundaries 3
  • New markets: what we learnt last time The first Competing for growth study showed there is caution around entering new markets. Respondents were clearly aware of the length of time it takes to break even in a new market, i.e., 60% believed it would take over a year, with little variation between high and low performers. The warning from Competing for growth was that while entering new markets may be the right thing to do, rapid-growth markets are only part of the reason for today’s success. High performers seem to be focusing on initiatives that have a more short-term, if not an immediate return with current customers in current markets before addressing new market entry. What the current research shows, however, is that when high performers are satisfied that the time is right to address new market entry, they do so with clarity of focus, speed of execution and transparency of communication.4 Competing for growth How business is growing beyond boundaries
  • New marketsWhat high performers are getting rightHigh performers have a focus on their current customers that runslike a thread through their operations. It determines the markets New markets: new frontiers inwhere they wish to sell and produce and how they enter andoperate. Consequently, one of our key findings in our initial consumer productsCompeting for growth study was the continued importance ofdeveloped markets to these companies. While we found growing As globalization continues to expand horizons,interest in rapid–growth markets, they were perceived to be companies in the consumer products (CP) sector areespecially competitive and not by themselves, the whole story for actively searching for new markets, and newhigh performers. opportunities. CP companies need to utilize a tailored approach toIt is clear, however, that rapid–growth markets will be an increasing overcome the inherent challenges of market entry infactor going forward. To address this, we focused our research on developing economies.whether differences exist between high and low performers in theirapproach to these markets. It is clear that high performers are not A move into rapid-growth markets typically involvesalone in their pursuit of cross-border opportunities, nor do they operating in less certain political and regulatoryappear to be pioneering ahead into new territories. Rather, it is landscapes, as well as transacting in a more volatiletheir execution of these opportunities — focused in purpose, fast to currency. Already, they are faced with the competitivedeliver, and thoroughly explained to their stakeholders — that presence of local CP companies — not yet global in scope,seems to explain their success. but powerful in ambition and entrepreneurial in nature. Agile and not averse to taking risks, these localHigh performers are doing better on: companies understand their local consumers and benefitCustomer reach — choosing markets carefully from a low-cost business model.• Preferring India and China — these countries dominate globally, CP companies are relying on projections of future data to but there are clear regional approaches, particularly with regard underpin their move into such markets. They need to be to the next generation of rapid-growth markets aware that premiums are high for talent and distribution• Going beyond the figures to develop a deeper understanding of in emerging economies, principally because they are the real nature of their target market such competitive markets. It may therefore take longer• Being clearer as to their target segment within each market for their investment to turn into desired return, and it will be longer before their business starts performing toOperational agility — being flexible, but cautious the normal expectations of more mature markets. It will• Achieving sales more quickly — using sales agents for quick be longer still before they know whether their entry, but seeking management control of longer-term demographic projections are accurate and whether the operations political and regulatory terrain will become more certain.• Being flexible as to their approach to market entry, but seeking And yet, despite these challenges, it is no exaggeration to learn from experience to say that a paradigm shift is under way; within fiveCost competitiveness — seeking control of price years, more than 60% of the revenue of larger CPand profit companies is set to come from the the rapid-growth• Moving pricing closer to the target market to maximize the markets. With low-volume growth forecast in opportunity North America and Western Europe, it is increasingly• Achieving greater control of their cost base clear that, for CP companies both large and small, the rapidly developing economies hold the key to a• Moving production closer to the target markets prosperous future.Stakeholder confidence — being more transparent through detail• Finding market entry more costly than expected in terms of cash and time• Sharing more detail about their new market strategy Competing for growth How business is growing beyond boundaries 5
  • New marketsCustomer reachChoosing markets carefullyGiven the increased variation in geographical market growth, the choice of which market to compete in has acritical impact on company performance. This seems a statement of the obvious, but given the huge variationthat exists throughout both markets and company operations, its implications are immense. The world isnot flat, our starting points are not the same, but with global mobility of capital, the consequence of thisvariation affects all players.Preferring India and China Asia-Pacific and fallen out of the top 10 for companies based in North America. The term “BRIC” has been superseded.From a global perspective, we found that India (34%) and China(33%) dominated the sales focus of all our respondents — with But it is not clear that a new global acronym can be developed.Brazil (19%), Russia (14%) and Singapore (11%) some way behind. Looking toward the next generation of rapid-growth countriesHigh performers, however, had a much greater focus on India — the post-BRIC group — no simple category of countries exists.(47%), followed closely by China (44%) and, to lesser degree, Brazil Countries such as Poland, Mexico and Argentina increase their(26%). Lower performers had a lower and broader sales focus, with importance, but it is apparent that there is a difference in focus forthe same three countries to the fore, but a similar level of interest sales between the high performers and the low performers andin Poland, Mexico and Singapore. that this varies by region.The importance of India and China remain the same regardless of • High performers from Western Europe have a greater focus onwhere companies are headquartered, although other key Middle East, Eastern Europe, Turkey and the Ukraine. Otherdestinations in the top five are more regionally distinct: Singapore than Indonesia and Mexico, they appear to have less focus onand Indonesia for Asia-Pacific, Middle East and Russia for Asia-Pacific and Latin America.Western Europe, and South Korea and Mexico for North America. • High performers from North America seem to be focused onLooking more broadly, the top 10 sales markets have a clearer Latin America. Other than South Korea and the Philippines orregional tone to them. Poland in Europe, the focus is strongly regional.It appears that the combination of high volume and rapid growth in • Asia-Pacific companies have more of an Asia-Pacific focus,the India and China markets lifts them outside the normal more regardless of whether they are high or low performers.regional focus. Brazil can be seen to continue to emerge, whileRussia’s relative importance has declined. While it retains fifthposition for European companies’ sales, it has declined forMost important markets for sales based on location* Asia-Pacific Western Europe North America High Low High Low High Low 1 India 71 70 India 45 20 China 46 47 2 China 55 75 China 44 24 India 36 41 3 Brazil 25 35 Middle East 36 18 South Korea 32 6 4 Singapore 25 5 Brazil 26 16 Brazil 23 25 5 Indonesia 18 20 Russia 19 25 Mexico 18 19 6 Bangladesh 11 5 Poland 15 14 Poland 14 22 7 Middle East 11 0 Romania 11 10 Chile 14 9 8 Russia 9 10 Turkey 11 7 Argentina 9 22 9 Malaysia 9 5 Mexico 8 13 Columbia 9 9 10 Vietnam 7 5 Ukraine 8 4 Philippines 9 6 * Post–BRIC group highlighted6 Competing for growth How business is growing beyond boundaries
  • Going beyond the figures to develop a deeper High performers, however, regardless of sector, placed lessunderstanding of the real nature of the target market emphasis on simple quantitative demographics and income-per- head factors. Indeed, high performers focused on political stabilityAll respondents generally rated economic and demographic factors more than other players — a key driver of market stability inhighly in determining the markets that they would prioritize for addition to inflation risks. Furthermore, although lower on their listinvestment, with inflation and purchasing power parity of priorities, high performers also placed greater emphasis onassessments also important. The number of people multiplied by gaining a deeper understanding of social factors affectinghigh GDP growth seems as reasonable a starting point for market purchasing behavior and understanding the reputational risk ofassessment as any, although the accuracy of both measures may transacting in particular markets. The performance challenge isbe much less certain than expected. Given the degree of economic not simply entering the market, but competing successfully againstreforecasting and correction within the developed world, complete domestic incumbents. This requires getting beyond the numbers toaccuracy in rapid–growth markets would be unrealistic. But, while it understand the critical local characteristics of the market. To win incould be argued that such corrections in these markets have India and China requires that you understand the market as well astended to be on the upside, even excessive demand can unbalance local companies and can leverage an unmatched advantagea lean supply chain. against them.Other factors are also important. Regulatory structures, forexample, are crucial — especially from a sector perspective. For the Factors affecting entrance into rapid-growth marketspower and utilities sector, for example, the regulatory environmentdictates a company’s investment model. If such companies were tomove into deregulated markets, they would almost invariably have GDP growth forecasts 48 49to be the lowest price in order to win market share from incumbent Demographic profile and 40competitors. Financial services companies are also heavily projections 43 Political stability 38impacted by regulatory changes. Here, different levels of 32regulation are being implemented on a global, regional and Inflation and macroeconomic 34country-by-country basis. The challenge for companies operating stability 42 Purchasing power parity 32in this sector is not to treat regulatory systems in an isolated, 37localized way, but to take a step back and consider how such Income per head 26 29regulation can be turned into an opportunity, rather than an Gap between wealthy and poor 18obligation. 19 Social factors 15 affecting purchasing power 10 12 Credit growth 14 Reputational risk 9 4 Size of the grey/black market 6 6 High performers Low performers Competing for growth How business is growing beyond boundaries 7
  • New marketsCustomer reachChoosing markets carefullyBeing clearer as to their target segment within each We asked all our respondents which customer segments they weremarket focusing on — and in which markets. There were companies focused across the different segments for each market, but there wereRapid-growth markets are complex. Much depends on the distinctive patterns in the response. Of the 23 major emergingever-changing demographics as the group is far from homogenous. markets, there was significant variation by country:Some segments comprise small numbers of individuals with highlevels of wealth, offering potential for high price points. There is a • “Premium customers” were the most highly targeted segmentlong history of these groups being targeted by international in only three locations: Russia, the Middle East and China. Eachcompanies. Other segments offer greater numbers of customers areas where there are distinct groups with immense personal— and hence larger volumes — though lower pricing. The Indian wealthmiddle class, a popular target with an average income of • The “middle-market/aspirational” segment was the most highlyUS$4,000, may not be very rich compared with their Western targeted segment in 10 countries: India, South Africa, Turkey,counterparts, but numbering over 400 million, they represent a Argentina, Singapore, Indonesia, Philippines, Malaysia, Southhuge opportunity. It is this latter “volume” segment that is driving Korea and Taiwanfundamental change in business models, because the challenge of • “Cost-conscious or value” segment customers were the mainserving them profitably is so different for companies from targets in Eastern Europe and Latin Americadeveloped markets. • Only in Thailand did a majority of our respondents target the “commodity” segment There was, however, much greater variation in focus when company performance was considered. The majority of high performers target: • “Premium” customers in the Middle East, Russia, China and Latin America • “Mid-market” customers in Africa, Brazil and the rest of the Asia • “Cost-conscious” customers in Eastern Europe • A mixture of segments in India8 Competing for growth How business is growing beyond boundaries
  • In contrast, low performers almost always highlighted that they also suggest that, regardless of the scale of future potential, thewere targeting the broad “middle market.” This suggests that a intense competition for the “middle market” — and the scale ofmore focused approach — whether low-volume high-value, or operational challenge it presents — is currently impacting overallcheaper mass market — is driving enhanced performance. It might performance for some players.Market segment of greatest focus for sales — majority responses High performers Low performers Greatest area of focus % Greatest area of focus %Africa Mid–market 35 Mid–market 43Brazil Mid–market 33 Mid–market 31China Premium 31 Mid–market 30India Mid–market 30 Mixture 26Middle East and North Africa Premium 38 Mid–market 43Russia Premium 35 Mid–market 46Other Eastern Europe Cost–conscious 28 Mid–market 36 Mid–market 33Other Far East Mid–market 32 Cost–conscious 33Other Latin America Premium 26 Cost–conscious 36 Competing for growth How business is growing beyond boundaries 9
  • New marketsOperational agilityBeing flexible, but cautiousAgility implies both speed and flexibility. In terms of new market opportunities, it requires both an ability torespond to an opportunity quickly but, equally, to preserve the control necessary to move out of a marketas painlessly as possible, should the situation deteriorate. In a volatile market, windows of opportunity bothopen and close with increasing speed.Speed to enter, but able to exit Once the opportunity had shown merit, all respondents felt that establishing a joint venture partnership was the most effectiveCompanies have quite different perspectives on what are either the route to take advantage. Indeed, in many rapid-growth markets itquickest or the most effective ways of entering a market, but high may be required. High performers, however, if given the choice,performers appear to adopt a more cautious approach. Working were more likely to place importance on making an acquisition orwith a local distributor was recognized by all respondents as being establishing a green field investment rather than working with athe fastest way of entering a market. High performers, however, local partner. It seems that control is recognized as a precursor toare both significantly more likely to focus on working with a sales speed and flexibility. Minimizing contractual obligations to partnersagent and less likely to establish a joint venture partnership or maximizes the ability to respond and, if necessary, to exit.make an acquisition than low performers. In such a way, they arespeeding the access to the market but with the least capital or Operational implications clearly vary based on whether a companycontractual exposure. simply has a sales operation in a market or has a production facility in that market as well. Governments will see the production facilityFastest rapid–growth market entry strategies as offering the attractive potential of future employment. They may put in regulations to require this over time. 47 Working with local distributors 56 This cautious approach is reflective of a different perspective that Working with a sales agent 42 high performers seem to share about the obstacles that present 35 24 the greatest challenges in rapid growth markets. All respondents Acquiring local private company 32 listed lack of bureaucratic clarity as the biggest obstacle. But whileEstablishing a joint venture partnership 21 low performers listed slow customs, punitive taxes or arbitrary 30 Winning a privatization tender 14 courts — all major potential downside risks — high performers had 9 much more macro–level concerns about more widespread and Establishing a greenfield investment 5 4 likely political and macro-economic risk. If your main challenges are expected in the course of business, building nimbleness into your High performers Low performers operation is essential.Most effective rapid–growth market entry strategiesEstablishing a joint venture partnership 41 49 Acquiring local private company 37 30 Working with local distributors 34 37 Establishing a greenfield investment 20 16 Working with a sales agent 16 16 Winning a privatization tender 7 15 High performers Low performers10 Competing for growth How business is growing beyond boundaries
  • Being flexible as to their approach to market entry, A number of factors could explain this difference, but it is probablybut seeking to learn from experience most likely explained by the longer experience of market entry that many companies in Western Europe will have had — not leastWhile recognizing market variation, high performers are more into other European markets. The more consistency developed,polarized in their approach to market entry than low performers. the greater the opportunity for organizational learning.A significant number plan market entry based on the needs of their Consistency of approach to market entrytarget clients and past experience. High performers weresignificantly more likely to say that they had a consistent approach High performersthat they leveraged for speed and effectiveness. But, equally, high Our approach varies We approach new marketsperformers made up a majority of the larger group that responded significantly by market Our approach varies in aapproach new markets We consistent waythat their approach varied significantly by market to optimize significantly by market in a consistent way 27flexibility. 34 27 34This polarization is also driven by both sector and market choice.Market entry options are not always fully under the control of 39management. The governments of certain rapid-growth markets 39 Our approach variesimpose the route of entry in some, if not all, sectors. There is, slightly by market Our approach varieshowever, some variation in the market entry strategy adopted by slightly by marketour respondents depending on their regional location. While thereis a mixture of response from all regions, there is a difference inwhere the majority focused: Low performers• 43% of Asia-Pacifics high performing companies reported that We approach new markets Our approach varies in aapproach new markets they varied their approach considerably based on the market We consistent way significantly by market Our approach varies in a consistent way significantly by market 22• 55% of North Americas high performing companies reported 30 22 that their approach varied slightly by market 30• 38% of Western Europes high performing companies reported that they had a consistent approach to market entry 48 48 Our approach varies slightly by market Our approach varies slightly by market Competing for growth How business is growing beyond boundaries 11
  • New marketsCost competitivenessSeeking control of price and profitIn our original Competing for growth research, we found that high performers were much more in controlof their pricing than low performers. Some 28% had introduced new pricing strategies in the past two yearsand they were significantly ahead in seeking to support better pricing through better systems and improvedanalytics. Consequently, a larger number were able to push through price rises — even in a difficult time. Theysaw price as the starting point for their consideration of cost, rather than the other way around.Moving pricing closer to the target market Achieving greater control of their supply chainOur most recent research shows that pricing remains one of the We sought to explore how respondents were addressing theirmost complex and strategic decisions that a business takes in its supply chain in support of their wider market footprint. While thereoperations. During the recession, many companies acted to take is a great deal of variation between sectors and markets, therethese decisions to the centre in the interest of both speed and does seem to be a difference in the focus of high performers.perceived control. High performers share this concern, but theyare just as likely to have pushed pricing to the regional level rather High performers were more likely to seek and achieve greaterthan the center. Thirty-three percent of high performers made control of the factors that impact their pricing and their costs.pricing decisions at the regional level, compared with 29% of low This is supported by examining responses on the factors that haveperformers. In contrast, 37% of low performers made decisions at a the greatest impact on pricing to serve key customers in rapid-global level, compared with only 33% of high performers. growth markets. In almost all cases, low performers felt that factors such as import costs, distribution, transport, and, indeed,This confirms the findings from our earlier report Winning in a relative negotiating strength with third parties, had a bigger impactpolycentric world. These findings showed that the convergence of on their pricing than high performers potential between the developed and rapidly developingworld means that the number of markets that multinationals must We also asked respondents what were the key factors impactingconsider as “strategic” has increased. But, at the same time, the cost in serving their customers in rapidly developing markets.nature of the opportunities in those markets can be fundamentally Distance from production to market was the major factor for bothdifferent. In the developed world, companies have well-established groups, but significant differences between high performers andbusiness models and asset bases, but face weak growth prospects. low performers were reported:In the rapidly developing economies, this situation is oftenreversed. The reality of the global economy may be more variation • Labor costs play a more significant role in determining highin operations rather than less. performer cost base than for low performers • Import and customs costs are a far more significant element inLocation of decisions on pricing of goods and services low performers’ costs both in proportion and priority • Transport infrastructure costs are also more significant for low 33 performers, suggesting that the distances are greater At global headquarters 37 At regional level 33 This analysis of cost suggests that high performers have moved to 29 locate a larger proportion of production close to — and often inIn the rapid-growth market itself 17 16 — the markets they aim to serve. In turn, this supports the view By third-party agents, 2 that economies of scale — certainly above a certain level — are no distributors or partners 2 longer the dominant factor in competitive success. A combination of any 14 16 High performers Low performers12 Competing for growth How business is growing beyond boundaries
  • Moving production closer to the target market • For Asia-Pacific based companies, almost two-thirds of higher performers are focusing on India compared with just over half ofThe top markets for production for all respondents are China lower performers. This suggests that a focus on India in certain(30%), India (28%), Brazil (12%) and Mexico (12%). High markets contributes to growth.performers, however, have a much greater focus on India (43%) • The picture in North America is, however, rather different. Chinaand China (41%), which almost exactly mirrors their sales focus. is the leading destination for investment in production, with 41% of leading businesses focusing on this market, compared withBut when we look at the location of respondents, some strong 31% of lower performers.regional differences emerge between high and low performers intheir attitude to location: While large differences clearly exist between high and low performers in their first choice of destination, the variance• 40% of leading Western Europe businesses have identified India between their second choice of production location is no more than as their primary destination for investment, whereas only 21% 2%. It is worth noting that, while 50% of Asia-Pacific production of lower performers have the same focus. focus is within their own region, this falls to only 20% for companies based in North America.The most important growth markets for productionFor North America based companies For Asia-Pacific based companies For Western Europe based companies China 41 66 India 40 31 India 21 55 India 27 59 China 32 28 China 30 60Middle East 18 18 Brazil 16 25 Brazil 6 20South Korea 18 Singapore 18 Poland 15 6 5 11 Singapore 18 Middle East 14 Russia 13 3 0 10 Poland 18 Malaysia 11 Ukraine 13 3 5 3 Russia 14 Vietnam 9 Romania 8 6 20 9South Africa 14 Indonesia 9 Bangladesh 8 0 10 3 Argentina 9 Bangladesh 7 Mexico 7 19 0 11 Brazil 9 Mexico 5 Turkey 7 13 0 7 Malaysia 9 Russia 2 Colombia 7 6 5 6 Colombia 9 Thailand 2 Pakistan 7 6 5 1 Romania 9 Pakistan 2 Philippines 7 3 0 0 Mexico 5 Taiwan 2 Middle East 6 31 0 20 Vietnam 5 Romania 2 Singapore 5 13 0 16 Philippines 5 Ukraine 2 Chile 5 9 0 9 Chile 5 South Africa 2 Malaysia 5 9 0 3Bangladesh 5 Nigeria 2 Indonesia 3 6 0 11 Indonesia 5 Philippines 0 Thailand 3 3 15 6 High performers Low performers Competing for growth How business is growing beyond boundaries 13
  • New marketsStakeholder confidenceBeing more transparent through choiceWe continue to observe that high performers are reporting more extensively than low performers. Thisis particularly evident in the extent of the information they provide to external stakeholders on the newmarkets they are entering. The market determines risk and the regulatory regime – and hence the amountthat you need to report to your market. Some markets are more of a challenge than others and need moreattention. And companies have a lot to explain.Finding market entry more costly than expected in terms Sharing more detail about their new market strategyof cash and management time It is not simply a question of volume of information that mightIn a forthcoming report — CFO: mastering the costs of entry — we explain the communication success of high performers.ask some 900 CFOs to comment on their experience of investing in Regardless of performance, companies report their perspectiverapid-growth economies. In almost a third of cases, the costs, time of the business prospects in the markets in which they operatespent or risk was higher than expected. While there was consistent and this includes a discussion of risk. Indeed, high performersdifficulty reported on finding reliable business partners, valuing place less importance on the historical performance of thepotential acquisitions and budgeting for the short– to medium–term different business units.costs of entry, high performers typically spent more time on Nor is it an issue simply of the quality of material — there isstrategy development, but especially on valuing the wider market much less emphasis placed on the quality of forecasting than weopportunity and undertaking due diligence. Both sets of problems would have expected, although this could be explained by thehave a similar source in the ongoing challenge in accessing high ongoing nature of the high performers dialogue with theirquality and reliable data upon which to base both market stakeholders.assessment and entry route. High performers, however, are clearlylooking both more widely and more carefully at the opportunity for There is also a variation in type and detail of information. Ratherthem. than talking about regions or geographical clusters, high performers talk about specifics. In addition, they seek to provideMost difficult market entry issues both broader and more granular data with more coverage of non-financial KPIs. And they are more likely to discuss the 48 impact of regulatory change and potential environmental risks. Identifying reliable business partners 46 Valuing potential acquisitions 46 They are also more specific about operational efficiency 45 measures — and their impact on the wider business — as well asShort- to medium-term costs of entry 42 the tax exposure they face. 44 Strategy development 36 33 Information provided to external stakeholders on entering Valuation of market opportunities 35 rapid-growth markets 26 Identifying M&A targets 25 55 22 Countries involved 36 Due diligence 25 Business prospects in market 50 17 49 Risk assessments 44 42 High performers Cash and liquidity positions 36 Low performers 47 Latest performance 34 47 Accuracy of growth forecasts 29 40 Operational efficiency measures 25 16 Tax exposure 22 11 Impact of regulatory change 18 12 Environmental risks 16 12 High performers Low performers14 Competing for growth How business is growing beyond boundaries
  • Key questions for management• Have you chosen the right markets for your business?• What is your position with regard to India and China?• How deeply do you understand your target customers?• What is different about your competitors and better about you?• How much of your pricing do you control?• How much of the opportunity do you communicate to your stakeholders? Competing for growth How business is growing beyond boundaries 15
  • New products and services: what we learnt last time The first Competing for growth study highlighted innovation as a critical area for competitive success. It also showed that a top priority for high performers is the introduction of a broader range of products and services to improve return from existing customers. Sixty-two percent of high performers used new products and services as a means to increase sales, compared with only 44% of low performers. The research showed that, while low performers are more focused on cost competition, high performers are driving into new markets and product areas where price competition is less intense. Our most recent research drills down into how high performers are succeeding in this drive for new products and services. Closeness to the market, self belief, the right talent and stronger processes are all part of the competitive mix.16 Competing for growth How business is growing beyond boundaries
  • New products and servicesWhat high performers are getting rightInnovation in products or services was cited as being mostimportant in winning the competitive battle by 71% of respondents Innovation: cleaning up in cleantechto our original Competing for growth study. Two quite distinctapproaches emerged. Intense competition around incremental Few sectors have grown as fast, or as widely, as cleaninnovation to better meet the needs of current customers and technology (cleantech) in recent years. Helping deliveroften equally intense collaboration with third parties in tackling the economic growth, jobs, energy security and carbontransformational innovation that creates new markets. reduction, cleantech’s rapid expansion has been underpinned by the success of innovative andThe centrality of effective new product development is reinforced entrepreneurial industry leaders in utilizing theby our latest research. But the low price that is demanded in many renewable resources that exist around the world.emerging markets may require the convergence of the twoapproaches, through the adoption of more transformational A diverse sector, with a number of different technologiesinnovation techniques to existing products. So, for example, the within its orbit, the industrys development has been oneUS$2,000 car is not creating anything new, but its challenging of the key economic success stories of recent years.price requires a radically transformed approach to production. Indeed, its very diversity has been a large factor in its success; solar, wind and biomass are just some of the technologies that have been driving the sector forward.High performers are doing better on: And yet, with a number of new technologies emerging, itCustomer reach — being driven by current demand is clear that this is one industry which exists in a state of• Increasing product ranges significantly — some 30% of high permanent innovation. One area that is attracting much performers have increased their product range by more than attention from investors is “efficiency technologies.” 20% in the past two years While these aren’t necessarily new, they can be used in• Focusing on current customers and employees as primary innovative ways to deliver large savings in costs and sources of innovation energy. An example is light-emitting diodes (LEDs), which use a fraction of the energy needed for more traditionalOperational agility — moving quickly from idea to market lighting. Lasting for a lifetime, they can provide• Following a formal process for innovation, but with greater consumers with savings for many decades and, as an clarity on “go/no go” and oversight by business management easy and cost-effective means of saving energy, their• Adopting a structured “from thought to finish” process with potential is enormous. launch and review built into the plan In addition, second generation biofuels are beingCost competitiveness — acting to capture more value aggressively researched, as are tidal, offshore wind and a• Choosing to invest to increase control — increasing marketing whole host of other technologies. There are some in this spend to capture margin sector who are comfortable with new innovations failing• Locating innovation closer to target markets — increasingly in as long as those that succeed deliver real and radically rapid-growth markets successful new products. Others, however, believe that all the technologies that are necessary to combat climateStakeholder confidence — taking their stakeholders with change exist already.them on the journey• Providing more detail on opportunity and risk to external While only time will tell whether existing technologies at stakeholders massive scale or really radical undiscovered technologies• Identifying and rewarding innovative talent dominate the next generation of cleantech companies, this sector’s success story is far from over. In fact, it’s only just beginning. Competing for growth How business is growing beyond boundaries 17
  • New products and servicesCustomer reachBeing driven by current demandEffective account management is perceived by high performers as being the greatest source of growth forthe next two years. This has a fundamental impact on the product development process. Part of the processof maximizing the return on existing accounts is introducing a broader range of products and services tothose accounts — both across the range of product value and the product life cycle. This is the top priority forhigh performers.High-performing companies aim to “lead in their segment” when itcomes to product innovation as such leadership helps shape a Customer segmentation andmarket-leading brand and avoids having to compete on price.Forty-four percent of low performers, by contrast, see themselves understanding your customersas “fast-followers.” Some 48% of high performers describe Segmentation is becoming more precise andthemselves as being “pioneers” in product development, compared sophisticated as companies strive to target the mostwith only 25% of low performers, and almost twice as many have profitable customers. IT should be championing theradically rethought their approach to innovation in order to meet systematic collection, analysis and presentation ofdemand. customer and market data to identify where the higher- margin opportunities lie.Consequently, high performers’ product portfolios and salespipelines include a significantly higher percentage of new products Existing clients should naturally be a rich source of— 46% of their sales came from new products developed in the past future business and many companies are looking tothree years which they support through extensive marketing. In broaden the range of products and services offered,contrast, new products account for only 24% of low performers’ support account management and develop the customersales. And this has not happened by chance. life cycle concept. Customer knowledge is likely to be at the heart of such efforts.Increasing product ranges significantly Analysis allows for differential investmentThe focus of high performers on better understanding the needs ofthe customer has resulted in an explosion of product development. By taking a more selective path, some companies maySome 87% of all survey respondents have grown their portfolios of resist the temptation to expand into certain emergingproducts over the past three years to exploit their market potential markets. Others may even choose to take the tough andbetter. This seems remarkable at a time when competition is controversial decision to contract, exiting existingintense and cost management paramount, but reflects the fact that segments and axing renowned brands where margins areincremental innovation has become a main competitive tool. It also low or negative. Once more, IT can support such difficultsuggests that business on a broad scale has mastered the ability to choices, providing profitability analyses to help challengeproduce variety without compromising on cost. They are replacing long-held assumptions.the economies of scale with the more complex economies of Moving into new markets brings a number of logisticallearning and sales. challenges, not least providing service to different time zones, and IT can help ensure that customer care isBut the scale of increase for high performers has been much more geared up to support these changes.extensive: 54% have increased by over 11% in the past three yearsand 30% by more than 20%. The equivalent figures for low Customer knowledgeperformers are only 17% and 6%. Indeed, for low performers, 48%have only increased by between 1% and 45%, and 21% stayed the Understanding the customer is the key to effectivesame or declined. marketing, and IT can be at the center of a continuous feedback culture that encourages sales and service staff to provide information on existing and potential clients. Innovation for growth IT’s role in the new global economy, Ernst & Young, April 2011.18 Competing for growth How business is growing beyond boundaries
  • Increase in range of products Putting Tata Motors employees at Increased by greater than 20% 6 30 the heart of innovation Increased by between 11% and 20% 24 11 Leading companies in emerging markets often produce 16 Increased by between 6% and 10% 16 innovative designs that reduce manufacturing costs and Increased by between 1% and 5% 19 sometimes disrupt entire industries. For example, in 48 India, Tata Motors’ US$2,900 Nano vehicle is priced at Stayed the same 10 16 less than half the cost of any other car on the market Decreased 1 worldwide, and a version is set to go on sale in Europe 5 High performers this year. Low performers Prakash Telang, Managing Director of Tata Motors India, says it is crucial to create an environment and corporateFocusing on current customers and employees as culture that nurtures innovation and encouragessources of innovation continuous improvement. Within Tata, the corporate culture is not only geared toward driving innovation andThis explosion in product development, however, is focused on product improvement, but is also aimed at engagingtoday’s demand. Most of the ideas come from current employees every employee to contribute to this process, from theor customers. Indeed, innovating with a focus on potential, rather shop floor to the boardroom.than current, customers seems to have a detrimental impact oncurrent performance in that it is an approach favored by low Tata Motors expects and encourages their people toperformers. Our earlier work found that high performers have bring to work what they call a simple “three H formula”:developed better customer analytics systems to understand the hands, head and heart. Someone who is just doing theirneeds of their current customers and this seems reflected in their job for eight hours a day is using their hands. Aiming toimproved performance in product development. solve a problem involves the head. And if they are doing all of that with passion, they are probably bringing theirBut it also suggests that most of the effort is focused on heart.incremental development. Indeed, fewer high performers arelooking across their supply chain or to academic institutions, which For Tata Motors, it is critically important to engage theirsuggests less focus on transformational initiatives with both their people on all three Hs and to create an environmentincreased costs and longer time-frames. where everybody feels an integral part of the company, passionate about contributing and developing it forward.Most effective sources of innovation As Prakash puts it: “If we can all see how Tata Motors can grow and everybody contributes, big things can Our employees 72 46 probably happen.” Existing customers 64 66 Prakash Telang, Managing Director, interviewed by Potential customers 41 54 Ernst & Young, Planning for growth study, July 2010 R&D facilities 28 13 Suppliers, retailers, wholesalers 26 44 Educational institutes 16 25Other rapid-growth market experience 12 12 High performers Low performers Competing for growth How business is growing beyond boundaries 19
  • New products and servicesOperational agilityMoving quickly from idea to marketFocusing on today’s customers requires, and results from, an accelerated speed of product development. Ourmost recent research shows that high performers are significantly faster than they were three years ago— and than their competition — in taking a product from idea to market. This speed seems to be driven by aninclusive firm-wide process of innovation that focuses on people and on a clear set of criteria for determininggood ideas.This increase in speed is dramatic. Eighty-one percent of high Time to develop new products and servicesperformers report that they are faster in developing products andservices than three years ago and 38% report that their Significantly faster 38 than 3 years ago 18improvement is significant. While much of this improvement is the Slightly faster 43result of a focus on smaller incremental developments, not all of than 3 years ago 44it is and the implications across the organization and its supply 16 At the same speed 30chain are immense. Nor is this improved performance the sole Slightly slower 3preserve of small start-up companies or particular sectors. Ford than 3 years ago 8reports that accelerated innovation is one of the major factors in Significantly slower 0its improved performance, but this strategy is also central to the than 3 years ago 1success of shoe manufacturers such as Geox and, cosmetics High performers Low performerscompanies such as Nuxe.Following a formal process for innovationGreat ideas can happen by chance, but that is a risky approach to Man on the moon drives innovationcommercial innovation. All companies put in place some form of Danish mechanical and electronic componentprocess to encourage this. Earlier work by Ernst & Young manufacturer Danfoss encourages innovation with Man— Igniting innovation — found that successful companies structure on the Moon — a company-sponsored competition.their approach to innovation and encourage their employees todevelop ideas. The competition was launched in 2004 as a means ofOur recent research confirms the importance of involving your supporting entrepreneurial learning and teasing out newown employees, but suggests that having a formalized process is product ideas that might not otherwise have come tonot in itself a source of improved performance. The same number light. Employees have the opportunity to develop aof high and low performers reported that they had such a product, test its commercial possibilities and present itprocess. Rather, the difference seems principally to arise in to a committee of the company’s top 10 leaders. Thethree areas: committee tests the ideas using specialist resources, such as supply chain experts, so that the idea can be• Having a process that is designed to extend through testing to rigorously tested. include launch and review. Essentially, planning the route into market, rather simply into development. The assessment process is deliberately exacting so that employees are forced to think about their project in the• Placing greater attention on “go/no go” decisions, rather than round. This is turn makes it more likely that the project letting projects drift on and use resource. This may cut down will come to fruition. Man on the Moon reflects the potential new opportunities, but it certainly cuts down actual company’s belief that the key to its long–term survival expense. These decisions, however, do not seem to be based on lies in becoming indispensible to customers. purely short-term financial factors. Exceptional, Ernst & Young, January–June 2011.• Putting the process under the direct oversight of country or regional management who will have the responsibility of selling the product into its chosen market.20 Competing for growth How business is growing beyond boundaries
  • Following a structured “from thought to finish” process Formal innovation processesWe asked companies to rate their performance on the innovationjourney. High performers rated themselves significantly higher at Product and service 75all stages — from having the idea, through translating that into a development process 77 Testing, launch 67product, to generating commercial returns. Success or failure at and review process 62innovating clearly permeates the whole organization. Rewards for successful innovation 61 58We also asked companies about the obstacles that they face A “go/no go” decision process 60 53— giving them options as to whether their concerns were about 58 A dedicated innovation teamthe inputs to the innovation process or the output. Hiring the 60 Agreed process of financing 57right talent is the biggest obstacle for all, but high performers are for new product launches 59particularly concerned about the broader input factors such as Direct oversight by country 55 or regional management 47the educational level of their workforce, the lack of science or 51 Agreed period and rate of financial returntechnology graduates and the lack of infrastructure. It is of 59 Established relationships with 44interest that the only areas where low performers gave the universities and other stakeholders 43majority response concerned the cost and time required to obtainpatents — suggesting possibly their greater exposure to High performers Low performerstransformational innovation. Competing for growth How business is growing beyond boundaries 21
  • New products and servicesCost competitivenessActing to capture more valueNew products tend to enjoy either a price or margin premium. They are either developed to fill a gap indemand — hence a price premium — or to meet a demand more efficiently. This is the desired positioning thathigh performers have attained, but it comes at a cost.Investing to increase control — increasing marketing Locating innovation closer to target marketsspend to capture margin Given that R&D costs equate to a third of the overall productWhen we compared the cost elements of new products, there was price, we were keen to explore the much-discussed trend ofa significant difference between high and low performers in the moving R&D facilities into rapid-growth markets. We did not findcost structures they employ. Not surprisingly, R&D accounts for this to be a primary factor in explaining current highthe highest proportion for both — indeed, it is slightly higher for performance. Indeed, at the moment, high performers are morehigh performers, but there is a bigger difference in the overall likely to develop their products in developed locations rather thancost structure that might explain more performance variation. in emerging ones. This reflects a more compelling potential difference where R&D is located close to the intended market forHigh performers have a higher element of labor and transport the products. To date, as we found in our earlier study, highbut, through a significantly higher level of marketing cost, they performance is often based on success within developed marketsare capturing more of the eventual value of their product or rather than in the main markets of tomorrow.service. They face up to 50% less in sales commission and lose20%–30% less to distributors and up to 50% less in third-party Where is innovation located?markups. This suggests much stronger brand presence in themarket place that is also consistent with being ahead of themarket on product development. At R&D centres at 39 company headquarters 47Largest cost impact on pricing In rapid-growth markets 28 35 28 41 29 R&D 39 27 At dedicated R&D locations worldwide Marketing (including discounts 30 14 and special promotions) 25 26 Taxes, tariffs and other fees 29 47(e.g., import duties, quality certification) 25 In developed markets 25 27 22 Wages and salaries 22 In the markets or regions where 24 22 the products are mainly sold 15 Raw materials 21 15 At locations of our business partners 12 Transport infrastructure 22 (e.g., roads, rail) 13 Within universities or 8 18 academic institutes 9 Supplier costs 15 Legal and regulatory 18 High performers 20 Low performers Distance from production to market 15 7 Distributor’s margins 14 19 Sales/commissions 8 16 Retail mark-ups, product placement 8 13 High performers Low performers22 Competing for growth How business is growing beyond boundaries
  • Today, some 75% of product sales are generated from products Proportion of R&D invested in emerging marketsthat have not been invented or designed for rapid-growthmarkets. This, however, is forecast to change significantly. 67Looking ahead, we expect to see significant change, with 44companies increasingly dedicating R&D investment to rapid-growth markets and we expect product sales to follow swiftly. 28 17 14The significantly lower cost of operating R&D facilities and, 6 10 13importantly, the availability of well-educated talent at relativelylower cost, are most often quoted but closely followed by 0%–10% 11%–25% 26%–50% Above 50%proximity to market. Today In 5 yearsBut the bigger opportunity may still be yet to come. It may benecessary to locate both R&D and production facilities withinIndia, for example, to both design and produce the iconic“$2,000 car” that has been much discussed as being required forthe mass market in India. Having mastered this challenge,however, an even bigger opportunity may exist to refocus back onthe developed markets. The value creation opportunities availableto that company in a “$20,000 car” environment could beimmense. Competing for growth How business is growing beyond boundaries 23
  • New products and servicesStakeholder confidenceTaking their stakeholders with them on the journeyHigh performers take their stakeholders with them — but this can be difficult when you are moving into newareas. Given that their positioning is based on developing new products, communication with stakeholderstakes on a critical role.Providing more detail to external stakeholders on Identifying and rewarding innovative talentopportunity and risk High performers report that “growth prospects for the business”While seeking more inclusiveness in generating ideas, high are the second most important factor for engaging employeesperformers have developed a tighter process for determining and retaining talent. Such growth can only be fueled with awhich ideas they will seek to develop. This process is based on a healthy pipeline of innovative products. Given the increasingdeep and distinctive view of their market. importance of employees in determining innovative ideas, we asked companies about their policies toward rewardingThat deeper market perspective supports more compelling innovation:stakeholder communication. High performers are clearer aboutthe strategic vision that they have for their new products. • 30% of all respondents reported that there was no reward forThey are much more precise about the current and planned innovative thinkinginvestments and the forecast revenue that they expect. Equally,however, high performers are ahead in identifying the risks and • Over 40% reported that staff would only be rewarded when theexplaining the potential returns from developing new products results of their innovation was knownand services. • Only 28% believed that staff involved in a failed innovation project would be given another chance to succeedInformation provided to external stakeholders on new productsand services • 28% reported that they reward innovative staff as being part of a team rather than individually Strategic direction for 62 new products and services 57 For a majority of companies, therefore, individual innovation from Company vision for innovation 51 staff is a risky and potentially unrewarding activity. High 65 Current and planned investment levels 39 performers share many of these practices, except they are 27 significantly more likely to identify and materially reward Revenue forecasts for new products 30 9 innovative staff. This could be an area for further differential Number and types 25 action. of products in pipeline 30 High performers Low performers24 Competing for growth How business is growing beyond boundaries
  • Key questions for management• What proportion of your sales is driven by new products or services?• How do you involve your people and your clients in your innovation?• How quickly can you develop a new product or service?• What is your innovation process?• How can you control price to capture value?• How can you take your stakeholders with you on your journey?• How do you identify and reward innovation within your company? Competing for growth How business is growing beyond boundaries 25
  • New talents and skills: what we learnt last time The first Competing for growth study may not have focused directly on talent management but, even so, there were some strong messages. For example, one of the actions which set high performers apart was their recognition of the importance of investing in their people. High performers were almost 70% more focused on equipping their teams to be more productive and 26% more focused on improved communication. High performers also reported facing significantly higher labor cost inflation, as they sought to attract and retain talent. Our most recent research provides more insight into what high performers are doing in order to win, develop and diversify their talent.26 Competing for growth How business is growing beyond boundaries
  • New talents and skillsWhat high performers are getting rightRegardless of strategy or sector, high performers show a higherrecognition of the central importance of talent in delivering any Talent management: attracting andprogram. Some may find the term “human capital” dehumanizing,but it remains a very accurate description of the value that can retaining the best and brightestonly be created by recruiting great talent and managing it Whether they operate in developed or emerging markets, a focuseffectively. Central to all efforts to change or enhance service of any successful company will be building and maintaining adelivery is the ability to harness skills and experiences in new ways. highly capable workforce to meet its current and future business objectives.Unlike other areas of our research, this is not an area where highperformers appear to find the challenge any easier; indeed, in their Developed marketspursuit of top talent, they face a range of issues that othersescape. But their recognition of the centrality of talent to their • One multinational manufacturer of pharmaceutical andcompetitive success makes them relentless in its acquisition. medical devices has recently undergone a US$90 million finance transformation. Previously a highly decentralizedHigh performers are doing better on: operation, it concluded that standardizing processes across its organization had become a priority. The aim was toCustomer reach — building the right team to activate create shared services centers located in four key regions in• Paying greater attention to technical and operational roles in developed and emerging markets for its finance function. setting up new operations • Another example is a large insurance company based in the• Going outside the organization and traditional sources for United States. In order to strengthen its talent management management and skills structure, the group created a competency model based on leadership, foundational and functional competencies.Operational agility — being more selective, but faster to Its staff were then assessed and evaluated against thesedevelop and deploy competencies — people evaluated themselves, their managers• Investing significant time and effort to recruit senior and their peers. The findings provided the basis for new plans management, while moving quickly for rapid-growth on recruitment and developing existing talent. opportunities Emerging markets• Putting greater focus on fast routes of staff development• Moving resource into markets, but with an explicit knowledge • The dynamic and ambitious CEO of a billion-dollar insurance transition expected company operating in 27 countries — primarily in Latin America and the Caribbean — believed his organizationCost competitiveness — engaging in a battle for talent should develop its management better. As the company was• Experiencing higher staff turnover and challenges in getting the increasing its presence in emerging markets, it needed to talent they need identify the necessary skills and understand how to attract• Being willing — and able — to pay for talent and recognizing this the talent. The final challenge was ensuring that the talent is only part of the equation strategy is aligned with the business strategy. • Another example is one of the largest beverage distributorsStakeholder confidence — more engaged with in the world, which is tripling the number of its financeengagement professionals in Africa in three years. The workforce analytics,• Starting from a better position to grow following the recession which is ongoing in six emerging countries on that continent,• Focusing on engagement through commercial effectiveness involves establishing what talent is available in the market and which universities are producing the best graduates. If insufficient talent is available, the company is looking at how to develop the talent internally, or from its global workforce, and whether teams should relocate to train local staff. This is particularly critical as each one of those emerging markets requires different skills, competencies, experiences and profiles of individuals to be successful. Competing for growth How business is growing beyond boundaries 27
  • New talents and skillsCustomer reachBuilding the right team to activate quicklyCustomer reach is about broadening the market footprint of the company — both within current customersand new markets. This requires developing greater market understanding and translating that into tailoredaction. Our earlier research found that high performers were significantly faster at getting to break evenfrom their new investments. This appears to be driven by both the mixture of skills that they hire or importand the effectiveness of integrating those skills quickly into a productive operation.Paying greater attention to technical and operational Skill areas to fill when entering new marketsroles in setting up new operations Key roles Head of subsidary/business unit 47There are a number of roles that need to be filled when entering 53a new market from the manager of the subsidiary to all the Technical skills 45 29functional roles in the organization. Of interest, high performers 44 Financeare much more attentive to the technical and operational skills 39 39that they will need — reflecting, perhaps, greater recognition of Sales 35the need for speed to get into production. Operations 37 26 Marketing 30But they don’t expect to hire all these operational and technical 40skills locally. With the focus on local knowledge, all companies Innovators 18 19hire sales and marketing resource locally — high performers,notably, extend this to their finance function. This is consistentwith their concerns on regulation and tax exposure. They want Local hireslocal knowledge, but high performers also recognize the need toensure that the local operation is up and running quickly and they Sales 60 58are willing to move resource into the market to achieve this. 33 Finance 19 32We asked companies about how they assessed and recruited the Marketing 32local talent that they needed in markets outside the head office. Operations 31 36While all respondents focused on open recruitment processes and 27 Technical skillstargeting other competitors, high performers were significantly 36more likely to transfer the resource into the market from other Head of subsidary/business unit 17 17countries. The greater understanding of both their needs and the Innovators 15 14local markets that we have seen in high performers may also bereflected in their lower use of headhunters or search executives High performersthan low performers. Low performers28 Competing for growth How business is growing beyond boundaries
  • Going outside the organization and traditional sources However, the diversity that all respondents prioritize is diversityfor management and skills of experience, rather than other types of difference. But high performers’ focus on top talent may be driving change. WhileChallenged to find top talent — and/or frustrated by their ability to professing no greater priority for broad diversity targets, highdevelop the right skills — high performers are more likely to go performers report much better access to many of the variousoutside the organization for management talent and key skills. talent pools available.Fifty-three percent of high performers reported that they wentoutside for more than 10% of their senior management, When we separate the response of HR directors from othercompared with only 39% of low performers. This is even more managers, we see both a much broader interest in wider issues ofsignificant for key skills — 43% of high performers bring in more diversity and a greater recognition of the challenges it can bring.than 25% of their key skills from outside, compared with only 31% Sixty-eight percent of all HR directors responded that gettingof low performers. diverse teams to work together is one of the hardest talent- management issues, but this view is not widely shared by seniorAnd they are looking more widely to find those skills and management.leadership talents. The pursuit of increased diversity is now beingdriven by an effectiveness agenda to build on the ethical and Sources of management talentefficiency arguments that have driven this debate in the past.Diverse management teams are strongly perceived byrespondents to make better decisions for the more complex Domestic management with 56 emerging market skills 45market in which we are now operating. This view is shared by high 52 Womenand low performers alike — although twice as many low 44performers report being challenged to achieve diversity at senior Ethnic minorities 46 35levels. Emerging market managers 44 for global positions 26 Staff from other sectors or professions 34The makeup of most companies’ management does not suggest 36great diversity has yet been achieved in practice. One explanation Staff without formal 29 29 academic qualificationsfor this contradiction could be the breadth of meaning thatattaches to the term “diversity.” Eighty percent of all respondents High performers Low performerssay that diversity of nationality is helpful to internationalexpansion. Of particular note, high performers are almost twiceas likely to have brought talent from rapidly developingeconomies into global management positions to accelerate theirdevelopment and increase their impact. Competing for growth How business is growing beyond boundaries 29
  • New talents and skillsOperational agilityBeing more selective, but faster to develop and deployOperational agility requires an organization to operate with great speed and flexibility, which has implicationsfor all parts of its operation, including HR. In particular, we would expect to see these goals reflected in highperformers’ approach to the fundamental HR challenges of recruitment, development and deployment.Investing significant time and effort to recruit senior Again, when we separate the responses from HR directors, wemanagement, while moving quickly for rapid-growth see that they are much more cautious about the time taken toopportunities recruit. Only 7% believe that they can recruit within three months in developed markets — and only 4% think they can do this inSpeed of recruitment does not seem to be a factor driving high rapidly developing economies. Sixty-two percent of HR directorsperformance. In developed markets, where they are most believe it will take up to 12 months to recruit senior managementestablished, high performers, are taking significantly longer to in developed countries and some 53% believe that this is also therecruit than low performers. While some high performers report case in rapid-growth markets.they can act quickly in emerging markets — 19% within threemonths — a full 24% report that even in these markets it takes Putting greater focus on fast routes of staff developmentthem longer than a year. This reflects our wider findings that highperformers are truly focused on getting the talent that they “Providing adequate training and development” was one of theneed. While they may be actively exploring the widest talent top challenges reported by high performers. When asked topools, they are not dropping their standards to solve an choose between a range of development tools and policies, it isimmediate problem. noticeable that higher performers have a significantly greater focus on the practical, the tailored and the fast. Low performersTimeframe for recruiting senior management reported a focus on letting their people have a broad range of exposure to different business areas and different business roles.In developed markets High performers are much more interested in fast-tracking 43 promotion and focused development, giving the tailored attention 34 34 of senior level mentoring and getting people learning on the job. 27 29 26 Methods for accelerating people development 4 4 Provides key staff with 47 responsibility early 49 Within Within Within Beyond Senior-level mentoring 47 3 months 6 months a year a year 36 Exposure to a broad range of roles 44 48In emerging markets Exposure to a broad range 35 of business areas 42 35 35 35 32 Fast-track promotion 26 22 34 24 Accelerated training/management program 26 19 23 17 Experience running foreign operations 15 18 The company does not operate 10 a specific plan 11 High performers Within Within Within Beyond Low performers 3 months 6 months a year a year High performers High performers Low performers Low performers30 Competing for growth How business is growing beyond boundaries
  • Moving resource into markets, but with an explicit Policy towards foreign posting of managementknowledge transition expected Sent with the specific aim to train up local managers until 40Mobility is a critical feature of flexibility. High performers they are capable of taking over 28recognize the need to move technical expertise into the new Sent primarily to fill skills gaps 31market and have developed mobility programs that can quickly rather than to run a foreign operation 32move this talent, without damage to the career prospects of that Sent mainly to emerging 23individual. They also have systems for ensuring that the markets where business skills are lacking 21expatriates can return or move to other parts of the world at an Sent as a matter of course to run 20appropriate time, and with recognition of the contribution they any new markets the company enters 9have made. Half of low performers have yet to develop a strategy Sent to solve particular 16 operational problems and are broughtto address this. home shortly after this is achieved 20 Foreign postings are an essential 16When new investments are made, senior management is part of a managers’ career development 19transferred to that market, but with an explicit remit to train the 15 There is no particular policy or strategiclocal management. This is not so much to develop skills, as these thinking behind expatriate postings 28may not be missing, but is more to bring them into the company’sway of operation. Interestingly, high performers do not have the High performersone-size-fits-all management approach that would require all Low performerssenior management to have spent time in emerging markets.No one’s interests are served by losing hard-won talent throughunsuitable postings.The real estate sector, for example, is likely to see movement ofpeople around organizations on an international basis. Currently,a largely unregulated industry, this sector is open to newentrants, the major barrier being possession of sufficient capital.Certainly, people move between investors, developers andadvisers very quickly — retention is an ongoing challenge. Andwith the supply of equity outnumbering opportunities, the besttalent is likely to move to those new entrants that have thecapital. Competing for growth How business is growing beyond boundaries 31
  • New talents and skillsCost competitivenessEngaging in a battle for talentCost competitiveness, as we have defined it, is when a company has control over its pricing and uses that asa starting point for optimizing its cost position. Applied to the HR function, this suggests a situation wherethe company has a clear view of what talent it needs and the resources to acquire or develop it. But talent isin short supply — it costs, it has ambition and it has other possible homes — and it cannot be controlled.Experiencing higher staff turnover and challenges in Being willing — and able — to pay for talent andgetting the talent they need recognizing this is only part of the equationStaff turnover is recognized to be very high in emerging markets, High performers are, however, better placed to compete forbut despite all their efforts, high performers face similar or talent. This is reflected in the findings on pay. Fifty-nine percentslightly higher levels of staff turnover than low performers. say pay has increased by over 6% — and next year this rises to 76%. Sixty-nine percent of low performers say pay has increasedStaff turnover in emerging markets — majority response by less than 5%, which falls next year to 40%. All High Low Salary inflation for key staff in emerging markets Annual % Annual % Annual % 2011 staff staff staff -5% to -1% 4 turnover turnover turnover 6 0% 14 22Brazil 11%–15% 32 6%–10% 26 11%–15% 17 1%–5% 23 37 6%–10% 33Russia 6%–10% 35 6%–10% 24 6%–10% 26 19 11%–15% 21 15India 6%–10% 36 6%–10% 30 6%–10% 29 Above 15% 5 1China 6%–10% 33 6%–10% 28 6%–10% 25 2012Other Eastern 6%–10% 33 6%–10% 26 6%–10% 25 1Europe -5% to -1% 2 0% 5Other Far East 6%–10% 29 1%–5% 24 6%–10% 21 8 1%–5% 19 30Other Latin 34 6%–10% 33 6%–10% 23 6%–10% 21 6%–10% 38America 11%–15% 31 20Indeed, when talking with CFOs about their experience in entering Above 15% 2 11rapidly developing markets, both high and low performersreported similar problems. While they shared challenges with the High performers Low performerslevels of staff turnover and dealing with local unions, highperformers are much more aware of the cultural differences thatmust be addressed and have less challenge with integrating thelocal team into their business. But high performers report muchgreater challenges in getting the talent they need — and inkeeping it.32 Competing for growth How business is growing beyond boundaries
  • This increased competition for talent is also reflected in thestructure of compensation where employees at high performers The power of the motivational e-mailare more likely to have: Discussing HR issues always requires cultural factors to• A larger portion of their salary guaranteed be taken into consideration. We asked respondents to• A larger guaranteed bonus identify which approaches from senior management• Less share options contributed most to employee motivation and productivity. High perfomers reported on the power ofHowever, despite their deeper pockets, this is not simply a strict target-based assessment of staff, developingmanagement choice to pay more. Compared with low performers, corporate “myths” to create a performance culture andhigh performers are much less likely to see improving pay as an promoting training, but the biggest difference was theireffective way to motivate staff. Competing for talent is intense belief in the power of company-wide motivational e-mails.— not only does talent have a price, but it may be particularlydemanding in the breadth of return it wants for its efforts. When we looked at where respondents came from, however, the impact of cultural variation became clear. Approaches contributing most to employee motivation and productivity 45 51 Emphasis on internal promotions 25 47 42 Improving working conditions 44 20 46 38 Regularly being seen 41 on the “shop-floor” 35 55 38 Strict target-based 33 34 assessment of staff 41 36 Conveying company “myths” and 40 25 stories that illustrate company culture 36 27 Improving pay 38 25 22 24 Promoting training and 21 32 learning programs 24 17 Ensuring that middle managers are 16 capable of good people management 32 15 12 2 Company wide motivational e-mails 27 14 All respondents Asia-Pacific Americas EMEIA Competing for growth How business is growing beyond boundaries 33
  • New talents and skillsStakeholder confidenceBeing more engaged with engagementStakeholder confidence requires taking your stakeholders on your journey with you, whether internal orexternal. We have been interested in seeing whether different approaches to employee management andengagement may explain the difference in performance.Starting from a better position to grow Job-related issues contributing most to employee engagement 46Clearly, the direction that companies need to take is based on Opportunities to improve skills 43both their goal and their current position. Some high performers Greater staff autonomy/empowerment 42 39are clearly starting from a better position because of the actions 30 Prospects for promotionthey took during the past years and the experience of their 23 28employees, especially during the recession. Fewer high Salary level 27performers had to make large numbers of staff redundant or Flexibility of working 23 19freeze recruitment. Indeed, almost twice the number of high Job security 21performers continued to recruit during the past two years for 23rapid-growth markets. Variable remuneration 18 16 Fit of individual to role 18 17The effects of the downturn on recruitment High performers Staffing was increased in key, 45 Low performers high growth markets 26 Staff turnover is a key challenge 42 in emerging markets 26 This is reflected in their approach to management where they Pay for key talent in emerging 37 believe in a much more proactive dialogue with their employees. markets continues to rise 31 High performers believe that management vision — especially Staffing levels were reduced 31 around growth and profitability — and the active engagement of >5% in our main markets 35 the immediate manager are believed to be more important thanStaffing levels were frozen or reduced 21 <5% in our main markets 25 stressing the merits of the workplace or the competence of the Our company has focused on 17 manager. training and development 28 rather than pay High performers Company-related issues contibuting most to employee Low performers engagement 56Focusing on engagement through commercial Clear vision from the management team 49effectiveness Growth prospects of your business 49 41 Informal, friendly, collegial 46High performers take a more commercial approach to the workplace culture 53 Motivational ability of one’s 42motivation and engagement of their teams. They design jobs that immediate line manager 32reflect their belief — or to meet the demand — that roles should be Profitability of the company 27 23dynamic and people are most motivated by the desire to improve Brand reputation of the company 26their skills and drive their own career. 29 Extent of personal interaction 18 with senior management 20All our respondents recognized that salary level was only one of Competence of one’s 15the motivational factors — and this was identical in the responses immediate line manager 26regardless of performance. High performers, however, are more High performerslikely than low performers to believe in the motivational impact of Low performersautonomy, promotional prospects, opportunities for skills Small though these differences may appear, there is a significantacquisition, flexible working and variable remuneration. difference in practice between the proactive management challenge and engagement that high performers are reporting and a more static, entitlement perspective of the power of the organization.34 Competing for growth How business is growing beyond boundaries
  • Key questions for management• How clear are you about your talent needs?• How effective have you been in tapping the new markets for talent?• Is your organization as diverse as it needs to be?• How quickly can you develop talent?• What is your approach to staff mobility?• Can you really compete for top talent in your sector?• How engaged is your workforce? Competing for growth How business is growing beyond boundaries 35
  • About this reportThe benchmark findings for this report are drawn from two studies conducted between January andFebruary 2011 in parallel for Ernst & Young by the Economist Intelligence Unit. To explore what companieswere doing as they entered new markets and innovated, we interviewed some 400 C-suite and marketingprofessionals. To explore how companies were addressing talent management, we interviewed 400 C-suiteand HR directors.Geographic location Revenue (annual global revenue USD) North America 22 $10b or more 9 Latin America 4 $5b to $10b 6 Western Europe 46 $1b to $5b 29 Eastern Europe 3 $500m to $1b 23 Middle East and Africa 6 Less than $500m 33 Asia-Pacific 20Stakeholder Sector CEO 36 Financial services 16 Human resources director 16 Professional services 11 President/MD 10 Manufacturing 9 SVP/VP/Director 9 Technology 8 CFO 7 Consumer products 7 COO 7 Power & utilities 6 Life sciences 5 Board member 3 Real estate 5 Other C-level executive 3 Media & entertainment 5 Head of department 2 Oil & gas 4 Treasurer/Controller 1 Other transportation 3 CRO/Head of Risk 1 Retailing & wholesale 3 CIO 1 Telecoms 3 Chief marketing officer 1 Automotive 2 Head of business unit 1 Government & public sector 2 Manager 1 Mining & metals 2 Other 7All tables show percentage of respondents36 Competing for growth How business is growing beyond boundaries
  • About this reportFor more information about our findings for your sector or your country, please contact your local Ernst & Young office. Alternatively, please visit or, for users on the move, visit
  • Ernst & YoungAssurance | Tax | Transactions | AdvisoryAbout Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction andadvisory services. Worldwide, our 141,000 people are united byour shared values and an unwavering commitment to quality. Wemake a difference by helping our people, our clients and our widercommunities achieve their potential.Ernst & Young refers to the global organization of member firms ofErnst & Young Global Limited, each of which is a separate legal entity.Ernst & Young Global Limited, a UK company limited by guarantee,does not provide services to clients. For more information about ourorganization, please visit© 2011 EYGM Limited.All Rights Reserved.EYG No. AU0827 In line with Ernst & Young’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.This publication contains information in summary form and is therefore intended forgeneral guidance only. It is not intended to be a substitute for detailed research or theexercise of professional judgment. Neither EYGM Limited nor any other member of theglobal Ernst & Young organization can accept any responsibility for loss occasioned to anyperson acting or refraining from action as a result of any material in this publication. Onany specific matter, reference should be made to the appropriate advisor.The views of third parties set out in this publication are not necessarily the views of theglobal Ernst & Young organization or its member firms. Moreover, they should be seen inthe context of the time they were made.