Accenture Outlook Journal Oct.2011 by Frederic Martin

The journal of high-performance business

accenture.com/outlook | 2011, Number 3

New paths to growth

The Age of Aggregation PLUS Can Chinese enterprises win in the global big leagues? Big profits from Big Data The Risk Masters: How companies are redefining risk management

Outlook

Editor-in-Chief David Cudaback

Chairman William D. Green

Managing Editor Letitia B. Burton

Chief Executive Officer Pierre Nanterme

Senior Editor Jacqueline H. Kessler

Chief Marketing & Communications Officer Roxanne Taylor

Senior Contributing Editor Paul F. Nunes Contributing Editors David Light Craig Mindrum Industry Editor Wendy Cooper Contributing Writer Lance Ealey Assistant Editor Carolyn Shea Design & Production IridiumGroup Inc. www.accenture.com/Outlook This publication is printed on 10 percent post-consumer fiber.

For more information about Accenture, please visit www.accenture.com.

The views and opinions expressed in these articles are meant to stimulate thought and discussion. As each business has unique requirements and objectives, these ideas should not be viewed as professional advice with respect to your business. Accenture, its logo and High PerÂformance Delivered are trademarks of Accenture. This document makes reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks.

The Long View

Pierre Nanterme Chief Executive Officer Accenture

Trends At a time of continuing economic uncertainty and market volatility, it is more important than ever to have a thorough understanding of the trends that affect the way the world does business. With that kind of insight, an organization can get out in front of these trends and be much better prepared than the competition when the upturn occurs to pursue sustained, profitable growth. The articles in this issue of Outlook can be grouped around five broad trends that are rapidly redefining today’s marketplace. Here are some examples. Globalization. The cover story looks at a major strategic shift that we call aggregation. The authors argue that in an era of fractured markets and tech-savvy, globally attuned consumers, the strongest growth will happen not within industries or markets but across and among them. Increasing regulation. Few executives in any industry know more about the tough new regulatory environment than risk professionals. Another article identifies a small but growing number of companies that are far more comprehensive in their approach to compliance but at the same time view risk management as a source of shareholder value.

article points out, even with today’s high levels of unemployment, the challenge of finding people with the right skills requires a much more imaginative approach to talent management than organizations have used in the past. Innovation. One article explores how innovation has become critical to survival in the retail industry, where the boundaries between competitors are disappearing, forcing companies to rethink many of their old assumptions. New waves of technology. This trend can be the most disruptive, because a new technology can all but overwhelm the ability of a business to derive value from it. As another article points out, however, this gap is narrowing as new IT developments and business architectures are bringing the two sides together in more collaborative, powerful ways. There’s a saying in the investment community that “the trend is your friend.” In business, this is true only when companies see trends as opportunities. I hope you find our analysis of today’s trends relevant and useful.

Operational excellence. Excellence in any organization begins with a highly skilled workforce. But as another 1

From the Editor’s Desk

Is growth back? In a recent Accenture poll, 85 percent of executives surveyed said they expect their companies to expand at or above forecast global GDP growth rates during the next 12 months. But subsequent research by a team of our strategy professionals, headed by senior executive Wayne Borchardt, revealed a countervailing reality. More than 90 percent of the world’s largest companies were not able to achieve revenue growth of at least 5 percent every year over the five years from 2005 to 2009. Yes, that period included the Great Recession, but when Borchardt’s team ran the same analysis over the boom of 2000 to 2004, it found that more than 8 out of 10 of these companies similarly failed to achieve revenue growth of at least 5 percent every year. Given this performance during the past decade and with economies throughout the world still struggling, is growth a realistic expectation? If traditional assumptions about strategic planning and growth persist, notes Borchardt, it will be an uphill battle: “While there will be differences by industry, for the next five years, almost all companies will find themselves in an environment of unprecedented change and disruption— and on almost all fronts simultaneously: economic, commercial, legislative, technological, geopolitical.” 2

Outlook 2011, Number 3

As our strategists explored what has kept companies from reaching their growth potential, it became apparent that the focus on serving customers as individuals and on being sensitive to local market needs had masked larger trends that are in fact bringing customers and markets together. Technology has been creating convergence, not just among industries but across customer segments, market opportunities and innovation sources as well. The team dubbed this phenomenon “aggregation.” It is the subject of our cover story (it begins on page 18), which was coauthored by Borchardt, consulting colleague Jill Dailey and Paul Nunes, executive director of research at the Accenture Institute for High Performance and Outlook’s senior contributing editor. The pendulum is slowing swinging away from marketsof-one to markets and industries of affinity, wherever in the world shared values, customer taste and industry capabilities are found. As companies plot their coming strategic direction and shape their growth strategies, they would do well to prepare for an “Age of Aggregation.” David Cudaback Editor-in-Chief, Outlook

On the Edge

Distributed, decoupled, analyzed: IT’s next frontier undercurrents that seem to be shaping much of IT.

1. Everything will be distributed There is no doubt that fully centralized IT—all applications, data, servers and storage residing in a single data center—would be the ideal solution for most organizations, both architecturally and operationally. So why would anyone distribute their applications and data? Kishore S. Swaminathan Chief Scientist Accenture

An ancient Indian parable tells the story of a group of blind men describing an elephant. One feels the legs and describes the elephant as big and stocky; another feels the tail and describes it as thin and wiry; yet another feels the trunk and describes it as wet and slithery. Each is correct within his limited sphere of experience, yet no one gets the full picture. In my view, there is an elephant in the world of IT, one that represents big, impending changes for the future. Current buzzwords like “cloud computing,” “Big Data” and “service-oriented architecture” are simply well-intentioned blind men’s descriptions of this elephant— vague, not entirely incorrect, definitely not comprehensive, each trying to describe some aspect of a larger phenomenon that nobody yet comprehends. While the big picture may be elusive, there are three forces or

In the past, distribution of enterprise IT was either a matter of accident (departments wanted their own trophy data centers or the company grew through mergers and acquisitions), a deliberate decision to overcome network congestion and latency (keeping the applications and data closer to the users) or required as a matter of regulatory compliance (certain data and applications had to reside in specific geographic boundaries). Today, several factors are conspiring to make distributed IT the new normal. The availability of hardware and software as services provides financial incentive to distribute corporate applications and data with multiple providers. The need and desire to operate intercompany processes by integrating your systems with those of your suppliers and partners leads to data and process distribution. Integration standards enable you to source common services—say, credit verification—from a third party, making system building faster and cheaper.

On the Edge

As applications are distributed across multiple platforms and locations, corporate data will also be distributed. The need to integrate and utilize external data—data from the Web, data from emerging “data as a service” vendors—is yet another reason for dealing with distributed data. Finally, the sheer volume of data generated by sensors in certain industries (such as electric utilities) makes it infeasible to collect all the data in one place for processing. The distribution of applications and data across many locations and providers is technically challenging; it also has many business implications. Your corporate data is under the custody of many third parties that themselves may be sourcing some of their software and services from other third parties over which you have no control. Third-party providers, in order to enhance performance and to support backups and recovery, may maintain multiple copies of your data within their complex and proprietary architectures, making it difficult if not impossible for you to monitor, audit or delete information. As your systems interoperate more and more with third parties, there is also the problem of trust and authentication—how would you know that the application you are exchanging data with is your trusted supplier and not an imposter?

2. Everything will be decoupled Distribution requires decoupling, and decoupling enables distribution. When applications and data are distributed—that is, when they reside in multiple places, in multiple 4

Outlook 2011, Number 3

platforms and are owned by multiple providers—they can no longer be monolithic. In the case of applications, they have to be modular and be able to interoperate with other applications. Fortunately, principles for modular design and standards for interoperability have emerged, matured and gained broad, industrywide acceptance. Indeed, this was the intent of the last big IT hype, service-oriented architecture, which many now consider just that: hype without much substance. The truth, however, is somewhere in between. Much like the blind men describing the elephant, many IT experts had only a partial understanding of the challenges of decoupling. They focused on decoupling applications into interoperable and modular “services.” In this, service-oriented architecture has been largely successful. Online companies have fully embraced SOA principles; any new business application written today is likely to be service-oriented. But SOA turned out to be only a partial solution for decoupling because its proponents focused on applications and not on data. Decoupling or partitioning data is not a trivial proposition—and this is the problem that’s at the heart of the current interest in “Big Data.” While IT has evolved and changed dramatically in the past 25 years, the main data storage paradigm— the relational database—has remained constant. The relational database has served us well over the years, across a variety of applications; however, it is not very good at being distributed—in more technical

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terms, it does not have partition tolerance.

becoming routine in most marketing departments.

As a result, a number of new, non-relational data management paradigms have emerged. Collectively called NoSQL (which stands for “not only SQL,” the data access used by relational database systems), these databases try to address a number of problems: managing distributed data, real-time data, multimedia data, metadata and so forth.*

A dramatic increase in customer analysis is made possible by another factor: the emergence of Facebook as the de facto identity manager across much of the Web—more than 2 million websites now let you log in using your Facebook account—and according to Facebook itself, more than 250 million users log in to thirdparty websites with their Facebook account every month.

As such, Big Data is less about big—which is true but incidental— and more about managing new kinds of data and dealing with new kinds of data management paradigms. Among other things, NoSQL or Big Data approaches are aimed at processing very large volumes of information—often in real time—that may or may not be structured or be in one central database.

3. Everything will be analyzed The key word here is everything. Metadata—data about data, such as who accessed it and when and where it came from—is growing at a much faster rate (estimates range from two times to 20 times) than the underlying data. Analysis of metadata is becoming routine in spotting security threats. Many websites analyze customer interaction data to automatically customize their site for individual users. Retailers are beginning to analyze video footage of customer traffic in stores to predict conversion rates. Analysis of social networks to gauge consumer sentiment is

vocabulary. The next time you hear another IT term that seems to lack definition or precision, it’s most likely related to one of the three forces outlined above. Postmodern computing 2.0, anyone? Kishore S. Swaminathan is based in Beijing. k.s.swaminathan@accenture.com

Why is this significant? Because when you visit a website you are no longer an anonymous user. With your Facebook account, the website now has access to a lot more information about you—your interests, your social conversations, your friends and whatever else you’ve chosen to make public. Analysis is by no means confined to consumers and websites. In manufacturing, information from sensors is used for optimizing factory operations. Information from RFID tags helps track goods through the supply chain. In electric utilities, real-time information from smart meters is used to match consumption with generation, optimize the distribution network and turn the electric grid into a “smart grid.” We often dismiss vagueness as fuzzy thinking. While this is true in most cases, vagueness— particularly sustained vagueness that captures people’s imagination— can be a harbinger of something new, something unfamiliar, beyond the scope of our current

*T o be sure, distribution is not the only force driving the data access paradigm. The dramatic growth in unstructured information—now estimated to be 80 percent of all information in the world—requires new data management approaches other than relational databases, which were aimed at supporting highly structured data used in business transactions. 5

Contents Perspective

Industry Report

Features

The Long View

Retail

8 Up close and personal

18 New paths to growth: The Age of Aggregation

1 Trends By Pierre Nanterme

By M. Reaves Wimbush and Christopher R. Roark

Strategy & Growth

By Wayne G. Borchardt, Jill S. Dailey and Paul F. Nunes

With such formidable competitors as Amazon and Apple Today’s expanded-scale 2 Is growth back? successfully invading their businesses require ever more By David Cudaback space, many traditional retailers substantial sales volumes to will struggle to keep pace over create shareholder value. In On the Edge the next decade unless they order to grow, they must become can swiftly develop a deeper, market aggregators—masters at 3 Distributed, decoupled, more intimate and long-term identifying commonalities in analyzed: IT’s next frontier relationship with consumers. far-flung consumer segments— By Kishore S. Swaminathan recognizing that the strongest Three new forces are reshapgrowth will happen not within ing the world of information industries or markets but across technology. and among them. From the Editor’s Desk

Strategy & Growth II

28 How Big Data can fuel bigger growth In the face of an increasingly complex business and operational environment for which many companies have been woefully unprepared, more and more risk executives are improving the sophistication of the systems they use to measure and analyze risk. “The Risk Masters” (page 54)

Outlook 2011, Number 3

By Sumit Banerjee, John D. Bolze, James M. McNamara and Kathleen T. O’Reilly

In the right hands and handled strategically, the massive amounts of information companies collect today can become a valuable new asset. Players seeking additional organic revenue streams should consider tapping their data trove to power a new information services growth engine.

F or additional thought leadership from Accenture, including the Accenture Institute for High Performance and Accenture Technology Labs, please visit www.accenture.com/ideas. For a personalized electronic newsletter tailored to highlight specific industries and issues, subscribe to My Outlook at www.accenture.com/myoutlook.

Customer Relationship Management

Risk Management

Talent & Organization Performance

36 Blurring borders

54 The Risk Masters

76 Solving the skills crisis

By Robert E. Wollan and Tzeh Chyi Chan

By Steve Culp

By Norbert Büning, Susan M. Cantrell, Breck T. Marshall and David Smith

Despite their diversity, the world’s consumers also have much in common. Segmenting them by similar motives, attitudes and behaviors—across geographies— can help companies overcome the complexities that derail so many attempts to achieve profitable global growth.

Emerging Markets

44 Inclusive growth: Closing the commitment gap

In the wake of a series of The broad availability of disasters, organizations are workers in the midst of the putting in place more compreeconomic downturn can be hensive risk management misleading, and many executives programs, with the intent of are only beginning to appreciate moving beyond a reactive the scope of the challenge they approach to risk to one that face when it comes to finding can fuel business growth in the right skills to compete in the a smarter, more controlled years ahead. Companies must fashion. And according to new get out in front of the skills research, an elite group of challenge, building an arsenal companies is also emerging to of altogether new solutions. embrace even more advanced risk management capabilities.

Information Technology

By Raghav Narsalay and Anish Gupta China 90 A new era of collaboration For years, companies have 64 Can Chinese companies By Kevin Campbell been exhorted to seek new win in the global big For the first time, it is possible customers and employees from leagues? to create IT-based solutions the world’s poor, underprivileged that are flexible, timely and By Gong Li, Bo Wang and Yali Peng and isolated. Progress has been able to be tailored to short-term slow, but some organizations are The likes of Lenovo and Haier business needs. There’s a catch, finding ways to get around the have shown that they can. But however: To tap into the true obstacles that give others pause. for other Chinese enterprises to power of this next generation enter the ranks of the world’s of solutions, companies need premium brands, they must to collaborate across a broader establish a significant global business and IT ecosystem. presence in operations, sales, distribution and R&D.

Industry Report | Retail

Up close and By M. Reaves Wimbush and Christopher R. Roark

With such formidable competitors as Amazon and Apple successfully invading their space, many traditional retailers will struggle to keep pace over the next decade unless they can swiftly develop a deeper, more intimate and long-term relationship with consumers.

personal

Industry Report | Retail

It may sound too good to be true: A one-stop shop for almost all of consumers’ everyday needs—from groceries to bill payments, mail services to cell phone top-ups, travel tickets to bank loans. Practically at your doorstep and accessible 24/7. In fact, it’s up and running—in Mexico. OXXO, Latin America’s largest convenience store chain, with more than 6.5 million transactions each day, provides these necessities via some 8,600 locations across Mexico. The secret of the Monterrey-based behemoth’s success: a corporate strategy and positioning fully aligned with a complete understanding of its customers’ most important needs. In the retail industry as a whole, however, such strategic alignment is all too rare. Most retailers still define their operating model in terms of product categories or store formats, not customers. They manage tactically, for the short term, and season to season. And because of their structural shortcomings, they have been remarkably slow to innovate. Which is why consumers, empowered by technology that gives them unprecedented choice and price transparency, have turned increasingly to more agile and creative interlopers. Among manufacturers, for example, Apple has redefined expectations in consumer electronics by offering iconic product and service experiences across all channels. And online pure plays such as Amazon.com can meet consumer needs in a range of segments more quickly, cheaply and conveniently than most retailers can.

Outlook 2011, Number 3

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Amazon, indeed, has effectively reinvented the retail value proposition itself. With no stores to staff or maintain, Amazon’s operating costs are significantly lower than those of most brick-and-mortar retailers. Indeed, its SG&A expenses are 300 basis points lower than those of many traditional multichannel retailers, and as much as 700 basis points lower than category-focused competitors. It is these efficiencies that give Amazon the flexibility to invest in getting to know consumers, making acquisitions to fulfill their unmet needs and spending on R&D to develop such groundbreaking products as the Kindle e-reader.

More broadly, the new entrants have changed the name of the retail game thanks to an astute combination of sophisticated insight and superior execution— accurately identifying customers’ unmet commercial and emotional needs, and then figuring out how best to fulfill them. Now, recognizing the urgency of the threat these challengers pose, a few leading retailers have started to try to emulate their example. Such companies typically focus on addressing three specific questions.

1. How can we understand customers well enough to be truly authentic in meeting their needs? Most retailers’ perceptions of their customers are incomplete. They rely on such rudimentary demographic data as loyalty cards and basket analysis, ad hoc qualitative assessments or generalized secondary market research—not enough to develop the holistic customer view they need to create highly relevant offerings. But by supplementing their point-of-sale data with primary research and predictive analytics, they would be able to segment customers into more robust behavioral profiles, incorporating not only today’s core customer base but also the shoppers who will drive tomorrow’s growth. Consider one large airline, which has leveraged analytics to optimize marketing campaigns, reduce churn and build richer dialogs with key customers.

The company’s satisfaction surveys, for instance, solicit customer feedback on such critical issues as on-time departures and the length of check-in lines, as well as perspectives on in-flight entertainment and service. The surveys have helped the company’s strategy team determine just how and where to innovate the customer experience. And not only for those with first-class tickets—thanks to its intense customer focus, the company was one of the first airlines to recognize that passengers in all classes appreciate a little pampering. By being an early adopter of personal TVs for every seat, as well as allowing passengers to use onboard SMS messaging and personal electronic devices with a “safe flight” mode, the company developed deep customer loyalty.

Industry Report | Retail

Retailers can learn about their customers not only through their own research but also by tapping into the wealth of knowledge that their suppliers possess. As vendors, for the most part, of other people’s brands, retailers have had few reasons to make the hefty investments in R&D or fixed assets that sustain both the superior strategic planning and superior innovation capabilities of consumer products players. But by collaborating with manufacturers, they can gain access to these players’ broad, crosscategory customer insights—and vice versa.

Indeed, both parties can benefit from shared insights. One large retail drug chain, for example, has used a third-party tool that develops a 360-degree, multichannel view of its customers by integrating online, mobile and in-store data. By sharing consumer data with a manufacturer, this retailer has illuminated opportunities to create products that more perfectly meet consumer needs. And together with one of its suppliers, the company has developed a testing approach to ensure it gets products right before distributing them.

Private label: A collaborative approach By Robert E. Berkey and Lori Baran

There was a time when private label was synonymous with second best—a low-cost, low-value option for cash-strapped consumers who couldn’t afford the real thing. No longer. The recent recession and anemic recovery have turned consumers worldwide into enthusiastic buyers of retailers’ own branded goods across a widening range of categories— and not just because they are usually cheaper than nationally branded products. The quality of private-label products has improved so much and retailers have become so sophisticated in positioning them with a diversity of customer segments that some have become sought-after brands in their own right. Consider, for example, the popularity among premium UK shoppers of Tesco’s Finest specialty food range. But striking the right balance between private label and national brands can be tricky. Consumers want both. But if retailers place too much emphasis on private label—especially if they rationalize SKUs at the same time, as many have done—they run the risk of frustrating shoppers, as well as alienating suppliers already concerned about the threat that private label poses to their margins. Walmart, for example, was forced to revisit its private-label strategy in the United States when customers complained that the retailer’s own Great Value brand was crowding out the national brands they were looking for. 12

Outlook 2011, Number 3

So how do retailers determine if private-label products really are meeting customer needs better than national brands—or just driving down what the average customer spends and overcomplicating the shopping experience?

A win-win Collaboration across the value chain could be the key to making the right choice. Indeed, a joint approach, combining the complementary capabilities of retailers and manufacturers in the four key, demand-side areas that drive the most value— consumer insight, assortment planning, innovation, and marketing and promotion—can be a win-win for both parties. Take consumer insight—the key to understanding the relevance of private label for a particular category or store. Thanks to their view across retailers, manufacturers boast the cross-category, cross-format and cross-location insights that individual retailers typically lack. By combining such broad analytical intelligence with its own wealth of point-of-sale transactional and customer loyalty data, a retailer would gain a more holistic view of the consumer and could target specific, high-value customer segments more effectively with the right combination of private-label and national brand products. Manufacturers, meanwhile, would boost their influence with retailers and, armed with richer customer analytics, could enhance the ability of branded products to satisfy unmet needs.

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Collaboration can be an especially attractive option if a strategic gap in the marketplace has been identified but the retailer is unsure about how

best to fill it. This could mean pushing a private-label option, for example, or deciding to rely on national brands (see sidebar, below).

2. How can we earn the trust and loyalty of consumers by making their lives easier? Today’s customers place a high value on offerings that make their lives easier. And retailers that leverage analytics to discover how they can help relieve the pressures

and frictions of everyday life have gained significant competitive advantage. PetSmart, for example, has become the leading pet supply retailer in the United States by

Joint assortment planning could deliver similarly mutual benefits, driving differentiation for the retailer and potentially boosting category share for manufacturers. Right now, the typical retail shelf is packed with a mix of national brands and private labels vying to satisfy similar consumer needs—a recipe for category erosion. But by collaborating on assortment planning, leveraging such state-of-the-art capabilities as attribute-based demand analysis to determine the product characteristics that consumers most value, both parties could gain. Retailers would understand exactly which categories were best served by private label and which SKUs really belong on the shelf, and manufacturers would not waste time and resources competing with private-label goods for shelf space in a particular store. Product innovation is another area where manufacturers and retailers could benefit by collaborating. New products or enhancements would offer opportunities for retailers to grow categories, while manufacturers would get the chance to boost return on innovation investment by becoming more relevant and improving speed to market. Starbucks Corp., for example, has combined its coffee expertise with Unilever’s capabilities as the leading global maker and marketer of ice cream to create a dessert of choice in the super-premium segment of the $17 billion North American ice-cream market.

Moreover, working together on marketing and promotions, pairing retailers’ shopper loyalty data with manufacturers’ deeper marketing budgets, can enhance understanding of the impact of promotions on specific consumer segments and help boost category sales overall. To be sure, successful collaboration requires willing participants. Manufacturers in particular will have to weigh their options carefully, category by category and retailer by retailer, to determine when it makes sense to collaborate and when their own brands should continue to compete head-on with private label. Even when collaboration does make sense, both parties confront challenges around trust—though thanks to leadingedge approaches, these are by no means insurmountable. Creating a clean room environment for collaboration, managed by a third party, would help overcome mutual suspicions about sharing data, for example; and having a third party create a tool to facilitate transparent, shared access could be a cost-effective alternative to a hefty investment in additional technology or headcount. It’s clear that collaboration can deliver significant mutual benefits. And for retailers, its potential as a driver of value across all categories—national brands and private label—is persuasive indeed as the industry battles to retain relevance with today’s demanding and elusive consumers (see story).

Industry Report | Retail

recognizing that pet owners who treat their animals like family want a convenient, care-based shopping experience that meets a pet’s total needs. The company created an offering that combines the widest possible selection of quality goods at a reasonable price with a coordinated suite of veterinary, training, grooming and other ancillary services provided by associates who can answer questions and anticipate customer needs—an experience far superior to anything available through discounters or most other retailers, groomers or veterinarians.

As a result, the Arizona-based company established an intimate, long-term relationship with America’s doting “pet parents,” as it calls them. What’s more, this strategy, which encompasses the total cost of pet ownership, tripled the size of PetSmart’s potential market. Similarly, Carrefour, Europe’s leading retailer, recognized that the same customers can have different needs depending on the time of day or day of the week. So it offered different retail alternatives—hypermarkets, supermarkets, convenience stores,

New concepts: How to pick the winners By Peter K. Madden and George L. Coleman

Investing in new retail concepts is a high-risk exercise. As de facto startups, they target new customers and typically involve new channels, new formats, new selling models and new brands, which can often add up to whole new businesses— and a formidable challenge. To be successful, new concepts must capture the imagination of today’s fickle shoppers. And not surprisingly, many fail to do so. In the United States, the Census Bureau estimates that fewer than half of all new businesses survive for longer than five years. Yet successful new concepts can drive growth, profitability and high performance—a tantalizing prospect for mature players struggling to retain relevance with consumers increasingly inclined to buy from online pure plays or directly from the manufacturer (see story). Abercrombie & Fitch’s Hollister label, for example, which launched in 2000 with lower price points and stores themed around a sexy surfing lifestyle positioned to appeal to a younger demographic, is now a $1 billion-plus business. Success hinges on the disciplined application of four principles: launch the new concept for the right reasons; incubate it as a separate entity; know when to fold it; and create and perfect the new-concept playbook. The four principles are both interrelated and interdependent. Even a concept launched for all the right reasons will require committed nurturing as an independent business. And if 14

Outlook 2011, Number 3

new-concept development is to fulfill its potential as a driver of future growth, a playbook that helps identify what works and what doesn’t will be indispensable.

Complex choices Successfully applying these principles can involve some complex choices. Take launching for the right reasons. It sounds straightforward enough—but timing can be tricky. After all, why place a risky bet on a new concept if simply extending an existing business line could satisfy emerging consumer needs just as well? Retailers need to understand the acceptable boundaries of existing products and services, and when pushing the brand too far from its core will alienate or confuse consumers—which can sometimes happen if, for example, low-cost brands try to go upmarket. They should also recognize that brand concepts have natural lifecycles in terms of growth and returns, and that while some new consumer segments may offer attractive growth prospects, they could still prove prohibitively expensive to develop. To be successful, new concepts must offer a truly captivating customer experience. The best approach to picking winners is to keep exploring new concepts as an ongoing exercise— a competency in and of itself, and one that will keep the retailer on its toes in today’s fast-changing marketplace.

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cash and carry franchises, and ecommerce shopping—each designed to meet specific needs. For example, Carrefour Planet stores, which are revamped hypermarkets, offer numerous services— such as regional tasting sessions, haircuts and free clothing alterations—that encourage customers to linger. All of which goes to show, of course, that despite the surge in online shopping, physical stores are still highly relevant. Indeed, some consumer needs can actually be met more effectively in a physical setting.

Witness, for example, how OXXO identified a customer need in the mobile phone space and successfully met it. In Mexico, where prepaid cell phone services predominate, consumers want to be able to buy minutes swiftly, securely and conveniently. At the checkout in their local OXXO store, all consumers need to replenish their phone service is the bar code on their OXXO identification card. The company, meanwhile, benefits from the additional and more frequent purchases that such customers make while in the store.

Gap’s Forth & Towne concept, for example, was shuttered in 2007 after failing to win the hearts and minds of the over-35 women it targeted. But that didn’t stop the company from continuing new-concept experimentation, and with some success—witness the women’s accessories concept, Piperlime, launched in 2006, and the acquisition of Athleta, the sports outfitter for women, in 2008.

within two to three years (sufficient time to fix deficiencies in terms of location, offering and price), the retailer should acknowledge defeat and fold it. Similarly, volatile or even average performance within the same time frame is sufficient grounds to make the same decision, especially if no discernible future direction has emerged.

Launching a new concept is much like launching a new company. And without a targeted customer base, adequate capital, experienced management and focus, the best ideas can be doomed from the start.

Failed concepts can be bitter blows, but documenting and codifying the criteria, guidelines and protocols for concept innovation—without sacrificing speed of decision making— embeds rigor into the concept innovation process and minimizes the chances of going wrong. Limited Brands, for instance, focuses on a set of key strategic imperatives— attracting top talent and maintaining superior support capabilities, among them—in pursuit of its mission to build a family of the world’s best fashion retail brands.

New retail concepts have the best chance of success when they are established as separate entities that still enjoy parental support if and when they need it. Limited Brands, for example, which has launched Victoria’s Secret, Bath & Body Works and La Senza, among other successful concepts, incubates new brands as standalone businesses that still benefit from the product development, sourcing and logistics teams behind the Limited’s frequent and innovative product launches. Winning new concepts benefit from other core capabilities as well—notably the analytics-driven consumer insights that help retailers determine whether or not a new concept is delighting or dismaying its target market. Delighted consumers drive dynamic growth. But if a new concept has failed to please customers enough to grow quickly

By creating and perfecting such a playbook, retailers can establish a pattern that reduces complexity, provides strategic clarity for both employees and investors, and helps focus the organization as a whole on improving the ROI from new-concept development. Indeed, a playbook helps institutionalize concept innovation processes, deepening a retailer’s understanding of its customers and building the ability to think several moves ahead—the key to sustainable new-concept development and competitive advantage in today’s fast-changing markets.

Industry Report | Retail

3. Do we have champions who can carry out a long-term plan to pursue consumer interests? Leading companies know that a longer-term, customer-centric approach requires champions—a team of value-focused and experienced individuals responsible for pursuing the differentiated growth opportunities that emerge as a result of full visibility into the customer value chain. Led by a senior executive for corporate strategy and planning, who reports directly to the CEO, this team can identify which customer opportunities to act upon, and how to pursue and manage them most effectively. In order to be able to prioritize opportunities, the strategic planning team keeps a close eye on the evolving desires of customers, current and future. It also requires a sophisticated understanding of the context in which the retailer operates, including such constraints as its supply chain, pricing and channel limitations. And once an opportunity has been evaluated, the team must determine if fulfilling this particular customer need will reinforce the retailer’s brand positioning—not only over the next quarter or so, which is the focus for most retailers, but also several years down the line. At one apparel retailer in the United States, the head of strategy looks across multiple quarters to

evaluate how merchant operations and buying, business information and process execution unite to meet consumer needs. The market has rewarded the company for its keen ability to understand future consumer needs and how these will influence the way the company manages its strategic positioning with a share price that reflects a multiple higher than its peers. Any retail strategy team is responsible for determining how to set and execute a plan that boosts both shareholder value and customer intimacy—a tall order indeed. Should the retailer invest to build new capabilities, acquire additional capabilities or collaborate with others to create them? How will it ensure effective category management—a discipline that requires bringing a cross-functional perspective to all relevant areas, from allocating funding to managing the customer experience? These decisions will vary in complexity, depending on the individual retailer. But they will always involve a complex set of choices around such issues as whether or not pushing the retail brand too far from its core by launching a new concept will end up confusing consumers rather than pleasing them (see sidebar, pages 14–15).

Getting closer to their customers will be a challenging prospect for many retailers, and any call to action inevitably involves dramatic changes in the way they think, organize and behave. But change the retail industry must. Indeed, with manufacturers and online competitors encroaching relentlessly on their traditional turf and anticipating and meeting consumer needs ever more effectively, no retailer, in any segment, can afford to flinch from the undertaking. 16

Outlook 2011, Number 3

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About the authors

For further reading

M. Reaves Wimbish is a senior executive in Accenture’s US Retail Strategy group. In her 14 years with the company, she has worked with hardlines, apparel and drugstore retailers worldwide to help them with broad-scale transformation. Ms. Wimbish is based in Chicago.

“Blurring borders,” this issue, page 36 For this and other articles, please visit accenture.com/Outlook

m.reaves.wimbish@accenture.com Christopher R. Roark is a Chicago-based senior manager in Accenture’s Management Consulting group. Mr. Roark focuses on enterprise transformation and operational excellence in retail and consumer related clients. christopher.r.roark@accenture.com Chicago-based Peter K. Madden is a senior manager in Accenture Strategy, working with retailers across a variety of strategy and operations projects. peter.k.madden@accenture.com George L. Coleman is a New York-based senior executive in Accenture Strategy, responsible for the company’s Pricing and Profit Optimization group in North America. He has worked with a wide range of retailers on pricing, marketing and consumer strategies. george.l.coleman@accenture.com New York-based Robert E. Berkey is a senior manager in Accenture Strategy, focused primarily on sales and marketing initiatives with consumer goods and services clients. robert.e.berkey@accenture.com Lori Baran is a senior manager in the Accenture Products industry group, working primarily on SAP implementations for consumer packaged goods clients. She is based in Kansas City. lori.l.baran@accenture.com

Strategy & Growth

New paths to growth

The Age of Aggregation By Wayne G. Borchardt, Jill S. Dailey and Paul F. Nunes

Todayâ&#x20AC;&#x2122;s expanded-scale businesses require ever more substantial sales volumes to create shareholder value. In order to grow, they must become market aggregatorsâ&#x20AC;&#x201D;masters at identifying commonalities in far-flung consumer segmentsâ&#x20AC;&#x201D;recognizing that the strongest growth will happen not within industries or markets but across and among them.

Strategy & Growth

Welcome to a paradoxical new era for business. As today’s companies grow ever larger, the traditional market segments they serve continue to splinter and shrink. For many multinational corporations, fractured “long-tail” markets, coupled with the need for ever-larger customer segments to sustain growth, mean that the game has changed—fundamentally. Long accustomed to targeting huge, geographically distinct mass markets, companies must now focus on aggregating sales across and among these arenas to generate the sales volumes they need to grow and thrive. But guiding a massive enterprise through the roiling aggregation waters is like trying to float a battleship in a million bathtubs: The water’s there, but how do you capture enough of it to provide the buoyancy your company needs to stay afloat? Achieving growth that moves the dial in this new competitive environment—especially in the midst of persistent economic uncertainty and market volatility—requires first seeing and understanding the unique technology-driven era that’s making both the problems and solutions possible. Accenture research on business growth has revealed four technologies that leading organizations will rely on in the next three to five years as they make aggregated sales a reality. First, they’ll use sophisticated analytics to gather the massive amounts of data required to identify and serve new customers worldwide. Second, cloud computing will help them to combine services by providing users access to remote computing power and software on a pay-per-use basis. As a result, all companies will be able to access the advanced computing power they need to identify global customer segments at the click of a mouse, without large upfront capital investments. Meanwhile, two other technologies—mobile connectivity and online social media—will allow these companies to connect with customers wherever they are located and spot themes shared among individuals worldwide, respectively. These technologies are helping companies target and serve consumers across the street or around the world with nearly equal ease. But they aren’t by themselves fostering the global market integration opportunity that’s currently forming. Instead, these technological developments are driving three shifts in the competitive landscape that are ushering in the new Age of Aggregation. 20

Outlook 2011, Number 3

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1. Converging business activities and players are blurring industry boundaries In many industries, today’s leaders may sometimes wonder what business they’re really in. The crisp, clean lines that once separated markets are blurring as companies seek new ways to grow. The early winners in this new environment have excelled at recognizing and exploiting the growing overlaps among formerly standalone industries, as well as the fresh intermediary steps in value chains that offer new opportunities. The digitization of data is affecting the way products are created and delivered, which, in turn, is encouraging new participants to enter the fray at every point in industry value chains. Companies that possess distinctive business capabilities—in finance, for example, customer service or logistics—in

one industry can now often successfully enter other sectors, especially when they have achieved the benefits of scale. Take Walgreens in the United States. Is it a pharmacy chain or a healthcare provider with a role in supporting emerging accountable care organizations? Such questions are resonating across industries and around boardrooms, as more and more companies attempt to position themselves to capture value in formerly unimagined ways. Apple already excels at this game, disrupting the music and publishing industries by becoming a de facto content gatekeeper in both areas with its iTunes and iPad offerings. Elsewhere, a global food giant is exploring potential opportunities in the pharmaceuticals sector.

Aggregation as strategy The broad availability of new technological capabilities and the development of three trends—blurring industry boundaries, the rise of a global middle class and the entrance of emerging-market players on the global stage—have combined to animate a startling new business model: Instead of treating geographically separate markets as distinct revenue pools, companies can aggregate these sales across time zones, nationalities, cultures, social networks and interests to serve truly global customer segments (see story). To play this game, however, leaders need to cast off some traditional strategic notions. Instead of focusing on specific markets, for example, they need to follow comparable customers. As a result, “where” you play necessarily becomes a variable, not a set-in-stone strategic element: You play anywhere and, if possible, everywhere. It’s more about finding similarities among customers than defining them by their geographical differences. Clearly, the elements of an aggregation strategy will differ from industry to industry, but the core idea remains the same: As technology increasingly enables consumers to shop the planet, businesses need to find creative new ways to deliver value to them on a worldwide basis. 21

Strategy & Growth

2. R ising incomes and the desire for affordable luxury are melding to create a new global middle class Strong growth in emerging economies is leading millions of consumers in those markets into the ranks of a fast-growing global middle class. In fact, according to the Economist Intelligence Unit, emerging markets will drive about two-thirds of world economic growth in dollar terms across a range of industries over the next five years, at the expense of developed economies.

$30,000 already represent a surging mass market all by themselves, and these newly empowered consumers shop eagerly for stylish and highquality goods, at more affordable price points. Meanwhile, although older consumers in developed markets—now beset by debt, rising healthcare costs and uncertain retirement prospects—have become more frugal in their spending habits, they are demonstrating a similarly pronounced interest in stylish, but affordable, products.

Companies will find the new spending power in these markets irresistible. There, citizens with annual household incomes between $5,000 and

Growth engines Over the next five years, emerging economies will account for 62 percent of global growth. Global GDP growth, 2010–2015 ($ billions at 2005 prices and market exchange rates) 651

1,458

302

273

206

178

$59,498

152

38%

Developed markets’ share of global growth CAGR=1.8%

62%

Emerging markets’ share of global growth CAGR=5.7%

1,903

617

272

220

203

174

1,906

$50,983

Global GDP 2010

China

India

Brazil

Source: Economist Intelligence Unit

Outlook 2011, Number 3

South Korea

Russia Mexico Other US emerging

Germany

Japan

France Canada Other developed

Global GDP 2015

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Accenture expects the coalescing of these two consumer segments to become the center of gravity for global consumption in the long term. These converging trends add up to arguably the largest mass consumer market in history—a geographically fractured but cumulatively huge global middle class. We estimate that this new global middle class will rise from approximately 1.8 billion households in 2009 to nearly 4.9 billion in 2030. Furthermore, it seems likely this trend will be a long-term phenomenon, with

income growth through 2020 in developed countries expected to moderate. Successfully exploiting these trends will depend on a company’s ability to serve similar needs across multiple consumer clusters simultaneously. For instance, the older consumer in developed markets, living on a fixed income, might seek out the same valuefocused near-luxury car or discounted travel options that appeal to younger middle-class families in emerging markets.

Some pioneering companies have already refocused their businesses on the emerging-market middle class. Fast-moving consumer products giant Unilever has been a trailblazer in harvesting value from these markets, which contributed the majority of the company’s revenues in recent years. In fact, because Unilever’s developedmarket revenues actually shrank from 2006 to 2010, developingeconomy sales contributed all of the firm’s growth.

3. S avvy new emerging-market players are redrawing the competitive map The arrival of aggressive global players from the BRIC countries and beyond has begun to tilt the competitive center of gravity away from developed economies. In the process, these new emergingmarket leaders are moving past their traditional low-cost value propositions as they aspire to become true global peers with Western firms in terms of innovation, technology and research capabilities. This global leveling of capabilities could ultimately cause an increase in overall competitive intensity across industries that many Western players are not prepared to meet. Emerging-market companies—led by energy, telecommunications and financial services giants from Brazil, Russia, India, China and Mexico— doubled their presence on the Fortune Global 500 between 2005 and 2010, accounting for nearly 20 percent of the total. Many took advantage of the global downturn to snap up distressed Western companies.

Getting their heads around the implications of this new Age of Aggregation might be one of the toughest challenges facing today’s company leaders. Instead of pushing value into a physically defined market, companies must pluck it from similar customer segments worldwide. Sales territories and channels now span the world, and go-to-market strategies need to reflect both the similarities and differences of international customer segments (see sidebar, page 21). As a result, companies need to think through a newly expanded set of options. They must first redefine their business strategies to include the new markets and segments noted here. They must then redraw their product/market matrix with an eye toward refining existing offerings and creating new ones, and work out the issues that surround expanded retail channels,

logistics requirements and supply chain management considerations. Companies must also redraw positioning maps to take into account the entry of new competitors from emerging markets and other industries, and to incorporate the newly expanded set of customer values and demands that are surfacing as companies bring scattered market segments together. Take, for instance, the concept of reverse innovation, where products such as low-cost ultrasound machines are introduced to developed markets from emerging ones. This phenomenon is causing many leading companies to rethink their product strategies of providing leading-edge functionality at premium prices and, instead, explore less advanced but more cost-effective alternatives for value-focused customers. Most important, leaders need to adapt their business processes to an altered environment where

Strategy & Growth

new “synthetic” markets arise as a result of a company’s own business savvy, not as a result of simple market trends. We call these markets synthetic because they are pulled together from previously disparate pieces to form a cohesive whole.

lion in a specific program with the goal of improving the company’s performance. It has embraced the concept of “open innovation,” seeking product ideas and insights from virtually anywhere—customers, employees, even competitors.

The practical effect of this is that new markets emerge as fast as companies can imagine them—considerably faster than traditional demographic and technology drivers. This will likely require a new paradigm of innovation and innovation agility, one that is more responsive to market shifts and less dependent on the insular R&D labs.

As a result, the company has successfully overcome the “not invented here” syndrome, and actually partners with competitors to bring new technologies to market. Today, P&G receives more than 300 innovation ideas monthly via its innovation website, and traces $3 billion in annual sales growth to the open innovation channels.

Procter & Gamble has become a leader in this kind of innovation, investing $100 million to $200 mil-

Perhaps the most important aspect of this exercise is to ensure that identifying and entering these new

Big spenders By 2030, global middle-class spending is expected to more than double, reaching more than $55 billion—and over half of that spending will come from Asia Pacific. Global middle-class spending ($ millions) Size in 2009

Expected size in 2030 $55,680

827

1,966

3,117 5,837 11,337

32,596

$21,278

Global middle class

Sub-Saharan Africa

Source: “The Emerging Middle Class in Developing Countries,” OECD Development Centre, 2010

Outlook 2011, Number 3

Middle East and North Africa

Central and South America

North America

Europe

Asia Pacific

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markets and segments doesn’t simply become another “to-do” item on the chief strategist’s already long list of deferrable actions. This requires strong, visible top management leadership and commitment, and active companywide acknowledgement that the organization’s business model has changed in dramatic ways. As momentum builds behind the technologies and trends that will make aggregation a reality, companies intent on occupying this broader and deeper competitive landscape can immediately focus on five concrete actions to prepare themselves for the opportunities ahead.

Target value wherever you find it. Exploit your already established competencies in other industry value chains. A compelling example of this strategy can be seen in the publishing industry, as computer and hightech players co-opt physical book sales via their e-book readers and tablets. The popularity of Apple’s iPad, Amazon’s Kindle and other e-readers has stolen sales from traditional book retailers, forcing key companies into bankruptcy. Likewise, Best Buy looked beyond its traditional consumer electronics focus to partner its B2B unit, Best Buy for Business, with cardiology products manufacturer Cardiac Science Corp. As part of the partnership’s offerings, Best Buy’s Geek Squad computer and IT troubleshooting service determines if physicians’ offices have the appropriate IT infrastructure to support the latest Cardiac Science medical devices. Global shipper UPS is leveraging its capabilities to help

companies with an array of logistics management services, which range from designing and reengineering supply chains to providing complete “order to cash” end-to-end global solutions for critical parts order fulfillment and returns management.

Think big. Then think bigger. Design offerings that tap into the core of global income, and then create extensions to capture even more value. In many ways, this approach was pioneered by some of Europe’s low-cost airlines, which, through a number of innovations, created an entirely new role in their industry. Elsewhere, Haier Co., the Chinese multinational home appliance maker, has succeeded with its inexpensive mini-refrigerators, air conditioners, dishwashers and similar products by first becoming the leading brand in China, and then expanding its coverage to include value- and price-focused customers in both developed economies and emerging markets. The company effectively adapts its low-cost product designs to new markets as necessary, and adopts localized design, manufacturing and sales processes. As a result, the Haier brand earned the largest global market share in major appliances in 2009 and 2010, according to Euromonitor International. However, companies should be ready to pull the plug on pilot marketing efforts that could inadvertently put franchise brands in unfavorable positions. For example, in response to the global economic downturn, P&G

test-marketed Tide Basic laundry detergent, which lacked some of the cleaning ability of regular Tide but cost about 20 percent less. While the cheaper version could appeal to today’s more frugal developed-market shoppers, P&G ended the test in mid-2010. At the time, some observers expressed concerns that Basic would dilute regular Tide’s premium market position. Many developed-market companies continue to struggle with this new competitive calculus. It replaces the West’s current high-functionality/ high-price marketing approach by lowering prices without sacrificing performance (and supersedes the prior low-price/low-functionality paradigm in emerging markets). Overcoming this hurdle will be one of the toughest challenges faced by companies looking to serve these markets.

Create synthetic markets. Target and sell to customers across geographic and other physical boundaries. Companies no longer need to wait for markets to evolve. They can serve them as fast as they can identify them. As a result, firms need to be in the business of envisioning new markets as well as targeting them. Examples of current synthetic markets include dispersed but like groups of expatriates, members of religions, or gamers and hobbyists. For example, Activision Blizzard’s World of Warcraft online game has attracted millions of paying subscribers worldwide. As a measure of its global success, the massively multiplayer online role-playing game has more players in China than it does in the United States,

Strategy & Growth

For further reading

its home market, and by early 2011 had more than 11 million subscribers worldwide.

“Blurring borders,” this issue, page 36 “Jumping the S-Curve: How to sustain long-term performance,” Outlook 2011, No. 1

Let your capabilities set the pace. Rethink your approach to innovation to encourage individual initiative.

For these and other articles, please visit accenture.com/Outlook.

In the aggregation era, markets appear as fast as companies can act on their insights. As a result, innovation speed is limited less by market hurdles than by the speed and agility of companies themselves. Now more than ever, competition is not just about what you do but how you do it. The value of effective streamlining and innovation rises exponentially as the impact of getting there first with the most becomes the absolute measure of success.

Innovation leader 3M encourages creativity within its workforce while efficiently managing resources throughout the product development process. The company tolerates failure that comes in pursuit of new ideas and allows employees to spend up to 15 percent of their time on projects of their own choice. It follows a “loose-tight” management approach, granting employees the freedom to innovate but enforcing a disciplined product development process that includes structured elements such as stage-gates. As a result, the company is able to target and achieve stretch goals— fully 30 percent of its business unit revenues comes from products launched in the past four years.

The new global consumers The rising middle class in emerging markets is expected to drive future growth and should become the most important component of global consumption in the long term. Global middle class by region (millions), 2009-2030 Size in 2009

4,884

107

Expected size in 2030 234 313 322 680

3,228

1,845

Global middle class

Sub-Saharan Africa

Source: “The Emerging Middle Class in Developing Countries,” OECD Development Centre, 2010

Outlook 2011, Number 3

Middle East and North Africa

Central and South America

North America

Europe

Asia Pacific

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Pursue “2-in-1 management.” Employ S-curve analysis to trace the rise, maturity and ultimate obsolescence of technologies or innovations and, correspondingly, their products and businesses. The performance of many systems over time tends to describe an S-curve as those systems wax and wane. S-curves can thus serve as indicators of the expected remaining innovation headroom of current technologies, and provide warnings about the possible emergence of new replacements. In the past, S-curves tended to unfold at a relatively leisurely pace, giving firms plenty of time to prepare for the transition to the next big thing. Today, leaders need to recognize that innovation S-curve timing is compressing, with disruptive alternatives popping up without warning at an increasing pace. As a result, new value delivery solutions and business models can often sneak up on slow-moving companies.

Success today increasingly requires top leaders to manage not one S-curve at a time, but two simultaneously—today’s and tomorrow’s. Take Netflix’s founder and CEO Reed Hastings, for example, who was recently lionized by Fortune for managing a successful business— mail-delivered movies on DVD— while concurrently launching and growing its successor (online downloaded movies). We call leaders like Hastings “2-in-1” CEOs—visionaries with one foot in the future who remain well grounded in today’s competitive urgency. These leaders constantly scan the horizon for major market insights and the trends that will upset current market conditions and create opportunity. Such 2-in-1 leaders as Hastings and Apple’s Steve Jobs are pragmatic about turning their insights into action, knowing precisely when to scale up their new businesses, and they rely on their employees as key resources for turning vision into reality.

Viewed strategically, becoming a market aggregator changes some of the key rules of competition. It opens new avenues to agile players while driving slower-moving, more traditional organizations a step further behind. In order to benefit from this new growth engine, leaders need to rethink their ideas about markets and customer segments, become more proactively focused on spotting and going after synthetic markets, and recognize that the entire world is their new competitive battlefield.

About the authors Wayne G. Borchardt is the global lead for Accenture’s Strategic Planning & Growth offering. With more than 17 years experience in consulting, Mr. Borchardt focuses on strategic planning, growth strategy, pre- and post-deal M&A, and broad transformation programs. Most of his consulting experience has been in the consumer goods, retail, pharmaceutical and healthcare sectors. He is based in Kuala Lumpur. wayne.g.borchardt@accenture.com Jill S. Dailey leads Accenture’s Strategic Planning & Growth group in North America. She has more than 12 years of experience in consulting with global clients on strategy, new growth opportunities, international expansion, and mergers and acquisitions, especially in the healthcare industry. Ms. Dailey is based in Florham Park, New Jersey. jill.s.dailey@accenture.com Paul F. Nunes is the Boston-based executive director of research at the Accenture Institute for High Performance. His work has appeared regularly in Harvard Business Review and in numerous other publications, including the Wall Street Journal. He is also the coauthor of Jumping the S-Curve: How to Beat the Growth Cycle, Get on Top, And Stay There (Harvard Business School Press, 2011). In addition, Mr. Nunes is the senior contributing editor for Outlook. paul.f.nunes@accenture.com The authors would like to thank the following people for their contributions to this article: Kristen Anderson, Rogier de Boer, Henry Egan, Martin Frech, Richard Fu, Rita McGrath, Reshma Patil, Matthew Robinson, Vedrana Savic, Nicole van Det and Dimitri Xavier.

Strategy & Growth II

How Big Data can fuel bigger growth By Sumit Banerjee, John D. Bolze, James M. McNamara and Kathleen T. Oâ&#x20AC;&#x2122;Reilly

Strategy & Growth II

Strong growth remains a hallmark of corporate success. But how do CEOs move the needle on their already huge, multibillion-dollar companies? Mergers and acquisitions can quickly add big chunks of value to an organization, but in many industries, attractive targets have become scarce. For mature industries, untapped geographies and markets are similarly hard to find. Using traditional cross-selling and up-selling strategies to generate baseline growth? Been there, done that. Instead, the answer may lie in one of the most valuable but underused assets a company already has: its customer information. Call it Big Data. With the rise of digitization, established enterprises in industries ranging from telecom and media to healthcare and financial services have amassed terabytes of information about their legions of customers. This digital treasure trove, already highly valued as a way to help meet the evolving needs of customers and spot trends, can help companies create new products and services, and perhaps even spawn entirely new businesses. Moreover, a significant number of consumerfacing organizations have natural advantages in this area; for them, leveraging Big Data represents a particularly lucrative opportunity.

Untapped value Overall US demand for information services is expected to exceed $600 billion by 2015. As data-driven insights become an increasingly critical competitive differentiator, companies will use them to drive and optimize business decisions across industries. In the past, this market was largely limited to traditional market research and data specialists, but today, virtually any company with a large customer 30

Outlook 2011, Number 3

database can potentially become a serious player in the new information game. Take the auto industry. Since many vehicles now feature GPS and telematics systems, some car manufacturers have been able to collect and monetize a wealth of data on customer driving habits. General Motors Co.â&#x20AC;&#x2122;s OnStar telematics system, for example, not only provides vehicle security, information and diagnostics services to drivers, it also captures telemetry data. In 2007, OnStar and GMAC Insurance partnered to create an opt-in program that uses the telemetry data to offer lower insurance premiums to customers who drive fewer miles. Thanks to the program, consumers can save significantly on car insurance, which boosts GMâ&#x20AC;&#x2122;s customer satisfaction performance. This, in turn, helps GM attract new OnStar paying customers. In another example, in 2009, American Express Co. launched an analytics and consulting business that draws on the purchasing behavior of its 90 million credit card holders across 127 countries. This organization, American Express Business Insights, hopes to attract direct marketers by using proprietary data to enhance customer acquisition and retention programs.

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Companies sitting on large amounts of customer data—including insurance carriers, retailers, transportation companies and communications providers—have a unique opportunity to make this type of information services play. With their direct relationships with millions of customers, they typically have the most accurate and complete information on large sets of consumers. By contrast, competitors such as third-party information providers must rely on publicly available or purchased data. Better yet, the cost to obtain the raw data contained in these comprehensive and often unique data sets is virtually nonexistent, since the company’s core organization collects it in the course of doing business. Using information services to drive growth requires a thorough understanding of what kinds of raw data exist in the organization. Armed with that insight, companies can then decide which tier of information value they should aspire to provide. We use the Accenture Information Value Pyramid to illustrate various information service strategies. The pyramid has three levels—raw data, insights and transactions. The potential value and profitability of an information services business depends in large part on the condition of the data the enterprise owns. The base of the pyramid features raw, less differentiated and thus less valuable data. Moving up the pyramid creates larger revenue opportunities, although these tend to be more difficult to execute (see chart, page 32). Providing raw data requires minimal effort and calls for the least strategic differentiation. It is the most common strategy but generates the least

amount of revenue. As a strategy, raw data makes sense in industries with fragmented information and where the sharing of information does not put your business model at risk. A number of major US banks and credit card issuers have begun to sell raw data about their customers’ debit and credit card shopping habits— spending behaviors, the stores they frequent and what they buy—through intermediaries such as Cardlytics. Retailers use the data to offer targeted discounts via text messages or email, and pay commissions that range from 10 percent to 15 percent for each customer who takes advantage of the discounts. A report by Aite Group projects these types of card-related revenues could be worth $1.7 billion annually for card issuers by 2015, up from roughly $100 million in 2010.

In some cases, government agencies have been ahead of the curve in recognizing the value of the raw data they hold.

Likewise, third-party data aggregators and information services providers such as Experian Information Solutions, Acxiom and Blue Kai collect raw consumer and business purchasing information on tens of millions of consumers from a variety of sources, including websites, loyalty programs, self-reported sources, public records and retail point-of-sale data. They then provide data, analysis and more to marketers looking to boost the effectiveness of their advertising and promotional campaigns. Other customer data intermediaries exist in the catalog and specialty retailing industry, where firms such as Abacus Direct Corp. and I-Behavior collect transactional data to provide direct marketing services to members. In some cases, government agencies have been ahead of the curve in recognizing the value of the raw data they hold. The United States Postal Service, for one, sells a variety of

Strategy & Growth II

licenses, for up to $175,000 annually, giving organizations access to its National Change of Address database. At the state level, Ohio, Illinois and many others have collected millions of dollars over the years by selling records containing personal information, such as that found on driver’s licenses and driving records, to a variety of companies. Since 2005, Ohio, for example, has sold nearly 1.4 billion individual records—names, addresses, dates of birth, driver’s license numbers and vehicle title information—for more than $40 million. While Ohio is compelled to sell this data at cost, other states such as Oklahoma and Tennessee charge significantly more. At least one national licensing agency in Europe made several million dollars selling driver information during the same period.

Privacy is a paramount concern for these government data vendors. The Ohio Bureau of Motor Vehicles, for example, operates as an information vendor under strict rules set out by the federal Driver’s Privacy Protection Act. Providing “insights” requires more effort and more strategic differentiation, but also generates more revenue than simply selling raw data. In the United Kingdom, supermarket giant Tesco sells data on the shopping behavior of its Clubcard users to retailers and big manufacturers through a majority-owned shopper information company—which in 2010 earned £53 million in profits. Several years ago, Google, taking a more altruistic tack, discovered

What’s your data worth? Companies hoping to drive information services growth need to understand what kinds of raw data exist in the organization and then decide which tier of information value they should aspire to provide. We use the Accenture Information Value Pyramid to illustrate various information services strategies. The pyramid has three levels: raw data, insights and transactions. The potential value and profitability of an information services business depends in large part on the condition of the data an enterprise owns. The base of the pyramid features raw, less differentiated and thus less valuable data. Moving up the pyramid creates larger revenue opportunities, but these tend to be more difficult to execute.

Transactions Transactions drive the completion of end-to-end business processes. For example, while insights might reveal the best target-marketing approach, transactions show how to execute a full-fledged marketing campaign.

Insights Firms perform value-added predictive and descriptive analytics to extract key market and consumer insights from the data.

Raw data Companies sell source data not yet in an easily consumable form. This requires the least effort but offers the lowest amount of strategic differentiation and revenue.

Source: Accenture analysis

Outlook 2011, Number 3

Increasing value of data

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that an uptick in searches concerning flu-like symptoms could be an early indicator of flu outbreaks. By externalizing this search insight into Google Flu Trends, the company has been able to change the game regarding disease prevention. US public health organizations such as the Department of Health and Human Services can now act more quickly to combat outbreaks through early detection. Beyond the United States, Google uses search patterns on dengue fever among users in countries such as Brazil, India and Indonesia to alert health organizations to potential outbreaks. Data at the “transactions” level enables companies to execute their end-to-end processes better, and could help improve point-of-sale retail transactions, marketing campaign rollouts or fraud detection. In some cases, a company’s data may be so differentiated and applicable to another industry that it inspires the company to venture into a new industry and compete effectively there. American Express provides transaction-level value by running marketing campaigns on behalf of merchants, for example, and Google’s business model is based on its ability to use search data to connect advertisers effectively with potentially interested consumers. A number of major US retailers infuse their brands with new competitive strength through transaction-level data analysis. Working with proprietary analytics platforms, these retailers can externalize descriptive analytics in an easy-to-use interface. With access to such data, brands can drive targeted in-store campaigns more effectively, boosting sales. On average, as companies move up the information value pyramid

from data seller to insight provider to transaction enabler, the value they receive jumps significantly. More and more data-rich companies are crafting strategies to climb the pyramid. As data storage costs drop and digital convergence provides new data collection sources, companies are using these technologies to gain a more complete picture of their customers—a few of them seeking a level of omniscience that makes some observers uncomfortable.

Consumer protection At the same time, government agencies, consumer advocates and some companies have raised concerns about the unethical sale of consumer data, exemplified by the GPS device maker that recently apologized for selling customers’ driving data to local and regional governments in the Netherlands that the police then used to set speed traps. One approach to protecting consumer privacy proposed by the US Federal Trade Commission offers organizations a simple three-phase framework: promote consumer privacy throughout your organization; simplify consumer choices; and increase the transparency of your data practices. The FTC also provides best-practice examples regarding the collection, storage and use of consumer data. Companies, too, are looking for the responsible use of consumer data. For instance, Microsoft has called for cloud computing data security standards. New privacy legislation is pending in the United States, while other countries have or are also creating laws and regulations that address these issues. The United Kingdom, for example, passed the Data Protec-

tion Act of 1998, which outlines the legal obligations that companies must adhere to when handling an individual’s personal information. In 2003, Japan passed the Act on the Protection of Personal Information in response to consumer and social pressure to protect individual privacy in commerce. Full understanding of and compliance with the evolving scope and details of such laws and regulations in response to the rise of Big Data must become part of any go-to-market strategy. Some companies are investigating ways to compensate customers for their data. In 2009, for example, Bank of America Corp. applied for a patent on the monetization of personal information in an information bank that not only provides customers control over their information but also enables them to receive value in exchange for it. This process can be configured in a variety of ways. One version relies on mobile devices and other technologies along with a concierge service to enable users to monetize their information, which could include their personal recommendations regarding products, services and entertainment choices, for example, as well as transaction data. Users can adjust the device’s privacy settings to release their personal information incrementally to others as desired.

Differentiation through data This data-driven opportunity is causing some players to consider bold strategic moves that can set them apart from the competition and provide vital new revenue streams. The value of a company’s information hinges on its ability to differentiate itself in the marketplace in terms of

Strategy & Growth II

For further reading â&#x20AC;&#x153;How to turn data into a strategic asset,â&#x20AC;? Outlook 2010, No. 2. For this and other articles, please visit accenture.com/Outlook.

information scale and data scarcity, and on its capacity to combine differentiated elements with traditional sources of information using data management and analytics capabilities. So before launching a new information business, leaders need to address three fundamental considerations by answering the following questions. Information scale. Do we have enough information to differentiate ourselves in the marketplace? (Having a customer base in the hundreds of thousands is not enough in an age where some companies count heads in the tens of millions.) Data scarcity. Do we have data elements that are difficult to replicate in the marketplace? (Leaders should determine if the companyâ&#x20AC;&#x2122;s core business creates effective barriers to third-party data collection and whether other businesses can collect alternative data that would serve as a substitute of comparable value.) Data blending and analytics. Can we combine our data with information from others and then use sophisticated data analysis to create differentiated products? (No single organization has all of the data it needs to meet the demand for information services products; as a result, the ability to take your own information, combine it with other data and make it uniquely valuable via robust analytics will be critical to success.)

Concrete action Once these questions are answered, companies can take concrete actions to assess whether the opportunity is real or not and if pursuing it makes sense. First, a company needs to assess the industry applications for which 34

Outlook 2011, Number 3

its data would be relevant. These typically span the decision sciences and could include marketing, risk management, and research and development. But some types of data could also help to drive better operational effectiveness and manufacturing performance. Having chosen the appropriate applications, a company should methodologically analyze the attractiveness of its information compared with that offered by current incumbents. Knowing how your information could drive cost, quality or responsiveness benefits in a market can provide insights into whether your offering will fit in with or disrupt the existing information value chain. One effective tactic involves validating your information services strategy by discreetly contacting potential strategic customers. In addition to providing possible price points for various data products, this contact can help the organization build its credibility in what are probably new markets. The next step involves understanding capability gaps. Companies often lack important capabilities or assets they will need to win business in the information services arena. As a result, even an organization well positioned with a uniquely valuable information-based offering has to recognize that it may not have the skills, resources and systems in place it needs to collect, store, analyze or monetize the data. Additionally, companies must assess the legal, privacy and policy implications of monetizing information assets. One suggestion: Look to other information services entrants and industry bodies for best practices on how to comply with regulatory

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requirements and provide transparency to customers. Yet another consideration involves the go-to-market approach. Do you assemble the data for off-the-shelf catalog sales, establish a dedicated sales team, develop a key account management approach—or all three? The choice will depend on the number and types of customers interested in purchasing your data, its assessed value and the amount of value-added you plan to offer on top of the raw numbers. Ultimately, companies need to decide whether the Big Data prize is big enough to warrant the creation of specific sales capabilities. Finally, companies should follow an accelerated product design and prototyping approach when launching these products. Because the information services business is evolving rapidly, winners are usually those that are fastest to market. Leveraging an agile prototyping process will not only

improve a company’s speed to market, it will also enable it to align with the potential strategic customers identified earlier. These customers can provide invaluable help in shaping the product, tailoring it to meet the exact business challenges targeted customers face and boosting the odds of market adoption upon product launch. Executives often find it difficult to value opportunities within the information services landscape due to the intangible nature of pricing products that primarily aid decision-making activities. While raw data, insights and transaction-level information provide the rootstock onto which companies graft their strategic visions, assessing the value of these assets can be a challenge, since the “product” often offers different levels of value to different organizations. As a result, companies should experiment with valuebased pricing techniques to arrive at equitable terms.

While other competitive “essentials” fall in and out of fashion, growth remains the defining measure of business success—it’s how markets assess companies and leaders gauge their performance against peers. But achieving adequate growth in today’s often-difficult competitive environment means everyone and everything in an organization needs to work harder than ever. Companies endowed with massive amounts of customer information can use it to supercharge their growth engines, potentially making Big Data a very big deal indeed.

About the authors Sumit Banerjee is a senior executive in Accenture Strategy. He works with communications and high-tech clients in North America and Asia Pacific, helping them develop innovative growth strategies, improve operational performance, undertake M&A activities and launch new businesses. Mr. Banerjee is a recognized thought leader and winner of the Accenture Ken Ernst Innovation Award. He is based in Washington, D.C. s.banerjee@accenture.com John D. Bolze is a senior executive in the Accenture Communications & High Tech industry group. With 16 years of experience leading teams in delivering a wide variety of management consulting services to this industry, Mr. Bolze focuses on new growth strategies, launching new ventures and deploying analytics across all business functions. He is based in Washington, D.C. john.d.bolze@accenture.com James M. McNamara is a New Yorkbased manager in Accenture Strategy. He advises media, communications and information services companies on product strategy, monetization models and driving profitable growth in the digital space. james.m.mcnamara@accenture.com Kathleen T. O’Reilly is the global managing director for Accenture’s Communications & High Tech Strategy group. During her 21 years in the communications and high-tech industry, her work has focused on advising on a broad range of strategic issues, including growth and marketing strategy, new product development, new business model creation, and operational and implementation concerns. Ms. O’Reilly is based in Philadelphia. kathleen.t.oreilly@accenture.com

Customer Relationship Management

Blurring borders By Robert E. Wollan and Tzeh Chyi Chan

Despite their diversity, the worldâ&#x20AC;&#x2122;s consumers also have much in common. Segmenting them by similar motives, attitudes and behaviorsâ&#x20AC;&#x201D;across geographiesâ&#x20AC;&#x201D;can help companies overcome the complexities that derail so many attempts to achieve profitable global growth.

Outlook 2011, Number 3

Customer Relationship Management

It’s become something of a mantra among some of the world’s biggest corporations: To grow out of the downturn and beyond, tap into the tantalizing prospects of emerging markets. Easier said, perhaps, than done. Accenture’s 2010 Global Consumer Research clearly shows that reaching and retaining consumers in emerging economies can be challenging indeed. For example, our research showed that the service expectations of these hotly pursued emerging-market consumers have increased significantly more than those of consumers in mature markets—by anywhere from 30 percent to 50 percent over the past year. And they switch vendors almost twice as frequently as mature-market consumers. Yet the same research also suggests that the concerns of consumers worldwide are converging around a few common themes and behaviors. Trust is the principal driver of consumer loyalty across all markets, for example. Both emerging- and mature-market consumers expect a multichannel shopping experience. And both consider word of mouth, including social networking, the most important source of reliable product and service information. So what should companies seeking success in emerging markets make of this apparent paradox—striking similarities with mature markets on the one hand, yet significant differences on the other? Most companies have sidestepped the question by choosing between two rather simplistic models. Sometimes they try to achieve relevance and growth in emerging markets via a local franchise model. They replicate the standard corporate approach for such key functions as marketing, sales or service and then tailor the approach to the requirements of each market—only to 38

Outlook 2011, Number 3

discover that continually reinventing these functions in the name of localization vastly overcomplicates their operating model. Or they simplify the operating model by merely exporting consumer strategies and experiences that work at home— only to find that successful domestic strategies don’t always travel well into emerging markets. Case in point: A leading US retailer, renowned in mature markets for its customer-centric business model, found that the strategy underpinning its success—tailoring the operating model, from procurement through retail operations, to target the preferences and behaviors of particular customer segments—resulted in products too expensive for acutely price-conscious Chinese shoppers. Similarly, many of the most aggressive global banking expansion programs that emerged over the past decade stalled because companies underestimated the true operational cost and complexity required to attract the enormous diversity of emerging-market financial services customers. (Continued on page 40)

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A multi-dimensional approach The world’s consumers might be dazzlingly diverse, but they also share concerns and interests that transcend geography (see story). And the Accenture Global Consumer Segmentation Model is designed to help our clients better understand the behaviors, attitudes and motives that unite them. Based on a combination of external research and our own experiences and insights, the model has identified 15 strategic, cross-regional consumer segments that are critical drivers of growth in a multi-polar world. This new approach uses a set of defining behaviors—such as financial well-being, health management, entertainment consumption and technology adoption—to divide people into groups (see chart, below). Each segment is defined as much by behaviors, attitudes and motives as by geography.

Nine of the 15 segments are specific to emerging markets. In Latin America, for example, Eco-entrant Accelerators— formerly marginal, rural consumers who now live largely in cities and can finally afford to buy branded goods, thanks to steadily increasing disposable incomes—can be found from Caracas in the north to Santiago in the south. In Asia, meanwhile, Trend Seekers, who have a yearning for the latest technology, fashion and entertainment, despite their limited incomes, are as common in Beijing as they are in Bangalore. And Family Enrichers—mature adults in search of the products and experiences they missed out on in their youth—exert a powerful influence on their families’ purchasing choices just about everywhere.

Financial well-being

Leveraging technology

Global Consumer Segmentation Model

Demographic and behavioral traits

Managing health

Entertainment choices

Financial well-being

Managing health

Entertainment choices

Leveraging technology

• Financial self-direction • Risk profile • Selection behavior • Key evaluation parameters • Income level • Availability of time/effort • Technology optimism

• Medical needs • Attitude toward health • Treatment preferences • Financial confidence • Health self-direction • Value add features

• Behavioral loyalty • Income level • Price sensitivity • Functionality • Motive • Involvement • Leisure time • Enablement level

• Technology dependence • Technology attitude • Tech savviness • Primary motivation • Leisure time • Price sensitivity • Brand affinity

Demographic and behavioral traits • Purchase decision • Category involvement • Income level • Life stage • Perception • Attitudes • Needs

Source: Accenture analysis

Customer Relationship Management

“tribes” united by a specific subset of human needs and interests.

(Continued from page 38)

There is, however, a better way to reach and retain not just the emerging-market customer but also the full spectrum of today’s global consumers—an approach that successfully leverages their similarities while respecting their differences. By way of example, consider Facebook: with its more than 750 million users, it is effectively the world’s third-largest country. If we applied this new global customer portfolio approach to Facebook, its members would not be defined by their geography but rather as a single global portfolio, consisting of borderless

To this end, some leading companies are using use conventional analytics to identify those customer segments within a single global portfolio that exhibit common characteristics, regardless of their location. Procter & Gamble, for example, has recognized that rural consumers in India share needs with rural consumers in China and Mexico. In much the same way, the residents of Mumbai have more in common as consumers with their urban counterparts in Shanghai, Tokyo and New York than they do with Indian farmers. And in Sub-Saharan Africa, five

Unlocking the potential of the African consumer By Grant Hatch, Michelle van Zyl and Pieter J. Becker

For companies looking for growth via emerging markets, Sub-Saharan Africa looms large. The region’s consumers are largely young, increasingly urban and have rising incomes. Indeed, with GDP growth in Africa as a whole now outpacing the continent’s meteoric rise in population, the Sub-Saharan Africa market is expected to rise to nearly $1 trillion by 2020. To be sure, Africa’s consumer market also has plenty of challenges. Despite an increasingly stable and less restrictive business environment, most of the region’s infrastructure remains woefully inadequate. At least 60 percent of Africans still live in rural areas, many of them remote. And a widespread informal economy fueled by cash transactions makes it difficult for companies to uncover the consumer insights that have helped them penetrate other new markets (see story). Accenture research shows that nine Sub-Saharan countries— Kenya, Ethiopia and Uganda in the east; Angola, Zambia and South Africa in the south; and Senegal, Ghana and Nigeria in the west—will account for nearly three-quarters of total consumer spending by 2020. Moreover, within these markets, a thorough understanding of five core consumer segments—Basic Survivors, Working Families, Rising Strivers, Cosmopolitan Professionals and the Affluent—is the key to profitable growth. By recognizing the upwardly mobile aspirations of all Africans, and the poorest in particular, leading companies are successfully 40

Outlook 2011, Number 3

tapping into the African opportunity, crafting compelling offerings that meet the rapidly emerging needs of the continent’s rich diversity of consumers.

Forming brand allegiances Even Basic Survivors—who turn chiefly to local, informal vendors in both cities and rural areas in their struggle to meet daily needs—represent a huge opportunity, if only because they also make up the largest consumer segment. It’s a similar story with the Working Families segment, whose members account for between 20 percent and 30 percent of the region’s total population. Now, moreover, is the time to form these consumers’ brand allegiances. Unilever, for example, has adapted several of its products to the needs of Basic Survivors by reducing the container sizes of detergent. The company, which has registered double-digit growth in the region over the past decade, has managed to protect its margins by selling to low-income consumers in high volumes. What’s more, by collaborating with local wholesalers, Unilever has developed deep consumer insights. Choosing partners with strong community links has also helped companies overcome the considerable challenges of sourcing, procurement and promotion in Africa. Dufil Prima Group, the largest manufacturer of instant noodles in Nigeria, for instance, has captured more than 70 percent of the Nigerian instant

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consumer segments—Basic Survivors, Working Families, Rising Strivers, Cosmopolitan Professionals and the Affluent—behave similarly right across the region’s core markets (see sidebar, below).

comparable selling models and similar treatments or customer touchpoints for similar markets around the world. At the same time, they can personalize their offerings for local markets.

Leading companies then use an unconventional strategic segmentation approach to execution, which identifies the region best suited to act as a proxy for all a particular segment of its customer base (see sidebar, page 39).

Witness Brazil’s Itaú Unibanco, one of the largest banks in Latin America, which has leveraged insights derived from global segmentation to personalize the customer experience and improve service across its almost 5,000 branches. The bank’s recent advertising campaign, which features sundry professionals proclaiming their identity as “global” Latin Americans, targets Brazil’s burgeoning middle classes—both at

Such a global segmentation approach enables companies to target more consumers more effectively by creating shared marketing messages,

home and abroad. An aggressive acquisition strategy and a focus on retail credit—the bank bought a 49 percent stake in the local finance arm of Carrefour, the French retail giant, in April 2011, for example— has boosted Itaú Unibanco’s profile with lower-income Brazilians as well. Or take Volkswagen’s Audi brand. The carmaker has successfully capitalized on global consumer needs and wants, with products targeted to various consumer segments, including Western Europe to India. Audi identified one particular premium target segment along the way: executives who are chauffeured and who place a high value on passenger

noodle market with its Indomie brand by investing in modern local manufacturing facilities and using locally sourced raw materials.

with the environmental reputations of the companies they buy from, and often support less fortunate family members with cash remittances and occasional purchases.

SABMiller has localized its supply chain, working with the area’s farmers to obtain the sorghum and cassava used to brew local beer more cost effectively. And East African Breweries Limited has managed to turn its flagship Tusker beer brand into a favorite of young adults who lack their own TV sets by setting up “viewing bars,” where they can watch the company-sponsored Tusker Project Fame talent show.

Africa’s Affluent consumers have much in common with Cosmopolitan Professionals—though their incomes, of course, are substantially higher. And they have a pronounced preference for luxury global brands.

Rising Strivers, who represent an estimated 10 percent to 16 percent of Sub-Saharan Africa’s population, straddle the divide between the region’s past and future as a consumer market. These consumers can earn more than twice the income of Working Families and have a surplus to spend on discretionary items such as cigarettes, jeans and an occasional bottle of perfume or cologne. A few may join the ranks of the Cosmopolitan Professionals and Affluent consumers, who today represent less than 5 percent of the population. Cosmopolitan Professionals typically have worked or studied abroad and have a higher awareness than other Africans of global brands. They spend money on purchases that reinforce their professional image—clothing (often bought abroad), hair-care products and footwear—are increasingly concerned

Many Rising Strivers already have bank accounts, and they are among the half of all Africans who use mobile phones. Nonetheless, these consumers still pay primarily in cash and are as inclined to buy from self-employed vendors— of which there are 100,000 in the Kenyan capital Nairobi alone—as from supermarkets. And leading financial services companies have devised creative ways of reaching this customer segment. Local agents are among the keys to the success of MTN Group, the continent’s leading telecommunications provider. The South African company has set up kiosks in rural areas, and has given agents motorbikes to reach the remotest places. Perhaps most crucial, the company offers numerous airtime options, including several “pay as you go” plans, to the many Africans who, despite having low and unpredictable incomes, represent a critical point of entry for any company seeking success in Africa.

Customer Relationship Management

comfort. In China, Audi addressed this buyer value by introducing a long-wheelbase version of its A4 and A6 cars. In this case and across all its markets, the company consistently strives to deliver high quality and innovation globally, but it also tailors its offerings and propositions to local needs and contexts. Meanwhile, insights derived from deep-dive customer segmentation have driven the successful marketing and sales effort that France Telecom’s Orange has launched in Africa and the Middle East (see sidebar, below). Utilizing common value propositions, products and services, marketing campaigns and promotions across

geographies also significantly accelerates and amplifies the value of consumer innovation on a global scale. Consider, for example, how a leading US consumer goods company tailored products that were successful in Mexico City to the needs of similar customer segments in Hispanic markets across the US Southwest—a strategy that also simplified the marketing effort in both countries. Or consider Ford Motor Co.’s strategy of designing the driver, regardless of where the driver lives, before inventing the car—identifying archetypical consumers with specific vehicle preferences. This has helped the automaker develop innovative

models that align with the desires and dreams of drivers from Montreal to Moscow. And the Czech financial and investment group PPF has seized the opportunity presented by the Chinese government’s decision to relax strict regulation of the consumer loan sector and launched Home Credit Consumer Finance in December 2010—the first foreignowned consumer finance company authorized to extend credit in China. The company is leveraging consumer insights and proven go-tomarket approaches derived from its business in Central and Eastern Europe, where it is a market leader,

Orange: Common solutions for common needs Africa and the Middle East loom large in the ambitions of France Telecom’s Orange brand, one of the world’s leading mobile network operators and Internet service providers. Already present in more than 20 of the region’s countries, Orange aims to double its revenues in emerging countries— particularly in Africa and the Middle East—by 2015. The telecommunications powerhouse recognizes that the key to reaching a predominantly youthful, overwhelmingly rural and highly aspirational population of more than 1 billion is a global portfolio approach to customer segmentation (see story). Thanks to a thorough understanding of strategic segments that reach across its African and Middle Eastern markets, Orange has learned, for example, that regardless of nationality, most of the region’s consumers share a need for telephone services that circumvent the prevalence of poverty, illiteracy and distance. Orange’s response: innovations like Bonus Zone, which can reduce the cost of calls made when network traffic is low by as much as 99 percent; a Voice SMS service; and Community Phone, a complete kit for setting up and selling communication time to entire villages. Regional innovation centers in Cairo, Amman and Abidjan ensure that the company’s deep consumer insights result in truly customized products and services. StarAfrica.com brings 42

Outlook 2011, Number 3

a wealth of news, sports, education and music content to millions of information-hungry Africans, for instance, as well as enabling blogs and sponsoring competitions that support young talent. Meanwhile, Orange Money, which the company offers in partnership with a bank, allows subscribers without bank accounts to open payment accounts connected with a mobile phone number and effect transactions via the handset. In addition, Orange has launched two initiatives that harness the power of mobile networks to improve the region’s healthcare—a core concern among consumers who value social responsibility across geographies. For example, a partnership with Text to Change, a Dutch NGO, uses SMS technology to raise awareness of the widespread child exploitation in Cameroon. A parallel partnership with mPedigree, a Ghana-based nonprofit that advocates the development of strategies to combat drug counterfeiting, aims to develop an SMS-based system to verify the authenticity of pharmaceuticals. Consumers can submit, at no cost, a unique verification code, hidden behind a scratch-off surface layer on each packet or bottle of medicine, which is checked against a database managed in Europe. The service began operations in Kenya in May 2011, but Orange will eventually provide telecom support for it across all of the company’s African markets.

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to serve similarly low-income yet aspirational Chinese shoppers eager

to buy durable goods like washing machines and mobile phones.

For further reading “Up close and personal,” this issue, page 8

The world’s consumers are far from homogeneous. But by identifying consumer segments with similar traits, while at the same time recognizing and respecting the regional differences defined by unique economic and social circumstances, companies stand a much better chance of reaching these segments successfully, boosting innovation and driving profitable growth—in all markets.

About the authors Robert E. Wollan is the global managing director of the Accenture Customer Relationship Management business domain. With more than 20 years of experience, he leads a global team of specialists in customer-centric marketing; sales, service and customer operations; advanced segmentation; digital transformation/social CRM; multichannel customer contact; and enterprise service delivery across the 19 industries Accenture serves globally. Mr. Wollan is based in Minneapolis.

“Inclusive growth: Closing the commitment gap,” this issue, page 44 “African financial services come of age,” Outlook 2011, No. 2

For these and other articles, please visit accenture.com/Outlook.

robert.e.wollan@accenture.com Tzeh Chyi Chan heads the Accenture Customer Relationship Management business domain in Asia Pacific. Mr. Chan, who is based in Beijing, has extensive experience advising clients on customer segmentation, cross-sell modeling, churn management, customer retention and loyalty management. tzeh.chyi.chan@accenture.com Grant Hatch heads the Accenture Strategy group in South Africa. He also leads the management consulting work performed across the retail, consumer goods, healthcare, transportation and automotive industry sectors. Mr. Hatch is based in Cape Town. grant.hatch@accenture.com Michelle van Zyl is a manager in the Accenture Strategy group in South Africa. Before working at Accenture, Ms. van Zyl was a strategy consultant with a focus on retail banking. She is based in Johannesburg. m.van.zyl@accenture.com Pieter J. Becker is a Johannesburg-based consultant in Accenture’s Products Strategy group. His work includes growth strategy, M&A, strategic cost reduction, and market assessment and expansion. pieter.j.becker@accenture.com Senior Manager Olivier Schunck, whose work in the Accenture Customer Relationship Management business domain focuses on customer-centric marketing, contributed to this article.

Emerging Markets

Inclusive growth

Closing the commitment gap By Raghav Narsalay and Anish Gupta

For years, companies have been exhorted to seek new customers and employees from the worldâ&#x20AC;&#x2122;s poor, underprivileged and isolated. Progress has been slow, but some organizations are finding ways to get around the obstacles that give others pause.

Emerging Markets

For a decade now, advocates for the poor in the world’s emerging economies have been urging companies to seek new markets among the have-nots, the left outs, the far away. The argument runs something like this: Not only would such initiatives bring social and economic benefits to the globe’s lowest-income segments; in addition, large swaths of the poor from today’s emerging markets will form the backbone of tomorrow’s middle class. According to OECD estimates, the global middle class could increase from 1.8 billion people today to 3.2 billion by 2020 and to 4.9 billion by 2030. Almost all of this growth (85 percent) will be in Asia. Equally striking is the predicted rise in this group’s purchasing power, which is projected to increase from $21 trillion today to $56 trillion by 2030. An idea whose time has finally come? From the standpoint of creating new sustained sources of business value, it appears to make eminent sense. But consider the results of an Accenture survey of Indian manufacturing executives. Virtually every respondent—98 percent—said they recognized the benefits of a business model that includes the have-nots. More than two-thirds, moreover, believe that businesses that embrace inclusion will outperform peers that do not. But when these executives are asked about what they are actually doing, the numbers dip significantly. Only 30 percent, for example, say that inclusion is currently indispensable to their innovation processes. And more than a third of the executives pointed to other deficits, such as the absence of HR policies designed to help companies hire and retain employees who are willing to experiment with inclusive business models (see chart, page 50). 46

Outlook 2011, Number 3

Still, it’s not surprising that almost all respondents had something positive to say about inclusive growth. After all, when nearly 7 out of 10 of them say they see inclusion as a lever to help them outperform peers, you know this is much more than lip service. However, the fact that most companies have neither the people nor the policies in place to make inclusive growth a reality suggests there are other issues at work as well. This “commitment deficit”—the gap between the recognized value of an inclusive growth strategy and the actual current activity that would execute such a strategy—indicates that there are barriers preventing executives from acting on their beliefs. What’s holding companies back? To answer that question, Accenture conducted primary research on inclusive business models in the Indian manufacturing sector. Besides surveying local Indian executives, we also interviewed 55 C-suite executives at multinationals engaged in manufacturing in India. While our research was focused primarily on India, we believe that the findings are applicable to other emerging countries. A number of the barriers to serving the rural poor are the same regardless of geography and—as we found in a separate research report on

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consumers in emerging markets— many of the buyer values are the same for this segment throughout the world. Finally, some of the companies we surveyed have experience serving the rural poor not only in India but in other emerging markets as well as in developed markets.

From the research, we found a number of obstacles that can prevent a company from succeeding with an inclusive growth strategy. These barriers are not insurmountable, however: For each challenge, solutions exist that can help companies successfully follow an inclusive growth agenda.

The path to profitability is murky Can companies really make money serving the poor? In our survey, this was the chief concern of Indian executives, and nearly half expressed doubts about the commercial sustainability of an inclusive growth strategy. Several challenges lie at the root of this concern. First, many companies know next to nothing about poor or rural markets. They’ve made little or no investment in learning about customer tastes or preferences; neither do they have a sense of what skills potential employees might possess, or even need. In part, they are hindered by the fragmented nature of lowincome and remote markets, which makes information gathering difficult. Without information, these companies are unable to develop relevant products or to plan effectively and justify the requisite investments. Tapping this market won’t be cheap. Significant upfront investment is usually required—even more so, in fact, than for businesses that serve middle- and high-income segments. Businesses with an inclusive strategy must often commit capital to build entirely new capabilities, such as supply chains, that already exist in established markets.

However, companies can overcome this barrier by finding innovative ways to learn what poor and rural customers really need. There are no tried-and-true recipes for doing business in this still-immature market, and these companies will often be real trailblazers. Moreover, they need to be patient and communicate to their boards and shareholders that the path to profitability is going to be bumpy. Meanwhile, they must continue to concentrate on generating key market insights.

Many companies know next to nothing about poor or rural markets.

Take the case of the Tata Swach, a low-cost water purifier from Mumbai-based Tata Chemicals Limited. The company found that foot traffic in stores that carried its purifiers in semi-urban and rural areas fell off drastically during the winter, which meant that in these areas, it was able to sell its product for only eight or nine months of the year. Moreover, low-income families were hesitant to buy the purifier because they knew they might have to replace a key part during winter, when it was too difficult to get to the store to buy it. Responding to this challenge, the company created an online function that allowed customers to order replacements through Internet kiosks in their villages. The parts would then be delivered to their doorstep.

Emerging Markets

Inclusive growth is “a dirty job”— and distant too What’s good for the country as a whole is not necessarily consistent with the hopes and dreams of individuals looking to move themselves and their families up the ladder of prosperity. Each year, large numbers of India’s most talented rural citizens gravitate to the country’s major cities to work in the booming services industry—and, having made this move, many are unwilling to return to their home villages to work for companies looking to make inclusive growth a reality.

their staff was “very reluctant” to relocate to rural areas to drive the company’s growth. That’s a serious issue in a country where nearly 70 percent of the population lives in villages.

In another survey conducted by Accenture in 2010, 43 percent of Indian executives reported that

One such company is Keggfarms, a large Indian poultry producer. The company developed a poultry

Companies can address this issue by hiring directly from the places they want to penetrate. Local people often have untapped capabilities, including entrepreneurial skills, and can help businesses get up and running in rural markets.

Asia ascendant By 2020, the global middle class is expected to have grown from 1.8 billion to 3.2 billion. Even though more than half of the middle class in the world today is in North America and Europe, more than two-thirds of the world’s middle class is projected to be in Asia by 2030. Global middle class: number (millions) and share (%)

2009

2020

2030

North America

338

18%

333

10%

322

Europe

664

703

680

Central and South America

181

251

313

Asia Pacific

525

1,740

3,228

107

105

165

234

1,845

100

3,249

100

4,884

100

Sub-Saharan Africa Middle East and North Africa World

Source: Kharas Homi (2010), “The Emerging Middle Class in Developing Countries,” Working Paper No. 285, OECD Development Centre

Outlook 2011, Number 3

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stock with higher productivity than typical chickens that could be raised in village households. Every year, Keggfarms distributes more than 19 million birds to households in some of India’s remotest areas. The company delivers day-old chicks to local entrepreneurs—“mother units”—in batches of 700 to 1,000 at a time. A few weeks later, the birds are picked up by village vendors, who sell them to local households, doorto-door. These vendors can make up to 5,000 rupees in a month, or about $110. They are the sole agents in the chain with direct contact

with farm households, offering advice about caring for the chicks; they also provide valuable feedback to the mother units from their customers. Each year, this business generates more than 4 billion rupees, or some $90 million, for the people who raise the chickens. Or consider the Mumbai-based consumer goods company Hindustan Unilever, which trains local women who are part of villagebased self-help groups to become its sales representatives. Some 45,000 women now cover more than 100,000 villages and serve 3 million households every month.

Organizations aren’t organized to sell to the poor Inexpensive water purifiers and cheap chickens are not high-margin businesses. So scale is critical to companies seeking to be profitable with an inclusive growth agenda. The investment needed to achieve that scale is yet another obstacle. Indian executives told us that one of their most pressing fears is that ”bleeding” from an inclusive startup business will hamper the company’s core business and dampen its overall results. Another area where significant investment is needed is organizational capabilities. Most companies have continually honed their operations to serve (and hire from) middle- and high-income segments. They usually lack the architecture they need to quickly add rural and poor markets to the mix. By drawing on technology, however, and rethinking organizational responsibilities at each

Executives often fear that “bleeding” from an inclusive startup business will hamper their company’s core business and dampen overall results.

level, companies can overcome this obstacle. The Kolkata-based Indian conglomerate ITC has figured out how to make up for organizational constraints in rural markets. Beginning in 2000, the company set up Internet kiosks, or “e-Choupals” (choupal is the Hindi word for “village gathering place”), that give farmers access to information in the local language on the weather and current crop prices, offer guidance on agricultural practices and risk management, and make it easier both to buy farm supplies and sell produce. Some 6,500 of these kiosks can be accessed by more than 4 million Indian farmers who grow coffee beans, rice, soybeans and wheat. ITC has now also deployed advanced analytics and mobile technologies to track data from individual farms so the farmers

Emerging Markets

can improve their pricing, target the right customer segments and improve their logistics, including crop transport and storage.

layer was necessary in the early stages, so that the company could develop the innovations needed to succeed with inclusion, and then to execute its plans.

In turn, ITC uses the e-Choupals to buy directly from the farmers at hub locations (farmers can also make use of local markets); it also sells them fertilizer and seeds. And it has used the initiative as a springboard to new businesses, opening retail centers at its hubs, for example.

In particular, ITC had to address its lack of detailed information about low-income customersâ&#x20AC;&#x2122; tastes and preferences. A critical part of this effort was training junior employees to glean insights through conversations at the grassroots level.

A second key to the initiative was rethinking responsibilities in the organization. To get the project off the ground and eventually successful at scale, ITC added two new layers of responsibility at every level, from junior associates through top management. The first additional

As the business expanded in low-income markets across India, ITC added a second layer of new responsibilities at all levels to ensure that the initiative would be efficient at scale. Middle management was tasked with find-

Yes, but . . . Although nearly all of the Indian manufacturing executives we surveyed recognize the importance of pursuing inclusive growth, more than a third of them indicated that their companies currently lack the proper policies and tools, such as the right HR programs, to execute an inclusive growth strategy. HR policies not geared to hire and retain workforce willing to experiment with inclusive business models

36%

Absence of innovation mentors/motivators across different levels and across types of workforces

Absence of initiatives to build culture of innovation within the organization

Absence of incentives for workforce to experiment with inclusive business model innovation

Other

Source: Accenture analysis

Outlook 2011, Number 3

www.accenture.com/Outlook

ing efficiencies in the e-Choupal supply chain, while higher-level management took on the challenge of finding connections and benefits between the inclusive business and ITC’s traditional business. These changes in responsibilities continue to help ITC develop new

businesses that can effectively reach large swaths of the rural poor. The e-Choupal has played a key role in making ITC’s agribusiness division the nation’s second-largest exporter of agricultural products, with exports worth more than $200 million per year.

Companies lack the internal capabilities to sell ideas and products to the poor It’s not enough to have an idea, or even a developed product, that would provide clear benefits to low-income and rural communities. In interviews, some executives told us that they had created such products but had not been able to sell them profitably with their existing capabilities and talent. While they had experimented with various options using internal resources, the end result had been frustration—they were never able to reach the necessary scale. For companies that find low-income markets hard to penetrate with their internal resources, there is a solution. One is to partner with entrepreneurial firms that have already solved the puzzle. In India there is a vast network of these firms. As with any partnership, such connections can complement in-house functional capabilities and make inclusion initiatives viable. The right partnerships can help reduce the costs of entering unknown markets, help companies identify new customer segments and generate valuable insights into what customers really want. And companies should be flexible in their thinking, considering partners in unrelated industries or the nonprofit sector.

That’s what Mumbai-based Eureka Forbes did when it wanted to reach low-income markets with its water purifiers. At first, the company attempted to reach those consumers through its traditional distributordealer channel in rural markets. Sales were disappointing.

One way to penetrate low-income markets is to partner with entrepreneurial firms that have already solved the puzzle.

Then it teamed up with Basix, a microfinance firm, and sales jumped by 20 percent. The company made use of Basix’s network of loan officers, who meet regularly with self-help groups in Indian villages; the officers both market the company’s products and serve as a source of customer intelligence. The key ingredient here is trust: Rural Indians have limited experience with being consumers, and they rely on the microfinanciers as trusted intermediaries. By teaming up with microfinance institutions, Eureka Forbes and other consumer products companies are creating more than just a robust new distribution channel. They are also creating a wealthgenerating web of micro-entrepreneurs that could pull thousands of rural households out of poverty. For companies with a product to sell but little knowledge of the market, that’s not a bad place to start.

Emerging Markets

For further reading “Why the West needs to learn about workaround innovation,” Outlook 2011, No. 1 “Game over?” Outlook 2010, No. 2

For these and other articles, please visit accenture.com/Outlook.

Organizations don’t have an inclusive-growth culture After concerns about profitability, the most urgent problem identified by executives in our survey—45 percent cited this—was the absence of the right culture for putting inclusive business models into practice. And while it’s clear that India’s executives see inclusive growth as critical to future competitiveness, as many as 80 percent also believe that the talent in their organization is either partly or completely nonaligned with the launch of inclusive models. There are two main reasons for this. First, human resources policies are not geared to hire and retain employees who are willing to experiment. Second, companies lack mentors, specifically in the area of innovation. As long as those conditions hold, companies won’t be able to shift the culture in the direction of inclusive growth. But if companies learn to embed a spirit of inclusiveness in their internal practices, it will take them a long way toward mitigating this obstacle.

Outlook 2011, Number 3

belief is that medicine should be affordable and accessible to India’s poor and remote populations. To reach customers in low-income regions such as Uttar Pradesh effectively, Mankind recruits its field staff from low-income semi-urban and rural populations. According to the company’s CEO, these recruits are entrepreneurial, persevering and innovative. Rather than hire these reps as contractors, Mankind keeps them on its payroll to make them feel a part of the business family. In spite of being very small compared with its global counterparts, Mankind pays its medical representatives some of the best salaries in the industry. It also makes it a point to recognize and reward performance. During the most recent fiscal year, 4,000 of its 6,500 reps were awarded medals for their performance.

From senior leaders to new hires, people in the organization must learn to think and breathe inclusion if they are to make it work. We have seen at least three ways that companies are creating the culture they need to succeed in low-income markets.

Because of this HR strategy, Mankind’s distribution network has become its major strength. The company reaches practically every village in India with more than 1,000 residents, and is now one of the country’s fastest-growing pharmaceutical companies, with compound annual growth of 35 percent over t he past four years. Its drugs are among the most widely prescribed in India.

Motivate devotion

Democratize innovation

With the right mix of rewards and incentives, employees will dedicate themselves to inclusive growth. New Delhi-based Mankind Pharma, for example, has built a distribution network of committed representatives. The company’s fundamental

To make employees feel involved and motivated to contribute their ideas, companies should foster open environments. The Suggestion Scheme at New Dehli-based jointventure carmaker Maruti Suzuki India is one example of this at work.

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All employees, including shopfloor technicians and associates, have the opportunity to offer suggestions for improving processes. Maruti Suzuki provides middlemanagement executives in crossfunctional teams with physical and virtual space as well as a budget to share innovative ideas. After an idea reaches a threshold level of development, the company allocates a mentor to each of the teams to help the ideas reach fruition. Teams with promising ideas are provided an audience with top management at regular intervals.

Mumbai-based Marico, a maker of beauty and wellness products, has gone a long way toward pushing employees further than they themselves thought possible. As a result, the company’s best innovations have come during the most critical times in its history. When its leading share in the coconut hair-oil segment was threatened, Marico aggressively fought back. Within a short time, Marico’s team introduced innovations in the areas of pricing, packaging, marketing and supply chain that have made it the No. 1 player in India and Bangladesh in the coconut hair-oil segment.

Instill fearlessness

Going out to work in low-income markets—and staying the course— doesn’t necessarily come naturally. The right mix of approaches can help motivate people and in the process create a culture with staying power.

For teams embarking on a journey of developing and implementing inclusive business models, this is critical. Fearless teams are not afraid to experiment and fail.

It is not difficult to imagine the extent of the opportunity at the bottom of the world’s economic pyramid. In fact, it’s not just an idea for emerging markets anymore.

About the authors Raghav Narsalay leads the Accenture Institute for High Performance research team in India. He is responsible for creating new reports and points of view on innovation, international macroeconomics, rural markets and business models. Mr. Narsalay is based in Mumbai. raghav.narsalay@accenture.com Anish Gupta is the managing partner of Accenture’s Products group in India. With more than 15 years’ experience in business consulting, Mr. Gupta has worked with clients across Asia. Among other projects, he has led the business transformation of an Indian family-owned consumer goods company, developed a pan-Asian business model for a home appliances global leader, and conceptualized a business model for a proposed agribusiness initiative for a leading Indian conglomerate. Mr. Gupta is based in New Delhi. anish.gupta@accenture.com

As The Economist reported in a recent article, that section of the pyramid represents a “huge and growing market,” even in the United States, where nearly 44 million people live below the official poverty line. As the article notes, this is a major opportunity for companies—and has been mastered not only by major US powerhouses like McDonald’s and Walmart but also by companies ranging from German discounter Aldi to online pawnshops and prepaid phone and utilities services. But the process of reaching low-income consumers in emerging high-growth markets like India is neither easy nor fast. With profits unsure, the most talented employees often look elsewhere. And with organizational constraints— both structural and cultural—in place, companies have been slow to move in the direction of low-income and rural markets. The list of barriers and solutions we’ve provided here is not meant to be exhaustive. We have also identified other obstacles that aren’t discussed: attitudes of the typical board, the need for the right kind of leadership, and metrics that capture the longer time horizon of the inclusive opportunity. But the ones we’ve highlighted are the most critical. And with the right blend of imagination and perseverance, the barriers can be crossed and the rewards will be there. 53

Risk Management

The Risk Masters By Steve Culp

In the wake of a series of disasters, organizations are putting in place more comprehensive risk management programs, with the intent of moving beyond a reactive approach to risk to one that can fuel business growth in a smarter, more controlled fashion. And according to new research, an elite group of companies is also emerging to embrace even more advanced risk management capabilities.

Risk Management

You already know the bad news. From catastrophic oil spills to financial market meltdowns, the past few years haven’t been kind to the risk professional. But there is, in fact, some good news out there. According to new research—the Accenture 2011 Global Risk Management Study—organizations today are putting more comprehensive risk management programs in place, with the intent of moving beyond a reactive approach to risk to one that can fuel business growth in a smarter, more controlled fashion. To overcome the organizational silos that have hampered visibility across the business, sometimes letting small problems become big ones, companies are focusing on the integration of risk data and management across functions. In response to past governance inadequacies and risk management’s traditionally low profile and lack of influence, companies are increasingly establishing C-level risk executives, often with a direct reporting relationship to the CEO and with more direct involvement in decisionmaking processes. And in the face of an increasingly complex business and operational environment for which many companies have been woefully unprepared, they are improving the sophistication of the systems they use to measure and analyze risk. Most important, our global research has found evidence of the more effective execution of advanced risk management capabilities among a subset of companies participating in the Accenture survey. We call these companies, roughly 10 percent of all respondents, “Risk Masters.”

Outlook 2011, Number 3

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These companies are protecting themselves better in the short term by taking a longer-term perspective. They see the risk management function as a proactive enabler of investment opportunities. They are significantly more likely to consider risk management something that creates shareholder value, and they are especially adept at creating processes and mechanisms that link risk to business performance. The Masters are making clear that there is untapped business value in getting risk management right.

From reactive to proactive A great many challenges lie ahead for all companies, of course. The types of risks companies are exposed to, as well as the severity of those risks, are growing. Fraud and financial

crime, along with regulatory, operational and reputational risk, are on the rise, as are emerging risks such as terrorism, for which there is little to no historical precedent. Meanwhile, organizational silos and outdated information systems prevent many enterprises from adequately sharing information that could mitigate risks more effectively. And cost pressures continue unabated, requiring effective management in terms of both cost of operations and investment decisions. But our research strongly suggests that meeting these challenges requires companies to use their risk management capabilities in a more holistic manner and to transform risk management from a reactive protector to a proactive enabler.

Industry 13% 31%

North America

Banking

Insurance

Capital markets

Healthcare

Communications and high tech

Energy

Consumer goods and services

Retail

Utilities

Life sciences

Europe

Asia Pacific

Latin America

Africa

Note: Due to rounding, total may not equal 100 percent. Source: Accenture analysis

Risk Management

To say that risk management is more important today than it was two years ago—when we conducted the previous Accenture Risk Management survey—might be stating the obvious. But it is the widespread nature of this urgency, within and also beyond the financial services industry, that is particularly notable from the research findings.

Ninety-eight percent of all companies surveyed note that risk management is a higher priority now than it was two years ago, and 60 percent indicate it is so “to a great extent.” Those feeling special urgency were, of course, from the financial services industry, with banking, capital markets and insurance firms weighing

Engine for profit and growth Almost as many respondents to Accenture's recent survey of risk professionals believe that risk management is as critical to profitability and growth as it is to regulatory compliance. How would you rate the importance of your risk organization as a driver to achieve the following (scale 1-4)? Compliance with regulations

Sustainability of future profitability

1 6

Enabling long-term profitable growth

Managing liquidity and cash flow

41%

Reduced operational, credit or market losses

Managing reputation in public and media

Managing the increasing volatility of the economic and financial environment

Risk-adjusted performance management

Improved capital allocation

Reduction in the cost of capital

Competitive advantage

Managing the growing complexity of the organization Positive comments from analysts

3.40

3.38

Outlook 2011, Number 3

3.21

3.30

3.26

3.23

3.24

3.20

51 50

50 51

14 12

49 53

3.17

3.14

Not important at all (1)

Source: Accenture analysis

3.46

Infusing a risk culture in the organization

Positive rating from rating agencies

53%

Average

3.14

Not really important (2)

Important (3)

3.12

3.03

Critical (4)

www.accenture.com/Outlook

in at around 70 percent. Resources companies checked in at 61 percent, and a number of other industries, including consumer goods, healthcare and telecommunications, were not far behind, at 53 percent. The survey also reveals a problem, however: Although risk management has become a higher priority, companies are acutely aware that the performance of the risk management function lags behind actual business requirements and expectations in several key areas. For example, while 93 percent of respondents indicate that the risk organization is important as a driver of sustained future profitability, only 76 percent say their risk organization is effectively playing that role. Executives recognize the importance of risk management to, for instance, managing a company’s public reputation and gaining positive comments from analysts, but the gaps between expectations and performance in those two areas are 8 and 11 percentage points, respectively. Perhaps most notably, while 85 percent see that risk management can help achieve competitive advantage, just 72 percent say they have achieved that goal. There are a number of reasons that risk management groups fail to fulfill their potential. One previously noted: Organizational silos prevent many companies from having sufficient visibility to coordinate risk management across different parts of the organization. Fifteen percent to 24 percent of survey respondents note that their risk management approach is not integrated across most types of risk, and that silos remain. Between 40 percent and 50 percent say that the manage-

ment of major risks is only “somewhat” integrated within the larger organization. One of the companies we studied as part of our research, for example, retains an organizational structure in which risk management refers primarily to actions taken to minimize risk within a particular function or process. Therefore, no integrated, companywide view is available. The company sees this as a significant gap and is now taking action to help balance the considerations of risk and opportunity in a more holistic manner.

Tools and capabilities Ultimately, an integrated approach depends on the ability to share, analyze and understand both internal and external data. So another important imperative is for companies to put in place the data architectures, analytical tools and information sharing capabilities that underpin any integrated approach to risk management. Many risk executives are aware of this investment need. When survey respondents were asked what enhancements in particular their companies intended to invest in, the top answers included data quality, management and architecture, as well as analytics and risk modeling. More effective organizational structures and governance systems are essential if this integration challenge is to be addressed successfully. Banks, of course, are particularly concerned about developing better integration. At one bank participating in our research study, the risk area is linked to the credit, controllership and asset operations leadership

as well as, ultimately, the company’s board of directors. The governance structure starts with a supervisory board focused specifically on risk, but then extends to the internal audit function as well as other governing groups, including planning, security management, strategy and risk management. Each of these areas has a direct interest in the bank’s risk management capability, and the work is brought together and integrated through committees that, as part of the Risk Management Board, oversee three areas of concern: operational risk, credit risk liquidity and market risk. These committees report to the Global Risk Committee. This structure enables the bank to have centralized management while responding to regulators’ demands that each area of the bank retain individual responsibility for risk management as well.

Risk mastery In spite of significant investments in risk management structures and technologies, companies remain vulnerable to a host of business, operational and regulatory risks. Given the changing landscape, many companies are learning from the insights and experience of others. In our analysis of the survey data, as well as conversations with a variety of risk executives, we captured several of these insights to help organizations move toward risk mastery. Although there is no single path toward mastery, these insights can help ensure that the risk management function is proactive and capable of anticipating threats to the business, while simultaneously providing guidance to entrepre-

Risk Management

neurial executives looking toward a new wave of growth.

Mastery Capability No. 1: Raise the bar on risk management as a driver of shareholder value Almost two-thirds (64 percent) of Risk Masters indicate that their risk management capabilities provide competitive advantage to â&#x20AC;&#x153;a great extent,â&#x20AC;? compared with only 42 percent of the peer set (see chart, below). Masters are also more likely to identify risk as a higher priority. Risk Masters are especially attuned to the risk management function as a source of specific benefits. For example, almost three in every four Risk Masters consider

the risk organization critical to reducing operational, credit and market losses, compared with only a third of non-Risk Mastersâ&#x20AC;&#x201D; a significant difference. Sixty-seven percent of Risk Masters believe that the risk management function drives sustained future profitability, while only 46 percent of peers agree. Fifty-seven percent of Risk Masters say their risk capabilities have helped them manage the increasing volatility of the economic and financial environment, compared with only 25 percent of non-Risk Masters. In short, the Risk Masters acknowledge risk management as a key priority for their companies, and they plan and invest accordingly.

Competitive advantage? Accenture research identified a small group of risk professionals who are at the top of their game. These "Risk Masters" are far more likely to believe that risk management is a source of competitive advantage than their Non-Risk Master peers. Is your risk function a source of competitive advantage and therefore a source of higher performance relative to competitors?

Yes, to a great extent, we are performing at a higher level Yes, to some extent, we are performing at a higher level

42% 64%

36 14

Non-Risk Masters

Source: Accenture analysis

Outlook 2011, Number 3

Risk Masters

Risk management function is not creating advantage

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As the chief risk officer for one global energy company put it, “A high-quality and efficient risk management function is among the top strategic goals of the company, ranking second only to growth and profitability.”

Mastery Capability No. 2: Involve the risk organization in key decision-making processes Companies that participated in this year’s Risk Management Study were far more likely than those in the 2009 report to involve the risk management function in major business decisions. For example, half (50 percent) of respondents say their risk organization is involved in the strategic planning process “to a great extent.” A significant rise can be seen in risk management’s involvement in budgeting and forecasting, up from 33 percent in 2009 to 45 percent today. When it comes to setting objectives and incentives, the risk organization is now involved to a great extent at 39 percent of responding companies, compared with only 27 percent in 2009. Large gaps exist between Risk Masters and non-Risk Masters in the extent to which risk management is involved in several key decision processes. For example, 79 percent of Risk Masters say their risk function is involved to a great extent in strategic planning, while only 46 percent of the peer set say this is so. By involving the risk function in key business decisions, companies can link risk and profitability objectives, improve strategic capital decisions and increase shareholder returns. To a great extent, the vis-

ibility of risk management at the highest levels of an organization is what enables risk management to become a proactive force for guiding the business toward new opportunities.

Mastery Capability No. 3: Improve the sophistication of measurement and modeling Many of the ongoing risk exposures companies face are rooted in a failure to adequately measure, model and analyze a broader array of risk types. Too often, the risk management function is slow and manual in its approach, wasting valuable time and effort on collecting, consolidating and aligning multiple data sources as opposed to having the time to effectively leverage information enabling more complete analysis and the evaluation of future risk scenarios. Risk Masters, by contrast, are also masters of measurement. Much higher proportions of Risk Masters currently measure a fuller spetrum of risk types. For example, 90 percent of Risk Masters measure strategic risks, compared with just 63 percent of peers; 95 percent measure business risks, while only 70 percent of non-Risk Masters do so. Risk Masters also have a significantly higher commitment to analytics and risk modeling. Sixty-four percent of Risk Masters are instituting analytics and modeling programs to enhance the effectiveness of their risk organization, compared with just 47 percent of non-Risk Masters. As the global risk manager for one European manufacturer noted in a research interview, “Risk key performance indicators and specific,

focused risk analyses are now more often included in investment and strategic decisions.” “Our continuous improvement of risk tools and processes helps us maintain a high level of risk awareness and alignment with the business,” observed another risk executive. “But the tools and processes also release employees from basic number crunching and enable them to use their capabilities for deeper analysis.”

Mastery Capability No. 4: Integrate risk management capabilities across the organization Among the striking gaps between the performance of Risk Masters and their peers are those that appear in the area of risk integration. Across all types of risk, Risk Masters excel at integration in comparison to peers (see chart, page 62). As the CRO of a global reinsurance company put it, “An integrated vision of risks is absolutely necessary, not only in terms of consolidation of risks at the entity level but also across entities, per business line. Our risk management approach is integrated: Risk is clearly taken into account in the process for making key decisions, because the risk management function is always associated with that process.”

Mastery Capability No. 5: Establish a dedicated risk executive with oversight and visibility across the business One way Risk Masters separate themselves from the pack is by having a highly placed risk executive—one with not only broad oversight but also with broad visibility

Risk Management

For further reading “It’s all about balance,” Outlook 2010, No. 2 For this and other articles, please visit accenture.com/Outlook. To review the full 2011 Global Risk Management Research findings, please visit www.accenture.com/ globalriskmanagementresearch2011.

and influence and backed by a dedicated risk management organization. This can ensure that risk and performance management are better aligned with the company’s strategic business priorities. Having a seat at the table can mean there will be a strong advocate at the top for an effective, sustained risk management culture. Risk Masters are more likely to concentrate risk management in the hands of a chief risk officer and, by 81 percent to 62 percent, more likely than their peers to have a risk executive with the actual CRO title. This suggests that Risk Masters more readily acknowledge the importance of having a C-level risk executive as an influential part of top management.

However, it is the reporting relationship—and the inclusion of the head risk executive in setting and executing the broader business strategy—that is ultimately more important than the title itself. Risk Masters are more likely to have their risk executive report directly to the CEO (91 percent versus 78 percent for non-Risk Masters).

Mastery Capability No. 6: Infuse risk awareness across the organizational culture One of the critical points to remember about risk management is that people are fallible, especially in the face of the growing complexity of business. Consequently, one of the key factors that distinguishes

Great expectations Some gaps exist between what is expected from risk organizations and what is achieved. How would you rate the importance of your risk organization as a driver to achieve the following?

93%

Sustainability of future profitability

76%

Managing reputation in public and media

85 Competitive advantage 72

Positive comments from analysts

Importance (important + critical) Achieved (to a great extent + completely) Source: Accenture analysis

Outlook 2011, Number 3

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Risk Masters from their peers is their commitment to creating and infusing an awareness of risk exposure and the means to mitigate risks—as well as more detailed tacit knowledge and training—across the corporate culture. Sixty-two percent of Risk Masters say they have achieved a strong risk culture in the organization, compared with only 30 percent of non-Risk Masters. In every industry, people and skills are critical components in achieving risk mastery. One CRO we spoke to placed the challenge of the people dimension on the same level as increased regulatory risk and the challenge of organizational integration. The company has lost a number of critical risk management personnel, and the executive faces the challenge of replacing the knowledge held by those people. In a market where demand for risk management skills remains high, it is important that companies build these capabilities in a broader population and have up-to-date plans to fill key positions promptly when they are vacated. Risk Masters emphasize the importance of making risk management part of everyone’s daily responsibilities. In a company

with a pervasive risk culture, people at all levels instinctively look for risks and consider their impacts when making decisions and performing their tasks.

Mastery Capability No. 7: Invest in continuous improvement A final performance gap between Risk Masters and their peers can be found in the area of future investments in risk management, and in the goals of those investments. Across the board, Risk Masters were more likely to have improvement plans in place. For example, 67 percent of Risk Masters are currently undertaking plans to improve the integration of their risk and finance processes, compared with 47 percent of their peers. Sixty-four percent of Risk Masters are at work on better analytics and risk modeling capabilities, while only 47 percent of non-Risk Masters have such plans.

About the author Steve Culp is the global lead of Accenture Risk Management. He has been with the company for 20 years, during which time he has delivered finance solutions across industries, including projects to deliver finance strategy, enterprise performance management and large-scale finance solutions using shared services and outsourcing. Previously, Mr. Culp headed Accenture’s European Finance & Performance Management service line and served as the global lead for that group’s finance and risk consulting services to financial services clients. He is based in London. steven.r.culp@accenture.com

In general, the data appears conclusive: Those that do not invest in risk mastery at the proper level or that do so only tactically, without an overall risk management vision in place, will struggle to outperform peers who do.

As the Accenture 2011 Global Risk Management Study makes clear, risk management is now becoming, for leading companies, a critical lever for supporting growth and future profitability. Companies that are able to master a range of integrated elements—involving risk management in key decision-making processes, putting leadership with board-level visibility in place, and infusing risk awareness across the organization—are creating the means to differentiate themselves from the competition. The Risk Masters have set a very high bar: They are looking beyond reactive, compliance-oriented mindsets and are seeking, through their risk management investments, to create shareholder value and achieve sustainable long-term growth. 63

China

Can Chinese companies win in the global big leagues? By Gong Li, Bo Wang and Yali Peng

The likes of Lenovo and Haier have shown that they can. But for other Chinese enterprises to enter the ranks of the worldâ&#x20AC;&#x2122;s premium brands, they must establish a significant global presence in operations, sales, distribution and R&D.

Outlook 2011, Number 3

China

When Lenovo announced its $1.75 billion acquisition of IBM’s personal computer division in December 2004, the size of the deal was only part of what caught the world’s attention. Even more important was the symbolism. Here was a Chinese company swooping in to capture an iconic US brand—an event that signaled the arrival of Chinese truly global companies on the world stage. Indeed, the rise of Lenovo was not an aberration. In the 2010 Fortune Global 500 list, 42 companies hailed from the Chinese mainland. Only the United States (139 enterprises) and Japan (71) could boast more entries. Chinese companies have traveled a tremendous distance since Deng Xiaoping opened the country’s economy in 1978. By the 1990s, despite their small beginnings, many companies had become export powerhouses. But to continue to increase their footprint globally, they have had to shift their focus from being mere exporters to improving their capabilities all along the value chain.

Outlook 2011, Number 3

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The next step? Chinese enterprises that want to join the ranks of global brands must establish a significant global presence in operations, sales, distribution and R&D.

panies has also risen rapidly in recent years. By the end of 2008, 8,500 Chinese companies had set up 12,000 businesses outside the country—in Asia (6,000), Europe (2,000), Africa (1,600), North America (1,400), Latin America (600) and Oceania (400).

The journey will not be easy. To be sure, China Inc. has been on a roll. Outward FDI reached a high of $56.5 billion in 2009, about 56 times the level in 2000 (see chart, below). And the value of transnational mergers and acquisitions has jumped from $470 million in 2001 to $30 billion in 2008 (before dropping back to $17.5 billion in the downturn year of 2009).

Yet despite their growing presence overseas, Chinese companies as a whole retain a strong focus on exports. When Accenture asked companies actively involved outside the country how they were conducting business overseas, 25 percent of responses indicated that they were working through export agents or establishing export departments. Many (23 percent) also signaled that they were establishing representative offices

The number of businesses established overseas by Chinese com-

Outward bound China’s foreign direct investment exploded from $1 billion in 2000 to $56.5 billion in 2009. 60 55.9

56.5

2008

2009

26.5 21.2

20 12.3 10

6.9

5.5 2.7

2.9

2002

2003

2000

2001

2004

2005

2006

2007

Source: Statistical Bulletin of China’s Outbound Foreign Direct Investment 2009, Ministry of Commerce of the PRC

China

About the research To explore the globalization of Chinese enterprises, Accenture used in-depth interviews, questionnaires and related research. We interviewed 14 executives from influential Chinese enterprises from various industries. We also interviewed officials in government departments in charge of investment promotion. From May through August 2010, questionnaires were sent to 460 of China’s top 500 enterprises; 89 enterprises from 11 industries responded. Most of the companies were large; more than half of them generated more than 10 billion RMB yuan ($1.5 billion) in revenues in 2009, and 64 percent of them employed more than 5,000 people.

overseas. About 18 percent had ventured into overseas production. But when asked about establishing operating centers or R&D facilities abroad, the number dropped to 7.3 percent and 5.6 percent, respectively (see chart, opposite).

Four stages The continued reliance on exports— rather than the establishment of overseas business units—raises several important questions. What distinguishes a truly globalized player? Does the fact that the company’s products are exported mean that it is globalized? Should the share of its sales that come from overseas be a factor in assessing its global footprint? Is it globalized if it owns overseas assets or has established branches or subsidiaries in other countries? Or is it truly globalized only if it establishes operations and R&D centers overseas? Whether a company can be considered a global player is of more than academic interest. It is important because companies that focus solely on exports can appear to be in stronger positions than they actually are. In fact, they are likely engaged in lowmargin, low-value-added commerce that offers limited opportunity for future growth. They are 68

Outlook 2011, Number 3

limited to a narrow portion of the value chain. For Chinese enterprises to continue on their high-growth trajectory, they are going to have to develop the capabilities other global players already have. For instance, in the past, a company’s degree of globalization was measured by determining what share of its business came from overseas sales. While that measurement remains a valid part of the formula, we believe the company should also be assessed based on its operational and managerial capabilities on the global market. Accenture has devised a framework showing four possible phases of globalization that takes into account both the traditional measure of share of business and the degree of global operational capabilities. When companies are selling beyond national boundaries but are limited in both their share of business and their global operations, they can be said to be in a proto-globalization stage. If overseas sales are strong but global capabilities are weak, they likely have an export orientation. More developed capabilities, even if share of overseas business is relatively low, indicate

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that the company is at the valuechain optimization stage. Only when companies earn both a relatively high share of total sales from overseas and have strong operational and managerial capabilities can they be said to have globalized operations (see chart, page 72).

For example, the New Hope Group, the largest animal feed producer in China, has set up subsidiaries in Bangladesh, Indonesia, the Philippines and Vietnam. The overseas operation is a simple duplication of the company’s existing domestic business, and the scale is much smaller. New Hope’s combined overseas sales are less than 1 percent of its total sales, so it is considered to be in the proto-globalization phase.

Proto-globalization In the initial stage, some of an enterprise’s raw materials, technologies, equipment and personnel originate in other countries. Its products are sold on the global market directly or indirectly, as finished or semi-finished goods. However, the company’s global capabilities— R&D, for example, leadership and marketing—are weak, and its share of sales from beyond the domestic market is minimal.

Chinese companies took their first steps into this stage in 1978, when the country launched its broad program of economic reform and openness. They began to participate in the international division of labor by exporting their products and establishing joint ventures with foreign companies. In November

Not global yet When asked how they were conducting business overseas, Chinese enterprises indicated that they were primarily focused on exports; only 7 percent said they had established overseas business units or operating centers, and even fewer had invested in overseas R&D operations. Export agents or establishment of export posts

25%

Establishment of branches/ representative offices

Establishment of overseas sales branches/subsidiaries

Overseas production

Establishment of overseas business units/operating centers

Overseas research and development

Other

Source: Questionnaire surveys by Accenture and the China Enterprise Confederation, May-August 2010

China

Many Chinese enterprises set their sights on European and US markets to improve their competitiveness.

1979, the Beijing Friendship Store established Kyowa Co. in Tokyo through a joint investment with Japan’s Maruichi Shoji, marking the onset of overseas investments by Chinese enterprises.

original equipment manufacturers and original design manufacturers populate China’s Pearl River Delta and Yangtze River Delta areas and are examples of companies in the export orientation phase.

Economic globalization and regional economic integration gathered momentum starting in the mid1980s. According to UNCTAD statistics, Chinese FDI surpassed the $100 million threshold for the first time in 1984 and averaged $670 million annually for the next five years. Still, at the time, only a scattering of Chinese enterprises were seeking to go beyond their nation’s borders.

Value-chain optimization

Export orientation In this stage, companies manufacture products for overseas markets using cheap local labor. Few of them have their own brands or sales channels either domestically or abroad. They derive most or all of their income from exports, and their competitive advantage comes from providing low-cost and low-value-added products and services. Their global management and operational capabilities remain quite weak. In the mid-1990s, China announced its “going out” strategy and introduced a series of policies and measures designed to encourage Chinese enterprises to expand into overseas markets along these export-orientation lines. “Going out” didn’t happen overnight. The idea was first raised in 1992, in Jiang Zemin’s political report to the Fourteenth National Congress of the Chinese Communist Party. In 1997, Jiang formally used the term “going out” in various speeches, and it was adopted as a national strategy. Soon a large number of new businesses sprang up. Today, as a result, many labor-intensive and export-oriented

Outlook 2011, Number 3

An enterprise capitalizes on globalization in this stage to move up and expand its value chain. It views the global market as integral to this effort, although it does not yet depend on that market for a significant part of its business. Activities at this stage include acquiring technologies, recruiting talent, expanding into new markets and building brands. Since 2001, when China was admitted to the World Trade Organization, Chinese enterprises have further integrated into the world economy and deepened their understanding of the rules of the game in making overseas investments. Many Chinese enterprises set their sights on the European and US markets to improve their competitiveness in areas such as research and development, product design, technology development, marketing and branding. Others have been eager to establish their presence in the Middle East, Africa and Latin America to tap these regions’ abundant local resources. Consider the Sany Group’s rise to become the No. 1 maker and seller of concrete pumps. From the beginning, according to vice president He Zhenlin, the company’s strategy was to focus on value chain optimization, not product exports (see sidebar, opposite).

Globalized operations When a company has developed world-class capabilities and a high

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percentage of its sales come from abroad, it can be considered a global player. In 2010, for example, Huawei Technologies Co.’s overseas sales reached 65 percent, and Lenovo’s hit 63 percent. At this point in a company’s development, national origin ceases to be a crucial factor. More important: The company transcends national borders in its strategic thinking, decision-making processes and corporate culture. Achieving this state is an arduous, protracted process. Few Chinese enterprises have reached this stage. For now, more companies are like Sany, improving at each node of the value chain— from research and development to the acquisition of raw materials, from production and marketing to

the delivery of finished products. In defining a globalization strategy, a business should first analyze its comparative strengths and weaknesses in terms of resources and capabilities, and then determine which links in the value chain should go global.

Meeting the challenge As today’s Chinese companies work their way through the phases of globalization, there are some key lessons to be learned from others that have gone before them. First, Chinese enterprises need to determine the right starting point. Not all can follow Haier’s “difficult to easy” path—and launch in the United States first (see sidebar, page 73). Depending

How Sany targets high-growth markets Construction machinery maker Sany Group’s globalization plans are nothing if not geographically ambitious: The company has established production bases in the United States, Germany and India, and is planning one in Brazil. The United States is the world’s largest engineering machinery market and home to giant engineering machinery manufacturers. By setting up a base in the United States, Sany can secure an adequate parts supply and learn advanced management practices. Germany enjoys advantages in industrial design, precision instruments manufacturing, technology, business processes and R&D. By establishing a plant in Germany, Sany can assemble products there that were manufactured in China—thus making them cheaper to sell to European clients. Sany’s presence in the high-growth markets of India and Brazil will also be critical to its ability to maintain low costs and close customer relationships in these booming economies.

From R&D through manufacturing, Sany uses a mix of domestic and global strategies. For example, Chinese engineers and their German colleagues work together closely, with the latter providing the conceptual framework and the former completing the functional designs. The company fosters this collaboration cost effectively by making use of IT-enabled tools. With the exception of precision devices, Sany’s manufacturing takes place in China, where costs are a fraction of those in Germany. Finished products are then sent to Germany for assembly. It’s clear that Sany is developing the kind of capabilities necessary to compete on the world stage. At the same time, the percentage of its income derived from global operations, while impressive, is not huge: In 2009 (amid the financial crisis), Sany brought home nearly 1.4 billion yuan ($215 million), or 9 percent of its total income, from overseas.

China

on their capabilities and the nature of their industry, some may find it easier to enter emerging markets first, or those that are geographically closer to home. Second, Chinese enterprises must set up a leadership team with a global vision and overseas educational and work experience. When Lenovo acquired IBMâ&#x20AC;&#x2122;s PC business, it created an executive committee that could help it meet its international aspirations. Eight members of this 14-person team had overseas backgrounds, including four former IBM executives, one former Dell executive and one former Microsoft executive. No matter how busy they are, members of the committee meet

for two to three days every month to discuss key issues in strategy and operations. Further, the management teams below the executive committee allow their members to shift between different geographic locations and markets. Such practices have contributed significantly to Lenovoâ&#x20AC;&#x2122;s emergence as a global company. Third, Chinese enterprises must do more to understand local conditionsâ&#x20AC;&#x201D;from policies, laws and regulations to sources of talent, natural resources and innovation. Many executives told us that a shortage of adequate information about local markets was holding them back. They lack clarity about what opportunities exist and how they can find them.

Measuring globalization

Share of overseas business

Although exports remain important to Chinese companies, there are other ways to measure the degree of globalization. Along with examining what share of its business is done overseas, the company should also be assessed based on its operational and managerial capabilities on the global market. Those companies that have a high share of business overseas and have developed global capabilities are in the most advanced stage of global operations.

Export orientation

Globalized operations

Proto-globalization

Value chain optimization

Global operations capabilities

Source: Accenture analysis

Outlook 2011, Number 3

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Haier goes out, in and up In 1984, the Qingdao Refrigerator Factory was a small, collectively owned enterprise with annual losses of 1.47 million yuan (prompting more than 50 employees to ask to be transferred to a more profitable company). During the remainder of the decade, the company transformed itself into the leading refrigerator brand in China, winning a gold medal for product quality in 1988. During the 1990s, the renamed Haier Group concentrated on diversifying its product line, and by 1998, it had become China’s leading home appliance brand. But the future for a purely domestic company was not rosy. Rivals were upgrading their offerings, and consumers were growing increasingly sophisticated in their demands. Under these conditions, Haier knew it had to become a global competitor. As Zhang Ruimin, the company’s chairman and CEO, expressed it, “If we had not had a grand vision and gone out, we would still be small. Like a fish in a small pond, we would never grow big. So we must go out.” In 1999, Haier defined a three-step strategy of “going out, going inside and going upward.” That is, it would first gain a foothold in overseas markets with exports. Next, it would establish local operations throughout the world, and enter mainstream distribution channels. And finally, it would create a global brand known for the quality of its products. To execute its plan, Haier took a “difficult-to-easy” approach, selecting foreign markets with meticulous care. It first set its sights on the hard-to-penetrate US market, where it established operations in 1999—a design center in Los Angeles, a manufacturing facility in South Carolina and a marketing center in New York City—characterized by mature technologies and varied consumer demand. By doing so, it established a solid reputation in the world’s developed markets. Its successful experience in the United States would serve as a model for expansion to other countries and regions. Europe. In 2001, Haier took over a refrigerator manufacturing facility under Italy’s Meneghetti Equipment (the first transnational M&A case involving a Chinese home appliance

manufacturer). Earlier, Haier had established R&D centers in Italy, the Netherlands, Germany and Denmark. It had also constructed a marketing center in Milan. South Asia. In 2001, Haier set up an industrial park in Pakistan. By 2005, the company owned nearly 3,000 sales outlets and 14 exhibition halls in India. In 2007, its first manufacturing facility in India began operations. Africa. In 2000, Haier and Great Britain’s PZ Cussons established a joint venture in Nigeria for assembling and marketing the Haier Thermocool product line. In June 2007, Haier’s largest exhibition hall in Nigeria opened in Victoria Island, the business center of the capital city of Lagos. ASEAN. In July 2005, Haier established an exhibition hall in Malaysia. In May 2007, it acquired the Refrigerator Factory from Sanyo in Thailand. Oceania. In New Zealand and Australia, Haier co-owns factories with local partners. In 2009, it participated in the recapitalization of Fisher & Paykel Appliances, a leading New Zealand home appliance manufacturer. At the plan’s completion, Haier will hold a 20 percent stake in FPA. Haier is also forming alliances with local marketers in the region. Haier’s 2010 revenue was RMB135.7 billion ($21 billion), more than 30 percent of which was generated overseas. It owns 16 industrial parks (4 overseas), 29 factories (24 overseas), 8 R&D centers (5 overseas), 61 trading companies (19 overseas) and 58,800 sales outlets (45,800 overseas). The company employs 60,000-plus people (more than 3,000 overseas). Its overseas business revenue has been growing at a spectacular annual rate of 30 percent to 50 percent. For each of the past eight years, Haier has topped the list of the most valuable brands in China. In June 2010, it was ranked 28th on BusinessWeek’s list of the 50 Most Innovative Companies. Data from the business intelligence firm Euromonitor International, cited by Newsweek in December 2010, put Haier in the top spot in worldwide white-goods retail volume, boasting a global share of 6.1 percent.

China

For further reading “China’s high performers take the long view,” Outlook 2010, No. 3 “A tale of two Chinas,” Outlook 2009, No. 2 For these and other articles, please visit accenture.com/Outlook.

Fourth, Chinese enterprises can do more to develop a base of young talent with the skills needed in a global environment. China State Construction Engineering Corporation, for instance, has built up a team of junior managers for its global business. Some of them are in their early thirties, but they are already leading overseas projects involving tens of thousands of workers and worth hundreds of millions of dollars. In addition, enterprises should encourage the managers of their overseas operations to assimilate into the local society. When the Hangzhoubased Holley Group Co. first started its global operations, the company set strict rules regarding Chinese employees’ behavior. They had to live in company dorms and were not allowed to leave them at night. But as managers began to understand the importance of cultural mingling, they changed policy: Employees could rent their own apartments and socialize in restaurants after work. Today, a number of Holley’s Chinese employees have served in overseas markets for more than 10 years, gathering deep insights into the markets they live in. Fifth, Chinese companies can create a globalization ecosystem by establishing alliances with local partners and other Chinese com-

panies. For example, Holley allied with its local Thai partner to create the Thai-Chinese Rayong Industrial Zone, which has attracted more than 20 Chinese investors and a combined investment of $170 million. Few enterprises can successfully expand into overseas markets alone. Alliances of two, three or even more parties can help the participants identify and capitalize on global opportunities. Sixth, Chinese companies must become more innovative—in research and development, marketing, brand construction and other key business functions. They used to compete on cost and price, without core innovative technologies or independent brands, and seldom broke into the highly profitable service sectors. Now they need to shift their products’ reputation from “Made in China” to “Made with China” or “Created in China.” In addition to increasing their own capabilities, Chinese enterprises also see government support as crucial for successful globalization. Many executives told us they expected the government to be more supportive. They noted, for example, the significant role that the Japanese and Korean governments (and industry associations) have played in helping their enterprises go global.

China emerged from the global financial crisis relatively unscathed, which has put its enterprises in an advantageous position. The time is ripe for Chinese companies to leave the beaten track and transform their business and operating models to fuel new growth. This transformation calls for strong capabilities in innovation, brand building, customer value, resource allocation and cultural integration. Chinese companies’ expanding strength and the need for transformation are pushing these enterprises to go out and face the world. In this new context, globalization is a natural choice for Chinese businesses. 74

Outlook 2011, Number 3

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About the authors As the chairman of Accenture Greater China, Gong Li leads a team of more than 5,800 people. With 25 years of cross-industry business consulting experience, Mr. Li has collaborated with clients in government and a variety of industries, including electronics, high tech, energy, petrochemicals, financial services and consumer products. Based in Shanghai, Mr. Li also has extensive experience working with Chinese state-owned enterprises on various programs, including corporate restructuring, process transformation and commercialization. gong.li@accenture.com Bo Wang, the managing director of Accenture Greater China, is based in Beijing. His main areas of competencies are corporate strategy and transformation, with extensive experience in energy, natural resources, metals, financial services and manufacturing; he has worked with multinational corporations in China and major Chinese corporations. Prior to joining Accenture, Mr. Wang was the chief economist of a major Chinese private firm. He also served for seven years as a consultant with the Financial Sector Development Department of the World Bank in Washington, D.C. bo.wang@accenture.com Yali Peng is the Greater China lead for the Accenture Institute for High Performance. Mr. Pengâ&#x20AC;&#x2122;s work focuses on how macroeconomic and social trends shape the way companies conduct business, and how Chinese companies transform themselves in responding to the changing business environment. Located in Beijing, Mr. Peng previously worked in Accentureâ&#x20AC;&#x2122;s Strategy Consulting group, and in the field of credit rating at Standard & Poorâ&#x20AC;&#x2122;s. yali.peng@accenture.com

Talent & Organization Performance

Solving the skills crisis By Norbert B端ning, Susan M. Cantrell, Breck T. Marshall and David Smith

The broad availability of workers in the midst of the economic downturn can be misleading, and many executives are only beginning to appreciate the scope of the challenge they face when it comes to finding the right skills to compete in the years ahead. Companies must get out in front of the skills challenge, building an arsenal of altogether new solutions.

Talent & Organization Performance

Here’s a cautionary tale. In 2001, a US medical device maker expanded its product line to include a new heart defibrillator it had acquired from another company—despite the fact that it didn’t have the manufacturing and engineering skills needed to meet the strict regulatory requirements associated with marketing the new product. Although managers put hiring and training programs in place to close the skills gap, they weren’t fast enough. Five years later, the US Food and Drug Administration discovered that during the first year of the product’s life, the company’s quality engineers had not met federal government requirements, due to inadequate knowledge and skills. Skepticism about the product’s safety swiftly followed, and in 2010, the business had to be sold. Interesting, you say, but not your problem. After all, with global unemployment at near-record levels, there’s obviously a huge pool of qualified talent out there, in practically every discipline, just waiting to be hired . . . right? Wrong. The medical manufacturer had discovered what thousands of companies—across industries, geographies and types of workforces—are currently experiencing: New skills requirements cannot be met by old, traditional methods.

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Counterintuitive though it may seem, about a third of employers worldwide are experiencing critical challenges filling positions due to a lack of available talent, and almost three-fourths of employers are affected by talent shortages to some degree. The people are there, just not the right people— those with the knowledge, skills and abilities companies need, right now. It’s a situation with potentially grave business consequences. For many companies, skills gaps have resulted in delays in product releases, reduced customer satisfaction, loss of revenue and, sometimes, the demise or sale of the business. In a rapidly changing world where talent is increasingly what propels an organization ahead of the competition, organizations are finding that their ability to quickly and effectively develop skills they need is one of their most important competitive differentiators.

broader functional capabilities, industry expertise and knowledge of particular geographic markets. Even assembly-line positions in auto plants now require a mix of skills: the technology, communication and problem-solving capabilities to enable workers to operate advanced equipment and solve quality problems on the front line. The term “unskilled labor” has all but disappeared from the business vocabulary. In short, the knowledge environment makes it much harder to find the right person for the job.

The talent landscape has changed in several important ways.

Nor are educational levels what they need to be—an issue plaguing nations and companies both East and West. For example, a recent Wall Street Journal article told the plight of a call-center company looking to hire 3,000 new employees in India. The company discovered that few of the thousands of high school and college graduates who applied possessed the reading comprehension and basic business capabilities needed to perform at satisfactory levels. Ninety-seven percent of applicants were turned down. In the United States, employers report that as the country’s educational focus has shifted to four-year college degrees, traditional trade schools are no longer producing the skilled laborers companies need.

First, today’s knowledge-driven, technology-oriented economy demands that workers have skill sets that are both more advanced and more specialized. Yet at the same time, as companies expand their global presence, job seekers must also meet a breadth of additional requirements that go beyond their specialized skills, including

Finally, as the pace of marketplace competition accelerates, finding the requisite skills becomes ever more urgent. As customer demand fluctuates and as companies drive new products and services to market faster than ever, they need to tap workers on demand, pulling in skills wherever and whenever needed. This can be difficult in an

Doing nothing is not an option, nor is making only incremental improvements. If companies are to generate a new period of growth, they must adopt new strategies to ensure they have the skills they need to succeed.

Multi-talented

The term “unskilled labor” has all but disappeared from the business vocabulary.

Talent & Organization Performance

era when competition for talent has gone not only cross-industry but cross-border as well. Finding and keeping talent is more challenging than ever. Solutions that merely retool old approaches can put organizations at risk. Traditionally, the answer to finding needed skills came down to three choices: make, buy or borrow. That is, organizations could train their own people, hire from the outside or use temporary staffing or outsourcing to fill their needs. Today, it’s no longer a matter of “or”—the skills crisis is so severe that organizations must now make

and buy and borrow in a holistic, portfolio approach. Multiple, simultaneous solutions are required, including new and creative ones such as redesigning work completely, mining for hidden skills in their own organization or, ironically, thinking beyond skills entirely and looking more at issues of “teachability” and fit. Based on our research and conversations with executives, six innovative solutions are available to organizations that, combined in different ways, can close skills gaps more quickly and give companies a competitive edge.

Strategy No. 1: Think competencies and fit, not just skills Focusing too narrowly on highly specific skills is important if you’re hiring a heart surgeon but less important in most other cases. Organizations may complain they can’t find someone with experience implementing SAP Accounting 4.6, for example, but that mindset might cause them to overlook topperforming internal or external candidates who don’t have those key words on their résumé but who could readily perform that job based on their knowledge of accounting or of other packaged software programs. By focusing on the notion of “developable fit”—a more fluid approach to matching people with needs—organizations can find people who, with just a little

Outlook 2011, Number 3

additional training, can perform the highly specific skill requirements of the job. Specific skills backgrounds have also been proven repeatedly by organizational psychologists to be one of the least important predictors of job performance. Far more accurate in predicting performance are, first, competencies (a person’s general communication ability, for example, as compared to specific expertise in PowerPoint presentations) and, second, cultural fit with the organization. Indeed, one of the competencies shown to have a high correlation with performance is learning aptitude— the ability, as well as the willingness, of people to learn quickly and easily.

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Strategy No. 2: Use new recruiting and hiring techniques to attract the skills you need A number of important innovations are emerging in the recruiting and hiring fields that can make it easier to find top-performing, skilled talent on a global basis, quickly and more cheaply. Recent company experience suggests a number of ways to take advantage of these new techniques.

approach can also lead companies to cast their nets too narrowly, missing potential top performers. New startups are emerging to help companies alter that approach inexpensively, teaching them how to use competency, skills or cultural fit assessments on the front end of the screening process to supplement the initial, résumé-based screening.

Use social media platforms to find talent yourself

Other companies, including Google, are broadening their search for skilled people by screening candidates based on the quality of their work or their personal biography—not only where they went to school or what work experiences they’ve had.

Instead of relying on expensive headhunters or job postings, many organizations are moving toward identifying the ideal candidates through social media sites such as LinkedIn or Taleo Talent Exchange, and then contacting those people directly, often with customized employment offers. When gaming company Red 5 Studios was struggling to compete with large technology companies for skilled developers, for example, it didn’t post a job opening at all. Instead, it identified a list of ideal candidates, learned what it could about each, and then created individualized employment pitches that were recorded on iPods sent to candidates in attention-grabbing Russian-doll-style nested boxes.

Identify and filter people by looking beyond what’s listed on their résumés Numerous studies have found that screening people by looking for key words on a résumé is not an effective way to predict performance. Such an

The company might, for instance, ask a series of detailed biographical questions shown to be statistically correlated with top performance at the company: Have you ever set a world record in anything? Have you ever started a club? What Internet mailing lists do you subscribe to? Google also stages work competitions (for software coding, for example), with the winner getting the open position. Accenture envisions new Internet companies that will work much like a dating service. This would enable closer matches between job candidates and companies, through profiles that contain such information (properly protected and secured) as samples of actual work, assessment scores, answers to biographical questions, competition results, pre-recorded videos with answers to common behavioral interview questions, work motivators and interests, geographic preferences and more.

Talent & Organization Performance

New ideas for closing the skills gap Old idea

New idea

Reactive, supply-side skills fulfillment

Proactive, demand-side skills fulfillment

Long-term, static planning initiatives that determine when and where skills are needed

Just-in-time deployment of skills when and where they are needed

Long lead times for skills development, with skills relevance measured in years

Just-in-time development of workforces, with skills relevance measured in weeks or months

Skills development consists of expensive, formal, primarily classroom-based programs

Skills development focuses on constantly refreshing skills through learning opportunities embedded in everyday work

Hiring decisions based on specific skills need

Hiring decisions based on general competencies and capabilities required, then providing learning opportunities for specific skills, if needed

Static, traditional job design, with training and hiring to match

Fluid or redesigned jobs, with job design changed to match talent pools and evolving skills demands

Make, buy or borrow approach to skills development

A portfolio of solutions, including make, buy and borrow— and including alternative solutions such as redesigning work altogether or defining skills requirements more broadly

Educational institutions provide a pipeline of future talent

Actively develop a pipeline of talent yourself—by partnering with educational institutions and other companies to develop curriculums

Talent pools restricted to a company’s industry and geography

Talent pools can come from any industry or geography

Recruits are expected to look for and find a company

Companies actively look for and pursue the talent they need

Find and filter potential hires based on experience and education listed on a résumé

Find and filter potential hires using new techniques, including data-based assessments, biographical data to predict success, work simulations and competitions

Engage with potential job candidates only when you are hiring for a specific job

Form rich, two-way relationships with a pool of potential job candidates before you need them

Use a staffing agency to find traditional contractors to fill in skills gaps

Use a “talent in the cloud” model to gain access to skills quickly and without paying a middleman—or create a proprietary pool of contractors yourself or with other companies in a consortium model

My employees are my employees; yours are yours

Temporarily borrow skilled employees from another company— and let others borrow yours

Assume you must look to the outside when missing skills

Identify and mine hidden skills in your own organization

Keep employees where they are—because they are creating value already and their manager doesn’t want to let them go

Fluidly move skills to where they are in demand internally in an open-market format

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Forge relationships with potential employees before you need them When 3D design software company Autodesk was having trouble finding skilled candidates, it realized that it needed to proactively build relationships with potential hires on an ongoing basis. Explains Matthew Jeffery, head of talent acquisition, “It’s all about opening up a conversation to create a talent pipeline. This doesn’t mean just posting your jobs on Facebook; it means revealing your culture, how people are having fun, what the jobs are really like, even the silly things that go on in your office. It’s about being authentic and transparent, and engaging your own employees to be a brand ambassador in a human way, and helping build emotional connections.” By actively engaging in conversations with candidates, Autodesk built a Facebook community of more than 150,000 members in just 12 months, creating an active and interested talent pool to draw from when the company is ready. Candidate relationship databases that work much like customer relationship marketing databases can also help a company send periodic tailored information to interested parties, creating ongoing relationships a company can tap into when opportunities arise.

Hire from alternative talent pools Increasingly, companies are finding innovative, off-the-beaten-track ways to find skilled people. One way of achieving this is to target selected industries with a surplus of workers. In the United States, for example, healthcare companies have worked

to retrain displaced autoworkers. Entergy Corp., a US energy company, targets ex-military personnel to fill positions as varied as repair technicians and nuclear engineers. JetBlue Airways staffed its reservations department with mostly stay-at-home workers who can take reservations while still caring for their households. Organizations are also increasingly targeting workers in different geographic regions, including countries where the companies are not headquartered, where there is a surplus of talent in specific skill sets.

Partner with schools to help develop the skills you need An often gaping disconnect between what a student learns in school and the needs of employers contributes significantly to the global skills crisis. But today, leading companies are working with universities, community colleges and trade schools to develop a pipeline of people to recruit years before they need them. For example, HCL Technologies, an Indian-based global technology services company, has entered into collaborative partnerships with 25 top engineering colleges in India. Managers at HCL review the curriculum and offer input to the colleges, which then tweak and revise the courses as needed to meet the company’s requirements. HCL also works as a member of the national consortium of IT companies called NASSCOM (National Association of Software and Services Companies), helping to define and communicate the skills required in the industry, including the levels of supply and demand for those skills.

Talent & Organization Performance

Strategy No. 3: Borrow talent in creative ways Borrowing talent doesn’t just mean partnering or using temporary staffing companies to fill skills gaps. A number of innovative new practices in the staffing space are creating opportunities for organizations to

easily and quickly tap into skills outside of the company, enabling them to create a cadre of “just-intime” workers to be deployed when and where the organization needs them. For example, companies can

Missing skills Skills shortages aren’t confined to just a few industries. Here are some examples of how skills gaps manifest themselves across different types of companies.

Industry

Skills gaps

Reason for skills gaps

Hotelier

Service staff with problem-solving capabilities, IT skills, communication and customer interaction skills, and the ability to anticipate customer needs and proactively address them on the front line

Service staff needs to more flexibly serve the changing needs of the business and leisure traveler (for example, help customers connect electronic devices); all employees are becoming “front office” employees to help solve customer problems; all employees who interact with customers need to deliver a “brand experience”

Cross-cultural managerial and service skills

Expansion into emerging markets

IT skills, data and analytic skills for systems and solutions that are both digital and physical

Transformation from analog to digital business model—services in digital communications and analytic capabilities

Cross-functional and solution selling skills

Customers demanding more integrated services

Ability to work with both the mechanical and digital aspects of complex integrated products and services—both in the servicing of them and in the development of new solutions

Need to flexibly deploy people as needed

Document handling and shipping company

Media company

For all workforces: IT skills and knowledge, cross-functional skills and the ability to flexibly respond to rapid change For specialized IT roles: Skills including search engine optimization, e-marketing, user experience and Internet training Global teaming, geographic-specific skills

Outlook 2011, Number 3

Transformation from print to digital media and need for integrated solutions for customers

Penetration into emerging markets, distributed work teams

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now tap “talent in the cloud”—webbased offerings such as LeadVine, TopCoder or Amazon’s Mechanical Turk—to get instant access to a vast number of flexible, skilled and costeffective individuals who can perform work on a transactional basis. Other companies are creating their own pools of prescreened, reliable

talent they can tap as needed on a contract basis. People in such pools are often former employees seeking greater flexibility as they enter child-rearing or retirement years; they can hit the ground running because they already have up-to-date skills and existing networks in (and knowledge of) the company. For example, The

Industry

Skills gaps

Retailer

Store managers: skills in strategic insight, change management, customer and results orientation, analytics, intercultural communication Managing directors responsible for stores in a country: country-specific knowledge, retail industry knowledge, cross-functional skills (procurement, logistics, real estate, logistics, etc.)

Reason for skills gaps

Business model change to a more decentralized, customer-centric, integrated, seamless business penetrating new geographic markets; increased importance of analytics and modeling in retail

IT services provider

Engineers and technologists whose functional and technical skills are complemented by strong business skills, industry skills, cross-cultural teaming skills and often knowledge of specific geographic markets

Need to deliver tailored technology solutions to customers going beyond a mere general application of technologies; penetration into new geographic markets

Financial services company

Bankers with broader knowledge and experience in all financial products: cash, credit, mortgages, investments, foreign exchange, derivatives, real estate, wealth planning; bankers with global teaming and intercultural skills

Shift to a more customer-centric business strategy; need to deliver an entire suite of products to the client, in part driven by penetration into emerging markets

Innovation skills in multiple workforces

Need to find new ways to differentiate the bank against competitors and grow

Product innovation, analytics across multiple types of workforces

Business-model shift to serving customers who are more value conscious; need to attract customers with a new value proposition; need for imagination and leadership in workforces beyond product developers

Learning agility

Need to adapt, flexibly respond to changing customer demands, and learn new skills

Food products company

Talent & Organization Performance

Aerospace Corp., a US defense contractor, and global financial services company Principal Financial Group have designed talent programs where retirees can work on a project-consulting basis. On the horizon is another innovative way of handling the ebbs and flows of demand for particular jobs like call-center representatives or software engineers: loaning employees from a company with

a temporary decrease in demand to one with a temporary need. Although this approach is in its infancy, there are signs that such a model may catch on. For example, in 2008, Google and Procter & Gamble initiated an employee swapping program—albeit one that was designed to spur innovation and knowledge transfer rather than to cope with changes of supply and demand for skilled talent.

Strategy No. 4: Mine your own organization for hidden talent Many companies are surprised to learn that the skills they need already exist within their organizations. Creating a database of employee capabilities and talents is essential to mining your own organization for ongoing skills, as is creating processes to support internal job mobility. Proper incentives can encourage employees to move into different internal roles based on changing skills needs, or to develop more timely and relevant skills. For example, financial services company Citigroup recently implemented a number of processes and technologies to support internal job mobility. This included a new talent marketplace called Citi Careers, a self-service website that helps people understand the benefits of moving to different areas of the bank to meet changes in demand or develop a broader portfolio of skills. Explains Joe Weldon, managing director and head of global learning

Outlook 2011, Number 3

and development at Citi, “To achieve our business strategy of providing Citi’s full capabilities to a growing client base in emerging markets, we need people with broad knowledge across the suite of solutions Citibank offers. So we needed a way to rotate people across different company roles to develop a more robust portfolio of skills in each individual. This has been a huge cultural shift. For example, recent graduates coming out of school wanting to become investment bankers are sometimes reluctant to rotate into altogether different positions. This program helps them understand the benefits of broader skill sets.” Companies also need to keep their employees informed—through employee meetings, corporate communications and personal contact with supervisors—about changing skills demands within the organization. Yet surprisingly few companies do this.

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Strategy No. 5: Tap into learning innovations to more quickly develop the skills of your own people Development and learning have often been seen by executives as costly processes with long lead times between identifying the skills required and implementing those skills in the workforce. No longer. Recent innovations have made it easier for employees to continuously learn needed skills in the context of their everyday jobs. Take the experience of Hilton Worldwide. The hotel chain asks service staff—everyone from housekeepers to desk clerks to managers— to learn new technology skills so they can help guests with basic computer questions and needs. Although the company provides formal training via its e-learning facility, Hilton Worldwide University, it relies primarily on just-in-time training solutions using consumer technologies. Service staff used to have to stop work to attend training or access a computer; now, for example, iPads that are passed around by service staff enable workers to integrate learning with their job. When employees have

a problem, they simply look up solutions used by other service workers that are posted on corporate versions of Facebook or YouTube; they can also access short, bite-sized learning applications immediately relevant to their current need. Another way companies build specific skills in a short timeframe and on a global scale is the “learning academy,” which focuses on delivering relevant, action-oriented content for specific workforces. For example, brewer and bottler SABMiller has used the Accenture Supply Chain Academy to improve the skills of its supply chain professionals. The academy approach appealed to the company because it goes beyond traditional training programs that too often teach only generic supply chain concepts. Jaime Ochoa, SABMiller’s director of supply chain for Latin America, notes that “we are using the Supply Chain Academy to identify specific maturity gaps, fill them with tailored content and measure the impact of that training on the business.”

Strategy No. 6: Redesign skills by redesigning the work A final, and frequently overlooked, solution for solving the skills gap is to redesign work itself—to either require fewer skilled people or create more flexibility in terms of how skills can be deployed. There are at least a couple of ways to restructure work to accomplish this.

Consolidate skilled tasks into fewer positions AltaMed Health Services Corp., the largest independent community health center in the United States, faced problems recruiting highly sought-after registered

Talent & Organization Performance

nurses. In response, it entirely redesigned its jobs to concentrate the most highly skilled portion of the work into a smaller number of critical jobs. This enabled the organization to hire more people for positions with lower skill requirements. Instead of having registered nurses interact directly with patients, for example, the organization placed them in leadership and teaching roles, where clinically appropriate, to oversee licensed vocational nurses and certified medical assistants, positions that require significantly less training and skill levels, but for which there is a greater supply of talent. The center has been able to address an important workforce issue without compromising the quality of patient care.

Restructure jobs so they more fluidly match business needs Traditional mindsets have emphasized jobs and titles rather than actual work needs. But by thinking in new ways, companies can actually expand the relevance and reach of individuals and their skills. One way to do this is by moving people around more fluidly, from project to project, based on rapidly changing business needs instead of on the notion of who

is “owned” by which part of the organization. One global software and high-tech company, for example, now allows its employees to moonlight internally—on special projects inside the company but outside their core jobs. Previously unheard of in the industry, this approach is now being adapted so that when a need arises, the company can quickly tap seasoned, skilled workers they already know and trust, while providing a variety of interesting work and extra income for the employees. Another approach is to define jobs more broadly. Instead of disaggregating work into smaller, defined projects, some organizations are going in the opposite direction and defining jobs so broadly that individuals or their managers are free to apply their skills based on demand. For example, the US Navy was able to deploy skills more flexibly by creating broader, more generic job descriptions. A sailor once officially designated a “submarine electronics specialist” might now be more broadly defined as an “electronics technician”— someone who can work on an aircraft carrier, an onshore installation or a submarine, depending on the Navy’s needs at a given point in time.

Companies today must move quickly to close their skills gaps, or risk losing market position to formidable competitors that can more nimbly ensure they have the skills they need when and where they need them. The broad availability of workers in the wake of the economic downturn can be misleading, and many executives are only beginning to appreciate the scope of the challenge they face when it comes to finding the right skills to compete in the years ahead. Companies must get out in front of the skills challenge, building an arsenal of new solutions. Approaches that simply reuse past assumptions and solutions will put organizations at risk, as will merely incremental improvements in old models. Recent 88

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innovations in internal mobility, job and work redesign, learning, sourcing and hiring have made the age-old “make versus buy” workforce equation an altogether different one than it has been in the past. Companies that tap into these innovations can move out in front of competitors by creating a true talent advantage.

About the authors

For further reading “Different strokes: How to manage a global workforce,” Outlook 2011, No. 2

For this and other articles, please visit accenture.com/Outlook.

Norbert Büning is the executive director responsible for learning and collaboration offerings and capabilities within the Accenture Talent & Organization Performance group. He has extensive experience working with companies around the globe in the areas of learning and change management, focusing on learning strategies, gaming, performance simulation, collaboration, social media and workforce transformation. Mr. Büning is based in Düsseldorf. norbert.buning@accenture.com Susan M. Cantrell is a research fellow at the Accenture Institute for High Performance and also leads her own research and consulting practice. She is an award-winning author who has written or coauthored more than 30 articles or book chapters for such publications as the Wall Street Journal, MIT Sloan Management Review, Strategy & Leadership, Across the Board, Strategic HR Review and Talent Management magazine. Based in Philadelphia, Ms. Cantrell is the coauthor of Workforce of One: Revolutionizing Talent Management Through Customization (Harvard Business Press, 2010). susan.m.cantrell@accenture.com Breck Marshall is executive director and lead for talent and organization performance within the Accenture Health & Public Service industry group. Based in Reston, Mr. Marshall has significant experience in both the private and public sectors leading large-scale transformation programs, with a focus on talent management and leadership development programs. Mr. Marshall has contributed to numerous publications and books including Building High Performance Government Through Lean Six Sigma (The McGraw-Hill Companies, 2011) and Shock Proof: How to Hardwire Your Business for Lasting Success (Wiley, 2011). breck.t.marshall@accenture.com David Smith, the managing director of the Accenture Talent & Organization Performance group, has more than 20 years of experience working with Fortune 500 companies across the globe. Mr. Smith, who is based in Hartford, has been a guest lecturer at Wharton Business School and Babson College. He has contributed his viewpoints on the business impact of human capital strategies to various media and industry publications, and is the coauthor of Workforce of One: Revolutionizing Talent Management Through Customization (Harvard Business Press, 2010). david.y.smith@accenture.com

Information Technology

A new era of collaboration By Kevin Campbell

For the first time, it is possible to create IT-based solutions that are flexible, timely and able to be tailored to short-term business needs. Thereâ&#x20AC;&#x2122;s a catch, however: To tap into the true power of this next generation of solutions, companies need to collaborate across a broader business and IT ecosystem.

Information Technology

For all their best intentions, and for all the amazing powers technology has afforded them, IT professionals through the years have often felt constricted in terms of their ability to support their organizations with timely and agile solutions. Technologies and systems haven’t always been nimble. Although IT executives wished for materials that were more malleable, what they had to work with was more like stone than clay. The resulting solutions they sculpted were often innovative and elegant, but they took time to create and were almost impossible to alter. That’s all about to change. New IT capabilities and a rapidly evolving business environment have created a once-in-a-generation opportunity for the development of more flexible and timely solutions. The industry is witnessing the convergence of business demand cycles and information technology capability cycles— timelines that have rarely been in sync. That has the potential to change how businesses are designed, how they execute their strategies, how they apply IT to business needs and how they collaborate both internally and externally. Business and IT solutions are no longer set in stone. Services and applications can be developed and delivered faster, thanks to a suite of impressive innovations, including cloud computing, mobility, consumer technologies and the proliferation of standardized software components that are enterprise-grade and ready to go. The payoff: IT-based solutions that are flexible, timely and able to be tailored to short-term business needs. There’s a catch, however. To tap into the true power of this next generation of solutions, companies need to collaborate across a broader business and IT ecosystem: business 92

Outlook 2011, Number 3

units, alliance partners, the IT function, system and service integrators, vendors, outsourcers and more. No one can go it alone anymore. Indeed, organizations unable to collaborate—those that cannot effectively manage the kinds of partnerships that encourage innovation and direct that innovation toward new strategic capabilities and business growth—will find themselves at a severe disadvantage.

A new focus Over the past decade, IT professionals have seen their role evolve from their heritage as project-oriented technology and application providers to strategic partners providing services to the business. For some time, however, that partnership has been focused primarily on cost reduction and efficiency. Today, the business goals of IT have been broadened. It’s no longer just about costs; it’s about growth and innovation. It’s no longer only about supporting the business through advanced IT solutions; it’s also about proactively influencing business strategy because of the unique capabilities of today’s technologies.

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Accenture’s most recent high-performance IT research underscores the fact that adopting a more strategic role for the IT function is a clear hallmark of high performers. These organizations are much more likely to recognize the power of IT in improving employee productivity and satisfaction, delivering new products and services, and supporting R&D efforts. As one CIO we interviewed put it, “We used to just get the low-hanging fruit, but now we have moved into the innovation part of the equation.” Augmenting cost reduction with a growth and innovation mentality, however, also changes the attitude CIOs take toward their sourcing partnerships—how they are managed and how the goals of those relationships are plotted. For some years, CIOs have seen their

sourcing partners—integrators, vendors and outsourcers—as a way to perform standard processes at less cost. Now, however, these partners are a source of innovation—and often the only way complex solutions can be delivered and managed. So the required IT focus is strategic, but it’s also collaborative. And that collaborative focus drastically alters the operating model that guides IT development. Collaboration is now the name of the game— between IT and the business, to be sure, but also among all the players that make up a total IT-based business solution. Five strategies are especially important to enabling effective collaboration across a global ecosystem of partners.

1. Unite the thinking of business and IT around a process-based orientation Technology developments have given business and IT executives what amounts to a common language. In the past, that was not always the case. IT professionals have tended to think in terms of applications and technology building blocks, while business people have thought in terms of capabilities and higherlevel needs. This lack of a common language created a barrier to the successful collaboration of IT and the business, and sometimes produced misaligned efforts and unmet business expectations. Today, a common language based on business processes can be spoken. Aided by recent technology developments, IT professionals

are moving away from thinking of solutions only in terms of a set of applications. Instead, they are starting to think in terms of the collective, end-to-end processes and capabilities that run the business, and then putting in place the flexible IT architecture and services that support those processes. In turn, business executives are now thinking more broadly about designing their business—that is, re-creating their business architecture—and then considering the underlying processes required to enable that design. In other words, business and IT executives start from different places in their thinking but can now arrive at a common language and, more important, a common way to think

Information Technology

about innovation and creating a more efficient business. Steve Furminger, group chief technology officer of global digital marketing agency RAPP UK, underscores the importance of this process orientation, which enables business executives to think in terms of business processes and optimal business design without necessarily needing to focus at a granular level on the configuration of applications necessary to make it happen. “Now,” says Furminger, “you can almost forget the technology and just say, ‘This is what we’re going to do.’ ”

Although this process orientation represents great promise, it also requires companies to focus on improving collaboration between business and IT, and putting in place more effective business process management—the methods, policies, metrics, management practices and software tools to manage and continuously improve an organization’s business processes. This can give both business and IT greater clarity on strategic direction, better alignment of the organization’s resources and increased discipline in daily operations.

2. Embrace a component-based architecture to deliver faster solutions and a more flexible business design While IT professionals have traditionally worked like sculptors, solutions today can be built on service-based components that, much like building blocks, can be reconfigured faster and more readily as business needs change. A prime enabler of this component approach is cloud computing, a utility model for computing capacity, software and business functionality. Although a certain amount of hype still surrounds the cloud—along with an exaggerated notion of how soon its full benefits will be realized—there are nevertheless already some clear benefits being delivered by cloud computing that will increase the collaborative nature of future IT-based business solutions. Cloud computing provides CIOs with meaningful answers to board-level questions about the current organizational IT environment, including how much it costs 94

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and how quickly new services can be delivered. This new generation of IT solutions will also be delivered, and altered, dramatically faster. New Accenturesponsored research from The London School of Economics and Political Science—survey findings as well as in-depth interviews with both business and technology executives— confirms that one of the distinctive benefits of a cloud architecture is delivering IT solutions that are faster to implement and more closely aligned with business needs. In effect, a company is acquiring a business service through the cloud, not just an application. That is, cloud computing becomes the IT underpinning for the processbased orientation of the new era of business-IT collaboration. Or, as Tim Barker, vice president of strategy for Europe, Middle East

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and Africa of Salesforce.com, told interviewers in the research study: “Cloud computing in its best form lowers the barrier to actually getting the business what it wants.”

procurement and installation of new hardware (with the associated checks and delays that conventional purchasing and implementation require), cloud services can be provisioned rapidly and at low cost. These low-friction approaches encourage innovation because companies can acquire new services, use them where it makes sense, and then get rid of those services when they are no longer needed.

In addition, with business and IT speaking the same language, and with more flexible technologies available quickly, companies can engage in the kinds of experimentation that can enable innovation. One way the cloud enables this experimentation is through the rapid development of lower-risk prototype systems.

The flexibility of cloud services both enables better collaboration and changes the risk profile associated with innovation. Projects and processes that would have been too risky to attempt if they required a major capital investment become worth trying if unsuccessful experiments can be decommissioned easily.

Some of the respondents to the Accenture-LSE research talked about this capability in terms of “lowfriction” activities. Whereas in the past a decision to create a prototype for a new system might involve the

Strategic role More than twice as many high performers recognize the strategic role of IT in meeting core business objectives than other organizations do. Business objectives

IT function is strategic in meeting the business objectives 62%

Increasing employee efficiency and productivity

30% 69

Cutting business operational costs

Providing the right information to the right person at the right time

41 69

Delivering new services or products to customers

19 42

Achieving operational excellence

Supporting research and development

31 11

High performers Other organizations

Source: Accenture analysis

Information Technology

3. Create a structured process for broader collaboration An even stiffer challenge in the new era of collaboration comes in managing the work of multiple players—the business and IT functions not only within the organization but also externally, across the broader ecosystem of partners, integrators and vendors. Enterprises have evolved from a “buying extra capacity” mentality when engaging with external companies to a “buying services” mentality, which usually involves multiple vendors, solutions and skill sets. In part because of the inherent flexibility of the new process and IT architectures just discussed, organizations have more options for creating strategic partnerships to help improve business agility and innovation. Part of the value proposition underlying the new era of collaboration is being able to match real-time business needs with the most appropriate sourcing options. Organizations have an opportunity to reinvent how they source the delivery and management of IT solutions—not only to save money but also to harness external capabilities more effectively to drive innovation and growth. This is harder to achieve than one might think, since a CIO’s existing partnerships have generally been established from a cost management perspective, not as a strategy to maximize flexibility and generate innovation. By being more proactive in their IT/business planning activities, CIOs can optimize internal processes to match business needs. That enables them to think more clearly about the types of sourcing relationships that align most closely with business objectives. 96

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This broader sense of collaboration has several implications. For example, how can companies make decisions about optimal partnering relationships? Proven track records, successful products and leading-edge technologies will certainly be among the key considerations when making a selection. But now external vendors will also be judged much more closely on their service perspective. New IT solutions, especially cloud-based ones, often remove the traditional buffers between the business and the customer. Now, companies have direct links with their customers, and that requires better service capabilities from everyone involved in serving those customers. According to Wolfgang Feisst of SAP, software providers used to just make their products available to customers. “Today, we deliver a service that needs to run from the first time on. That means that every hour, day by day, we are faced with customer needs, and that means that a vendor must be able to deliver high levels of customer service.” A second implication of collaboration: It is more important than ever to put rigorous structures in place for managing the work of many, globally dispersed organizations, helping to coordinate work and handoffs, and ensuring that excellent communications are in place at all times. Recent research from Accenture and benchmarking organization APQC underscores the importance of frameworks and reference models to support the collaboration of multiple stakeholders.

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A process framework can accelerate the delivery of a business solution by giving professionals a firmer basis for interaction and the setting of expectations. A framework establishes a common language from the start. Organizations reduce the time spent mapping their specific activities to the activities of other organizations because everyone participating has the same, single process framework or reference model to map all processes to. The framework needs to be managed centrally by the primary organization, although ownership of the processes defined by the framework should be distributed as widely as possible. Wide distribution of ownership of whatever is managed through the framework facilitates

stakeholder buy-in of the adopted framework. Stakeholders are more agreeable to adopting a collaboration framework when they understand that they are not required to actively manage and maintain the structure of the framework, but are instead asked to contribute their expertise to the centralized management body. The use of quality and performance measures throughout all processes included in the framework is critical to success across organizations that have focused on using a common process framework. Measurement is not solely focused on outcomes; it also includes in-process measures that provide data about how the process itself is working. Liam Ward,

senior manager of business transformation at ING Insurance Asia/ Pacific, notes the importance of this point: “We could map, design and create new processes. But if we didn’t understand the impact [on outcomes], it is difficult to justify the costs associated with the change.” Typically, the activity of measuring performance is a separate function located in quality or performance management departments. But at Ward’s company, it has become an integral part of the process framework system. This type of integration provides real-time data about process results that can be used to adjust workflow and to forecast, with reasonable accuracy, what the results and value will be.

4. Invest in skills development, especially in relationship and supplier management Two important points about skills development need to be made, given the new multi-sourced, collaborative IT environment. First, with so many technology capabilities being supplied externally, IT organizations can find it harder to develop internal expertise about the IT services they’re running or using. But such expertise is critical to success. Accenture research shows that high-performance IT organizations are over seven times more likely than other IT organizations to have invested in workforce training in new technologies. Given the new collaborative environment and the exposure to many different organizations and services, companies should focus on developing IT professionals

who are skilled in many platforms and functions. It needs architects who can work across multiple disciplines that have historically been siloed within IT. Training should help the workforce learn new skills to support emerging technologies and delivery models. At CLP (formerly known as China Light & Power Co.), for example, management has spent the past six years transforming the IT workforce into a “smart army” of businesssavvy technologists, leading to a significant cultural shift centered on business value creation, customer care, passion and innovation. A second skills issue is that, in a collaborative environment, IT organizations require in-house personnel who are as skilled at developing and

managing partnerships as they are at writing code. Managing suppliers requires skills that are often in short supply in many organizations. Also needed are skills to manage the internal business/IT interface. IT professionals are no longer simply “order takers,” but that means they need the capabilities to be active participants in business process development. The imperative to develop better relationship management skills applies internally as well as externally. If business and IT are to take full advantage of the enormous opportunity they now have to collaborate and deliver more timely and strategic solutions, the business needs a relationship management role interfacing with the IT organization, just as IT has had with the business.

Information Technology

For further reading “Cloud computing: Where is the rain?” Outlook 2010, No. 3

For this and other articles, please visit accenture.com/Outlook.

5. Manage according to new governance models to encourage innovation and more rigorous business-case realization Although the new collaborative environment holds great promise for faster delivery of innovations as well as solutions, the fact is that old habits die hard. Too often, organizations are designed so that, unintentionally, innovation is stifled rather than nurtured. Sometimes an idea arising from one business unit gets strangled at the corporate level because it’s not deemed important enough to compete for scarce investment dollars. Or decision makers may not have the patience to wait out

an innovation if customer take-up is not immediate. What’s needed are governance structures that let in air and light across the enterprise and that also establish an environment where limited types of failure are tolerated as something that’s actually important to eventual success. Governance models need to be adapted to accommodate the broader relationships between IT and its collaboration partners. High-performance IT organiza-

Companies, collaboration and the cloud Following a major acquisition, Freeport-McMoRan Copper & Gold—the world’s largest publicly traded copper producer as well as the world’s largest producer of molybdenum and a significant gold producer—found that its existing technology infrastructure and enterprise systems environment was inhibiting its ability to support its growth effectively. The company launched a major infrastructure transformation and expansion initiative, with an extremely aggressive nine-month timeframe. Leveraging a team of collaborators—including systems integrators, solution providers and major technology and ERP systems vendors—Freeport created a private cloud, with an installation customized to meet its diverse demands for infrastructure scalability, flexibility and manageability. The private cloud architecture enabled the company to scale storage and computing power, and also increased the speed of delivering the solution, by enabling rapid provisioning of the system landscape to support on-demand development and test environments. By delivering a flexible, highly efficient and scalable open architecture platform, Freeport was able to revise its operating model, leverage emerging technologies and optimize internal processes.

Outlook 2011, Number 3

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tions closely manage service providers to ensure they conform to the security and performance expectations of IT and the business. Aligning the demand and procurement of the cloud and other external services requires higher levels of both stewardship and accountability. From an end-user perspective, IT will be expected to manage the catalog of services available to the business to ensure consistent procurement processes while giving users the flexibility they need—and now expect—to quickly deploy or scale new services and functionality. Companies’ governance models should be designed to help CIOs run IT more like a business, which can help IT organizations secure future investments in timely,

business-focused initiatives. In Accenture’s high-performance IT research, nearly nine in 10 highperformance IT organizations say they develop a business case for nearly every new IT initiative, and they are eight times more likely than other companies to measure the benefits realized from these IT projects. At CLP, business cases for new projects are developed jointly by IT and the business sponsor. ROI is categorized in two ways: tangible (will it deliver calculable returns to the general ledger or payroll?) or intangible, recognizing that not all benefits may be readily quantifiable. This process has helped raise the realization rate for IT initiatives— the harvesting of quantifiable business benefits in the project business case—to 98 percent.

About the author Kevin Campbell is group chief executive of Accenture’s Technology growth platform, with responsibility for all of the company’s capabilities and services across systems integration, technology consulting, application outsourcing and infrastructure outsourcing. In addition, he leads Accenture’s Technology R&D activities, as well as strategic alliances and delivery. He began his career with Accenture in systems integration and left for a short stint to establish a BPO company; before being named head of Accenture’s Technology group in 2009, he was chief executive of the company’s outsourcing business. Mr. Campbell, who is based in Atlanta, is a member of Accenture’s Executive Leadership team. kevin.m.campbell@accenture.com

Business needs and IT capabilities are converging in a way that offers faster and more flexible IT solutions that can more directly support business goals, drive innovation and enable more agile business designs. In the new technology environment, IT can be more agile and timely in responding to strategic needs and opportunities, making it a closer and more valued partner to the business. Tightly coupled with core strategy, technology becomes integrated with a company’s strategic growth engine. Cross-functional teams work together seamlessly to speed innovation and significantly enhance the products and services the company can offer to its customers. Because technology investments are made based on their fit with business needs, this collaborative mindset also optimizes the technology’s performance. Beyond the “four walls” of a company, however, is where the collaborative promise—and challenge—truly arises. A company’s partner ecosystem—alliance partners, vendors, service providers, integrators, universities and more—is now a source not only of efficiency and execution but of innovation as well. Those who can manage this ecosystem most effectively will be among the next generation of industry leaders. Extracting business value from collaborative sourcing relationships is one of the key differentiators between high-performance businesses and those that are simply trying to keep up.

Company Index The following companies and organizations are referenced in this issue.

3M 26 Abacus Direct Corp. 31 Abercrombie & Fitch 14 Activision Blizzard 25–26 Acxiom 31 Aerospace Corp. 86 Aldi 53 AltaMed Health Services Corp. 87–88 Amazon 10, 11, 83 American Express Co. 30, 33 Apple 10, 21, 25 Athleta 15 Audi 41–42 Autodesk 83 Bank of America Corp. 33 Basix 51 Bath & Body Works 15 Beijing Friendship Store 70 Best Buy 25 Best Buy for Business 25 Blue Kai 31 Cardiac Science Corp. 25 Cardlytics 31 Carrefour 14–15, 41 Carrefour Planet 15 China, government of 42, 66, 69, 70 China State Construction Engineering Corporation 74 Citigroup 86 CLP (formerly China Light & Power Co.) 97, 99 100

Outlook 2011, Number 3

Dell 72 Department of Health and Human Services (US) 33 Dufil Prima Group 40–41 East African Breweries Limited 41 Entergy Corp. 83 Eureka Forbes 51 Experian Information Solutions 31 Facebook 40 Federal Trade Commission (US) 33 Fisher & Paykel Appliances 73 Food and Drug Administration (US) 78 Ford Motor Co. 42 Forth & Towne 15 France Telecom 42 Freeport-McMoRan Copper & Gold 98 Gap 15 GMAC Insurance 30 General Motors Co. 30 Google 32–33, 81, 86 Haier 25, 71, 73 HCL Technologies 83 Hilton Worldwide 87 Hindustan Unilever 49 Holley Group Co. 74 Hollister 14 Home Credit Consumer Finance 42–43 Huawei Technologies Co. 71 I-Behavior 31 IBM 66, 72

Illinois, State of 32 ING Insurance Asia/Pacific 97 Itaú Unibanco 41 ITC 49–51 Japan, government of 33 JetBlue Airways 83 Keggfarms 48–49 Kyowa Co. 70 La Senza 15 Lenovo 66, 72 Limited Brands 15 LinkedIn 81 Mankind Pharma 52 Marico 53 Maruichi Shoji 70 Maruti Suzuki India 52 –53 McDonald’s 53 Meneghetti Equipment 73 Microsoft 33, 72 mPedigree 42 MTN Group 41 NASSCOM (National Association of Software and Services Companies) 83 Netflix 27 New Hope Group 69 Ohio, State of 32 Ohio Bureau of Motor Vehicles 32 Oklahoma, State of 32 OnStar 30 Orange 42

OXXO 10, 15 PetSmart 13–14 Piperlime 15 PPF 42 Principal Financial Group 86 Procter & Gamble 24, 25, 40, 86 PZ Cussons 73 Qingdao Refrigerator Factory 73 RAPP UK 94 Red 5 Studios 81 SABMiller 41, 87 Salesforce.com 94–95 Sany Group 70, 71 Sanyo 73 SAP 96 Starbucks Corp. 13 Taleo Talent Exchange 81 Tata Chemicals Limited 47 Tennessee, State of 32 Tesco 12, 32 Text to Change 42 Unilever 13, 23, 40 United Kingdom, government of 33 United States Postal Service 31–32 UPS 25 US Navy 88 Victoria’s Secret 15 Volkswagen 41 Walgreens 21 Walmart 12, 53

Outlook Vol. XXIII 2011, No. 3