STR ATEGIC PARTNERSHIPS AS A GROWTH LEVER
BACK ON THE GROWTH TRACK
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he worst economic and financial crisis since the Second World War has put significant pressure on the global economy. Consequently, almost all Europeanbased manufacturing companies have been through tough “fitness programmes” focusing on cutting costs – as quickly as possible. Now, however, this one-sided focus is changing, pushing the agenda towards being far more growth-centred. The optimistic feeling among many Nordic manufacturing companies has resulted in highly ambitious future growth plans. At Quartz+Co, we have seen a clear tendency: our clients are planning to reach a growth rate of 30-50% within the next three to five years. The companies are now leaner, more focused and well-functioning than before the crisis as a result of the tough “fitness programmes”. Therefore, our clients aspire to increase their share of wallet among current customers while simultaneously building customer relations and expanding into new markets.
“Balancing growth and risk exposure – both business-wise and financially – is one of the key elements in the discussions with our customers and relations” Anders Roed Bruhn, Partner at Quartz+Co current and potential markets while maintaining a conservative risk profile in market conditions with less attractive growth rates compared to the pre-crisis era?
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The three steps should be seen as a natural extension of each other:
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“The companies who survived the crisis are those who have been most responsive to change. They manage the crucial skills of being scalable, adapting to market conditions – very fast and smoothly” 3
Michael Ejby, Partner at Quartz+Co One key element in creating growth that really has changed after the crisis is that company owners CEOs and financial institutions are less prone to take risks. The consequence is that the ambitious growth targets must be accompanied by a more balanced risk profile in terms or market/customer exposure and financial leverage, making the growth agenda more complex to handle and therefore a challenge to manage. This poses an obvious dilemma: How do you manage to increase growth by 30-50% within
n Quartz+Co, we believe that there are three important steps to follow in order to reach the ambitious growth targets in the new external environment while minimising the risk exposure.
Take on a global focus: The first step is to capture growth by fully exploring the company’s core assets on the global market. This implies expanding within current markets, but also expanding into new markets by optimising and utilising the company’s essential capabilities in a broader context. Preparing for the changes and building management commitment. Focus was on their role as change agents and how each of them was expected to contribute to a successful transformation Rethink the commercial mindset: Secondly, the company has to recognise that driving growth calls for a completely different mindset compared to the crisis mentality and the “fitness programmes”. Again, the company must be able to adapt and scale its business to be in line with the growth strategy. This implies that the company must learn how to establish a customer-centric approach, meaning that all decisions and actions must derive from a customer need. This involves creating a more appealing value proposition that contains the company’s core asset in combination with other products or/and services – a unique solution tailormade to the customer demands as well as a better competitive position in the market. To manage this process, the company must fully understand, carefully orchestrate and market its capability system in a disciplined way Enter partnerships: Finally, the company will have to consider how to create unique solutions without jeopardising the financial risk profile. Quartz+Co sees strategic partnerships as a key lever to mitigating risk because unique solutions can be created without investing in new production facilities or acquiring new businesses. Hence, strategic partnerships should be seen as a lever to create sustainable, unique market positions without jeopardising the financial health of the company. As long as the strategic partnerships are built around the company’s existing value chain and as a continuation of the company’s own essential capabilities, the company can go to market with an extended value proposition without revealing their product formula and putting itself in a vulnerable position by reducing the value of its knowledge of the specific product. An excellent example of this is the LEGO Group: Everybody can produce a brick, but no one else can produce LEGO bricks.
“We see strategic partnerships as a key lever for achieving profitable growth by creating sustainable and unique market positions without risking the health of the company” Michael Ejby and Anders Roed Bruhn
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n order to reach the ambitious growth targets and secure their future market position, companies have to expand their geographic orientation and explore their core assets. The economic downturn has turned out to be an excellent opportunity to exploit the weaknesses of the competitors and to conquer market shares in current and emerging markets. However, to win the customers and beat the competitors, you have to have the most attractive value proposition and know how to communicate this to the market. Entering emerging markets obviously involves a great deal of risk for a company due to the unstable political environment and the different cultural conditions. Therefore, it is important for the companies to minimise risk exposure when entering such markets because in these new economies, big gains can be found. Since the beginning of the crisis, China has received a great deal of attention as “the new economic world power”, and many companies have turned their attention to China and the rest of the BRIC countries to fight for a market position on these new battlefields. In those markets, factors such as speed, momentum and determination to act in time are important in order to reach the desired positions and associated growth rates. However, it is essential not to forget the US market. Even though the latest financial instability has created more ambiguity about its economic development, it is still a much more stable market platform compared to Russia, China and India. It is therefore important to seek business opportunities in both emerging and existing markets to balance and gain both long- and short-term growth.
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he customer and the products sold in the marketplace are the core assets of the company and the alpha and omega when striving to increase growth. However, today’s customers increasingly want more than a product. They prefer an easy and sustainable solution which fulfils one or if possible several demands. To increase growth, the company has to develop a commercial mindset to cope with this expanded demand and sell more sustainable solutions that focus on the customer needs and not only the core product. In this manner, the core product and related services become part of a stronger totality, and thus more competitive and harder to replace. So by understanding and orchestrating your own capability system as a part of broader customer solutions, the company will enhance its market penetration opportunities.
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ntering partnerships is a way to encompass both of the two previous steps. In a partnership, two companies combine their core products and services, thereby creating a more sustainable solution. Both companies gain from it, since they expand their market interface and at the same time share profits and risks. Partnerships carry a great growth potential through the pursuit of mutual interests. However, they also involve difficulties, since the companies have to co-operate and agree at every step of the process. In a long-term perspective, a successful partnership could lead to a merger of the co-operating companies. The preceding partnership creates a transparency which again minimises the risks involved in merging the companies. There is no doubt that the ambitious growth expectations of 30-50% in the coming years set out by our clients are not unrealistic, but nevertheless challenging. It calls for a progressive strategy for exploring core assets and rethinking their set-up in a global context, all while handling the risk exposure both in terms of general business and financial risk. At Quartz+Co, strategic partnerships are considered a key growth lever that needs more attention to be fully explored and one of the most important levers to work with in order to get back on the growth track.
WANT TO KNOW MORE? For further inspiration, please contact: Partner Michael Ejby at Michael.ejby@quartzco.com Partner Anders Roed Bruhn at Anders.Roed.Bruhn@quartzco.com Quartz+Co is one of Scandinavia’s leading management consulting companies with offices in Stockholm, Copenhagen and Oslo.