CATALYST INDIA

Management Consulting Services – Capability building for growth

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Transforming the business for growth, sustainability & scale

Owner driven small and mid-size companies grow quickly, but may at some point, consider professionalizing the business, to allow the next generation to take over, or scale up the business, or to bring in strategic investors. Reasons could be many. Owner led firms usually depend on preferential access to clients (by virtue of the founder’s relationships), talent & capital. Clients would know them well, their bankers lend because of their track record, and talent within the company sticks on since they have grown with the founder. But it is hard for the next generation to replicate this pattern. The next generation may have other interests, succession could be an issue, the business may have passed the cash cow stage (and needs reinvention); there could be better opportunities; technology might be changing, allowing better positioned firms to take advantage of the existing franchise, or the founders may now want to take the back seat.
Apart from the above reasons, there could also be several internal challenges that necessitate transformation. It could be lack of expertise within the company to grow and scale up, inability to find the right talent, centralized decision making, lack of second level leadership, an informal culture that is reactive, lack of predictability and sustainability etc.
Regardless of the reasons, the transition from an owner driven to a professional structure involves various issues or blind spots, and it is well worth considering making changes along some of the following value drivers.
Goals & Strategy
Employees often cannot relate to goals, as they appear to point to some distant incongruent future. Daily activities seem more like fire-fighting and bear no link with either the goal or the ensuing strategy. Clarity on the goal at this stage in the life of an organization is essential. Goals should be about bringing in predictability in revenues, sustainability in operations, improving capabilities, transforming behaviour, team-work and co-ordination. While being cost efficient and reactive served the purpose all along, there needs to be a strong focus on being effective, becoming a prospector, exploring and exploiting market opportunities (using the Miles & Snow Typology). Such transformative goals should drive creation of strategy and subsequent work design. While leadership of the business is mostly clear on the strategy, it is the execution that presents difficulty. Hence identify core strategy, strengthen it first and then extend along adjacencies.
Organization Design
Organization design is critical to reach goals and implement strategy. Small firms grow as families, with decision making centralized with the founder-owner. Staff get used to the style over time and depend on the leader for decisions. The refrain from making any important decisions. Structures are also informal. A Goal means nothing to them, since it is considered the owner’s goal. Everyone is used to just taking instructions. This often leads to immense activity (as they are not clearly defined) and firefighting around thorny issues. It also indicates inefficient resource allocation. A well-designed structure that caters to the need of strategy – be it domain competence led, or product focussed or project focussed, will largely reduce such confusion. The structure also brings with it effective delegation and operational control that will reduce the burden on the founder.
Operational governance
Operational governance would mean implementing systems for co-ordination, information sharing, cross functional work flow design, assigning clear roles and responsibilities, checks and balances for operational governance, as well as performance management systems. It could be activity driven, result driven or behaviour driven. But, such systems help streamline work, documented processes enable hiring new talent, plugging them into the organization quickly and scaling up; teams then come together to get the work done and achieve goals. Behaviour aligns with the objectives and goals of the leadership. Rewards and increments that are usually subjective, need to be re-designed around performance and skills. It takes the load off the founder-leader and allows the leadership to focus on the next phase for the business.
People & talent
On the people front, smaller firms lack the broad range of expertise and deep functional competencies (while they do possess excellent domain/technical competence), especially in marketing, strategy, sales, operational governance. It is essential to bring in outside talent depending on the capabilities that need to be built out. For a leader, this could create a lot of noise, and leadership needs to rise above the noise. It would also be a good idea to outsource expertise and bring in external consultants. At the same time, existing loyal staff need to be assured that they are taken care of, need to be trained, and career paths need to be clarified.
Capability building
If core strategy going ahead is product development, then the right team needs to be hired, systems such as scrum/agile processes that enable iterative product development have to be implemented, market sensing skills have to be really acute and strengthened, product development team needs to be structured such that they are comfortable collaborating and networking with outside experts and technology partners. Outsourcing and contracting skills may play an important role too. Marketing capabilities need to be good enough to communicate the value of new products or solutions. An ability to create content & establish thought leadership may be crucial, especially in the B2B context. If operations and support and efficiency is the core strategy, then the capability needs to be built along different lines that bring in efficiency, meeting pre-set standards, quality etc. So, it all really boils down to the chosen strategy.
Change management
Last but actually the most important, is managing the change. Better to select small areas that can be worked on, and change can be demonstrated. This motivates staff, and helps other staff see for themselves as to what can be achieved. Hence mentoring people, guiding them, ensuring operational governance, having clear milestones are clearly important and clarity on these subjects will certainly help firms to transform and position themselves at the next level.

Strategies of best performing companies

Difference between the best companies and the rest

Surveys have revealed that most senior executives believe that their companies do not have a winning strategy, nor do they have the right capabilities to execute the strategy. Companies that are great at both strategy and execution don’t necessarily follow existing industry practices. Below are a few things they do that contradicts conventional management wisdom, but if followed in your respective industries would lead to long term sustainable advantage.

Don’t pursue growth mindlessly

The best companies do not pursue growth for making the headlines. They have single minded clarity on what they do best, what their value proposition is, and focus on building capabilities that help in delivering this. For example, Ikea only focussed on designing furniture that is supposed to impact everyday life, that is frugal, and can be self-assembled. It never tried to leverage its brand for luxury sofas or interior furnishings, although there may certainly have been intense pressure for faster growth.

Focus on what you do best rather than copy

Managers in most companies feel that they should copy what competitors are doing, especially so called “best practices”. For example, if a competitor claims to have a certain type of CMM or ISO certification, typical companies start spending precious management bandwidth to follow suit. But the best companies rather focus on building & scaling their own inhouse capabilities – those that will eventually give them a competitive advantage, and that is hard for others to copy. Example: Many small niche restaurants have stood the test of time, because they focussed on what they did best, and continue to keep serving those specialities, but never felt the pressure to copy or benchmark themselves with competition. Brahmin’s café at Shankarpuram, Bangalore still makes and serves the best vada, chutney and coffee. They never ventured into other items, and even after many decades, they get sold out in a couple of hours.

Leverage unique company culture

Many large companies hire consultants, who are asked to come in and transform the company to overcome execution problems, and they usually suggest changes in structure and incentives. But the best companies always resist such disruptive change, and instead leverage the culture of the company to drive change that is most effective and lasting. Smaller companies, and especially, owners of mid-size companies are great examples of transformation and usually get this right, by leveraging their own unique culture. But the larger companies try these disruptive changes for a time, at least until a leadership change. They are constantly under pressure to project such initiatives to their stakeholders. They perhaps survive due to the momentum that have built in the market. Otherwise it would be a disaster. But, had they nurtured their culture and laid it as a foundation, they would be a in a better position to weather any storm.

Build on strengths and cast-off flab

Companies often go on a cost reduction spree across the board based largely on evaluation of economic parameters. This might lead to sub optimal performance, and sometimes could be damaging in certain functional areas. The best performing companies though, evaluate strategy, and carefully consider where costs should be reduced. Instead, they might even pump in resources into capabilities that matter the most and need building. According to an article in HBR, Lego that was losing huge amounts of money in 2004, went on to become the largest toy company in 2015. They did this by cutting business like theme parks where they had no core competence. They instead focussed on the building blocks that they were best known for.

Systematically create the future

In a nutshell, these companies did not ape others, but methodically went about creating their own future by doing what they did best. Leadership in these companies need to be a cut above the others. They must believe in themselves, and it takes a lot of nerve to not cave into pressure from stakeholders, to not fall into the trap of aping others, and relentlessly improve whatever they do best.

Building core management capabilities in companies

Most people think of Strategy as intellectual and exciting, while execution is considered mundane. It is often left to lower and middle level managers to handle on a day to day basis, and not much thought goes into it, especially among small and medium enterprises. Execution means effective management and this means challenges in the form of processes and people. Unless companies actively make necessary investments in these areas, execution is bound to be mediocre at best.  Today, as the bar for survival in business is being set higher, it becomes essential to enhance core management capabilities, making it harder for competitors to imitate. It is perhaps one of the best ways to build a sustainable advantage over others.

Research conducted by Harvard on more than 12000 companies in the area of operational excellence, revealed that the top 10% of the firms are 25% more profitable and 50% more productive than the bottom 10% of the firms. Better managed firms grow faster, are more profitable and are less likely to die. Operational excellence was measured in areas of processes, process documentation, performance management, target setting, control systems etc. On a scale of 1 to 5 (1 being bad and 5 is very good), the grey bars show the global distribution of companies in operational excellence. Blue bars indicate the distribution of companies in the respective countries. As seen, Indian companies are lagging their global peers. (Image courtesy: HBR)

In our work, we’ve found that management practices are better in some companies than in others, because of the following common reasons:

  • Most companies do not invest enough on people and processes. They do not see value in such investments. Managers often underestimate the impact of good processes
  • To allow processes to function, sometimes, managers just need to make their presence felt. When everyone sees top managers walk the talk, things happen. But companies do not often allow managers this leeway, and would like to see everyone producing and achieving individual quotas
  • Stubborn blind spots and deficiencies could prevent companies from knowing their own problem areas. Managers are of the opinion that their processes are good enough and hold on to the “way of doing things here…”
  • Employees who recognise bad practices, seldom bring these to light for fear of being singled out, or given too much responsibility without any authority, or maybe even a fear that an improvement in productivity might lead to job losses

A study of Indian textile industry done by Accenture in a Stanford-World bank project showed that companies never implemented quality systems, production planning process or appropriate reward systems since they were sceptical about its benefits. Consultants were often informed that “such processes will never work here”. But among companies who did adopt processes, significant benefits were recorded.

Family firms have been especially found to have weaker management processes, because adoption of such processes entails significant costs in terms of hiring outside talent, and decision making becomes decentralized, which may not be to the liking of the family, unless they are really comfortable in letting go control in order to scale up.

Typical management practices that can be implemented for starters are:

  • Quick and effective performance management processes
  • Target setting and alignment with overall strategy
  • Processes in sales and marketing to find new customers and reach out to the market
  • Documented processes in support, aftermarket and product development that really allow the company to respond effectively to its customer requirements, reduce risk and respond quickly
  • Structured interactions between teams for regular debriefing and problem solving
  • Management control systems

Implementing core management practices seems simple, and does not involve heavy technology investments. But these are not practices that can be started and stopped at will. They need long term commitment from the top, and a shift in mentality at all levels in the firm. Everyone needs to act as a manager. Strategy is always successful when coupled with execution. Management practices bridge this gap.

A lethal combo tool to grow business

Many mid size companies in India have good calibre sales men. In some of the older companies, these sales people acquire technical capabilities and are long timers in the company. They are pretty good in talking the customer’s language and closing deals. Unfortunately, 70% of a sales reps time is spent scouting for leads and in trying to get an appointment. They just don’t seem to have enough of them. The common complaint I hear from senior management is that the sales team is warming the seats. These expensive resources should be out there with clients, closing deals. But we need to enable them. There are two ways to do that. Build good marketing capability that will cast the net wide and obtain leads. Second is to build an inside sales team. This is a team of highly skilled lead researchers, who will choose a target segment, identify companies and the right decision makers. The leads thus obtained need to be enriched by gathering further information. The team then connects with the lead and qualifies them. A lot of communication and exchange of marketing content happens with the lead. The inside sales team manages to influence the lead, and almost converts the lead to a customer. Once this milestone is achieved, the lead is handed over to the sales team for negotiation and closure.

Here is a real story of a customer (a senior and well known consultant) on how a solar company sold him their solution without even meeting him. It demonstrates what alignment of marketing and inside sales can actually achieve.  The consultant reached home in the evening and found an envelope in his mailbox. He opened it, to find the website of the company on a slip of paper, in bold letters. That’s it! Curious to know more, he typed the URL and went to the website. A classic instance of how a customer is taken from the physical to the digital world of marketing. It briefly told him about the solar solution that was offered. He then gets a call from the company ( It now gets engaging). The inside sales person who has called, already knows all the details like the house address, the area of the roof (which they have calculated from google satellite maps) etc. Then they start to talk and tell our friend, how many panels he would need, the amount of energy it would produce, they knew his current bill amounts, so they also worked out the cost benefit analysis and told him about break-even etc.   All this was done while sharing a screen with him, while the inside sales rep talked and ran him through the decision making journey. A classic case again, of mapping rich marketing interactive content with the customer’s decision journey, and taking him through the process. The deal was done. No sales person ever stepped out of the office. This to me demonstrates the power of combining effective marketing with inside sales to grow business, and this is where we help our clients build capabilities as well. Often, in marketing we get carried away with social, mobile, lead scoring etc. But core content that helps a customer make a decision is neglected. And then, inside sales is of course about process and diligence. So, while a lot of solutions will still need a direct sales presence, much of the initial stages can be done with marketing and inside sales. It is a combination of technology, process, intelligence and creativity, which when combined and implemented well, will lead to great results.

 

Leveraging messaging platforms for marketing

Marketing has evolved from being personal to being generic and finally onto algorithmic personalization today. Marketing culture today is obsessed with digital technology. People are just data points and subsets of various online communities, profiling logic, databases etc., The outcome of such micro targeting has still been a hit and miss. Going forward, this could be a thing of the past. Messaging platforms are expected to make marketers do a U turn and get up close and personal with their customers (or consumers rather!!). There is afterall a huge difference between algorithmic personalization of an e commerce site (based on past purchase recommendations and items viewed) and the personal interaction being attempted via messaging platforms. There are a number of platforms out there like whatsapp, facebook messenger, snapchat etc. They are part of everyone’s personal life, and most of us spend a lot of time on these messaging platforms. Smart marketers are all set now to leverage these messaging platforms to manage branding, e-commerce, advertising and customer service.

In China, 650 million users use wechat (similar to whatsapp), and companies are already using wechat to enable e-commerce. Typical messaging platforms are feature rich and allow a variety of media to be exchanged. Besides, what happens on such a platform is personal. It is a conversation. If the customer stops the conversation, it means she is no longer interested. It allows brands to connect customers with experts and enable an intelligent and rewarding conversation (as in, say a travel site connecting a customer with a guide who can offer tips). It also opens up a whole new door for content marketing allowing brands to really fine tune their content, get creative, and explore the art of a contextual conversation. This allows brands to collaborate with experts and get conversational and personal with the customer. It will also weed out the brands that do not really care, because customers will just log off, the moment they get inundated with broadcast style messages. Recently, there was a WhatsApp promo doing the rounds. It mentioned that Reebok and Amazon have come together to gift away shoes. All we needed to do was re send the message to 10 other groups in our contacts. I presume they collected the contracts of all the ten groups. They then allowed us to download an app to complete the transaction. The app wasn’t from the play store. I of course panicked at this point, thinking of malware “Godsend” and we aborted. There will always be intrusive attempts. It’s up to us to get creative and innovative (while still being mindful of customer privacy and sensitivity issues) in using messaging platforms to reach out to our customers. It could open whole new avenues.

How to design a channel strategy

After segmenting, targeting, understanding customers, positioning ourselves and exploring new markets to enter (subjects discussed in my other blogs), comes the task of reaching out to these markets. Channels are routes to reach customers,  Customers can be reached through a spectrum of channels ranging from a direct sales force or indirectly through distributors, volume resellers, value added resellers, service and support partners, solution partners, partner retailers etc., each providing higher reach, cost advantages, but lesser control as we move down the channel. Customers can also be reached through direct to customer channels like a website, an e-marketplace, extranets, Tele channels etc. Choosing the right channels is all about market reach, and has its own cost implications which can in turn impact success. Direct sales channels are high touch and high cost, but can cope with complexity and provide a high degree of control. As we move down the spectrum towards, VARs, distributors, tele-channels and websites, the reach increases, cost decreases, but we tend to lose control and need to keep the offering simple.

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With most of the companies I have worked with, direct sales had been their first and only choice. When channels were added, it had been opportunistic and random. Little time had been spent in evaluating a variety of other options available. It is useful if this is done methodically rather than just hitting upon an idea and going about it randomly. It is an exciting exercise that the marketing department needs to perform every year in close association with sales and existing channels, keeping in background knowledge of customers and competition.  Processes, policies, metrics need to be developed and implemented to make results count and build scalability.

We use the following framework and list the steps to design channel options:

  • Identify all possible channels. There is no need to restrict only to existing and obvious channels. Sometimes, channels identified could belong to competitors too, and though it might seem counter intuitive for the marketing folk, it could be worthwhile exploring, since it might make strategic and financial sense. For example, Fedex and UPS although being competitors, struck a deal wherein UPS’s extensive channel logistics network would be shared. Similar models are used among telecom operators where one brand rides over another’s network for a fee. Sometimes, the sharing could be deeper as in the case of ocean cargo liners where assets are shared, so that rates and route scheduling can be more optimal.
  • Apply customer centric rules to eliminate unsuitable channels. This means listing out customer requirements such as – need for sharing complex technical knowledge, making complex choices among product options, need for customization etc. The product, service or offering might be such that there could be a need for selling value, selling insights, or it can be just selling plain vanilla products. There could be a requirement for support, installation, integration with existing systems etc. Every channel needs to be evaluated against each of these criteria. Those that do not meet critical criteria need to be eliminated. When there is need for sharing complex knowledge, then certainly a VAR or a volume distributor is not suitable. A direct sales force that is trained, has in depth knowledge, and can be consultative is more suitable here. For a product like an industrial battery, a direct sales force for all segments is expensive, since it is pretty much a straight forward buy, and prudence dictates that distributors and dealers are more suitable. If possible, with a little market research – both primary and secondary, a current snapshot of all possible channels that customers are using can be taken. This will also throw light on trends and tendency of customers to gravitate towards certain channels over the next couple of years from now. This will help us decide what to focus on and what to build for the future.
  • Apply product filters to determine whether our product or service is suited for these channels. If it is a high complexity, high touch sale it has to be through direct sales. If it involves insights, ideas and problem solving, or perhaps a lot of cross selling, (as in selling engineering design solutions to R&D heads of product development companies) it needs a different type of sales person who can specialize in account management. If the same company needs to sell trained resources (headcount) and place them at the same R&Ds, it is best done by an ordinary sales rep. If it is volume based sales such as table ware sold to fine dining restaurants, or maybe a software license where there is clarity on features, and involves a clean install, then it is better to use lower cost distributors who have better reach. On the flip side, choosing to go through certain channels will have implication on the product itself. There may be need to productize, simplify features, have a simple price list, reduce customization, provide different forms of support, provide auto updates etc. Often, channels imply new markets and new customer segments. We need to understand how new markets and new customers will use the products, and what would they need. Design the value proposition so that it is simple, believable, attractive and compelling.
  • Strategic issues also need to be kept in mind when selecting channels. For example, there may be a need to keep up a reputation or maintain premium brand. For example, high end Swiss watch manufacturers will only sell through premium outlets at perhaps the shopping lobby of a five star hotel. Hence strategy dictates how the product is sold. Strategy could also dictate the objectives whether they are cost optimization, market growth, profitability etc.  If market coverage and growth is the overarching strategy, then multi channels need to be used for maximum coverage. If customer loyalty is a concern, then nothing like a personalized approach through the direct sales reps. If cost is a concern, then use a hybrid channel system with bulk of the work relegated to lower cost options like telesales and VARs, while handing over core sales (negotiation/closure) to the sales rep. Strategy also dictates how old customers should be migrated to new channels, and the ramifications need to be kept in mind.
  • Rationalize and optimize structure. When companies have multiple segments and products, there is need to rationalize and understand how to cover the markets effectively using the various channel options available to them. Selective markets or segments could be reached out through specific channels, or, there could be intensive coverage of the market using all possible channels, or, an optimization could be achieved by using a hybrid combination of channels at various stages of the process. In such a situation questions to be asked are – should sales team be used for enterprise accounts, should resellers and VARs be used for mid size accounts, and tele sales be used for small size segments? We could even have intensive coverage with all channels covering all segments. But then there needs to be an ability to handle conflict. This can be done through market separation (though often impractical), through product configuration i.e. vary the flavor of offerings  or differentiate products for different channels, it can also be done through pricing tweaking.  Another option to reduce conflict is to have revenue share with a dual compensation or incentive system. Here the sales rep could get a commission for quantities sold through the distributor which will then encourage the sales rep to better manage the distributors and treat them as complementors.
  • Channel integration with internal functions. Lastly, there remains the issue of integrating multi channels with internal functions and processes in the sales cycle. The channels designed, need to be mapped with the sales process or stages, such as lead generation, qualification, proposal making, sales, negotiation & closure, fulfillment and maybe even after sales. When mapped appropriately, lower cost channels like telesales can be used to generate leads, cover the market and the high cost sales team can be brought in only for proposal making, negotiation, or for deals above a certain size. Subsequent handover to a business partner for fulfillment and another handover to the telesales team for after sales support can also be built in. Construct the various options available like a lead generation model, high margin model, high coverage partnering model and max growth model. This optimizes the system, improves effectiveness and reduces cost. Seamless experience can be ensured with technology. We need to determine where the hand over of leads happen across teams such as between Tele sales and direct sales and define when a task or handover considered complete. The criteria and information that has to be transmitted needs to be clearly specified. This means a lot of emphasis on policy and process.

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Then we need to Pilot and institutionalise the system. In case new channels or geographies are chosen, the marketing department needs to pilot test the channels in perhaps a micro area and fine tune the strategy prior to launching it across the market. Work also needs to be done on the metrics to be used.  Metrics for each channel will be different. For sales it is revenue. For tele-sales it could be leads generated. For proposal writers it could be successful proposals. There could be fulfilment targets too. Processes, policies, metrics also need to be thought of and put in place to make results count and build scalability. These steps will ensure that we largely get our act right.