By Olu Akanmu
The news that Nigeria Breweries (Heinekens subsidiary in Nigeria) is withdrawing GulderMax, an extension of the Gulder Brand from the market offers some important lessons on brand equity and line extension. The M2 Magazine, a Nigeria leading marketing management weekly recently broke the news and did some analysis on the subject, essentially concluding and applying the Al Ries principle that brand extensions typically are bound to fail. It opined that the GulderMax saga is validation of the Al Ries principle. While one will agree with this principle to a large extent, it is also important to note that the principle remains one of the most controversial among marketing practitioners. The history of marketing is full of many extensions that had succeeded as well as those that have failed. The GulderMax saga provides us an opportunity to look at these issues again. Without traveling far away from home in Nigeria, we have in the same alcoholic beverage industry, the successful extension of Guinness Foreign Extra Stout to Guinness Extra Smooth by Guinness (Diageo Nigeria). Guinness Extra Smooth is a lighter stout to reach those who would have found the Guinness FES too strong and rough and will typically drink a good premium beer. GulderMax was a stronger, higher alcohol, darker beer to reach typical stout drinkers who want a stronger, and rougher alcoholic beverage and will consider a typical beer too light and less macho. Why was the Guinness Extra Smooth Extension successful and GulderMax was otherwise? The two extensions from the arch rivals in the brewery industry in Nigeria offer some important context analysis for brand extensions and potential success. I distill the contextual issues in five lessons below.
Lesson 1: Only Strong Brands Can Successfully Extend Themselves. You cannot give to an extension what you don’t have as a mother brand.
The Gulder brand of today is much different from the Gulder that we used to know ten years ago. A lot has happened to Gulder in the last ten years that questions the “ultimateness” of its brand claim. The “ultimateness” of Gulder seems to have been more questioned internally within Nigeria Breweries than from its corporate competitors. Nothing expresses this more than a recent “Heineken” billboard with the big single –minded copy “Chairman”. Take out the entire Heineken picture and replace with Gulder, on that billboard, it could have been the Gulder billboard of 1990. Gulder used to be the “Chairman”, and other brands like Star were the members of the board. Gulder was the hero, the leader, the premium, the “Ultimate”. It is no longer so with Gulder. Even before Heineken in the early 2000s, the “Star” beer carried a coup d’état against the “Chairman” by launching a new premium international bottle before Gulder. The Star brand consolidated its coup d’état by putting itself in a limousine belonging to the Chairman and rode into the city like a SuperStar. It was good for Star but it was not good for Gulder.
In essence, the “ultimateness” of Gulder had become questionable and its extrinsic (lifestyle) character has become amorphous. Its equity had become diluted and weak, yet it sought to extend itself. The result with the benefit of hindsight is largely predictable. An extension out of a weak Gulder is unlikely to be strong.
Lesson 2: If you want to determine the Strength of a Brand and its potential to extend, look at the strength of the brands in the category you want to extend to. Compounding the GulderMax challenge was the fact that it sought to take on the very strong “Authentic” Guinness Stout in its territory. It did not matter if GulderMax was attacking the outside flanks of the Stout category. The Guinness Stout fortress was too strong. Guinness launched the 1759 campaign. It first campaigned its authenticity in huge capital letters on billboards that it has been the original stout since 1759. It followed with a contemporary lifestyle expression of the modern stout drinker who is not the old stereotype physical macho stout drinker, but a young corporate executive meeting his friends for drinks at the bar, after work at six o clock. The launch of the Guinness Extra Smooth, the lighter stout extension, was part of the Guinness defensive game. The fortress built against GulderMax by a strong Guinness range of brands was just too strong.
Lesson 3: Depending on the defining character of brand, it will look like it is easier to extend down, (though with significant risk of equity dilution of the mother brand,) than to extend up. Which one is easier to do, a cheaper form of Peak Milk to target the low premium milk market or Cowbell Gold extending upwards from the low premium milk category? If “high-ness” is the defining character of beer, it will look like it is easier to extend into lighter beer than to stronger beer. That seems to be one of the differences between the Guinness move and the Gulder move. Toyota in creating the Lexus range recognized that “quality” at the topmost end of the car market is expressed differently as Luxury which Toyota cannot express. It did not go into the luxury category as an extension but launched a different brand. If the value proposition is distinctively different, a new brand to express the new value proposition single-mindedly may be better than a brand extension. This brand will however need a lot of investment. This perhaps is the role of the Legend Stout in the Nigeria Breweries portfolio.
Lesson 4: For products and categories where the purchases are done on an emotional level, a clear expression of extrinsic character of a brand is critical to unlocking the value of its intrinsic character. While Gulder has done a lot to show its strong intrinsic character as a quality beer through a series of its “Extra-Matured/ Great beer” campaigns, it might not have fully harnessed the benefit of this intrinsic quality because it is not linked to a resonating extrinsic character and claim with its target market. The extrinsic character of Gulder has become amorphous. The man of style, the modern cosmopolitan hero is no longer very visible in its brand identity. It is this modern cosmopolitan man that knows and buys the great ultimate beer, and drink it as badge to who he is. Without the clear visibility of this modern cosmopolitan hero, the intrinsic quality claim of Gulder might just have been standing on its own.
Lesson 5: International alignments of brand portfolio may sometimes compel the change of roles of brands within the company portfolio, sending pearl attackers to the mid-field and sometimes the side-lines. This may not always be visible to those outside the company.
The “Chairman” today is not even Star anymore. It is Heinekens. It is the right thing for Heinekens as a global corporation to ensure that its country and local market portfolio conform to its global portfolio. Without this, its marketing spend at the global level will be largely sub-optimized. The Gulder Ultimateness might have been a victim of the Heineken global portfolio strategy. It is nothing to be sentimental about. Heinekens did the same with Amstel when it took over from it as the sponsor beer for UEFA Champions league. Amstel’s portfolio role became re-defined. This is what Gulder is perhaps going through today. For Heinekens and its Nigeria subsidiary, the Nigeria Breweries, as long as they ensure that beer drinkers who seek premium quality and Ultimateness, (even if they leave Gulder ), go for Heinekens, and even pay a higher premium for its international stature, their cash machine will keep ringing louder and louder.
Olu Akanmu
June 2009
N.B. Please, post your comments on the blog to share with others. Also, send article and e mail links to marketing practitioners
Saturday, June 13, 2009
Saturday, May 2, 2009
Let us De-Commoditize Our Industries
By Olu Akanmu
Professor Michael Porter of the Harvard Business School was recently in Nigeria to speak to Nigeria CEOs at a BusinessDay CEO forum. One of the theme of his presentation was the need for CEOs to lead their business to deliver unique value proposition to their customers, to compete differently from rivals and understand the difference between Operational Excllence and Strategy, even in this recessionary economy. Quoting Porter, "the worst error in Strategy is to compete with rivals on the same dimensions". This article below, a lecture delivered at the Lagos Business School SMP 25 Alumni Re-Union in December 2006, gives a deeper Nigerian flavour to some of the theme of Professor Porter's lecture. Another article " Be Different or Die" also on this blog is also strongly recommended.
I congratulate you, the SMP Silver Class on your Re-union. It is important to always come together to strengthen our bonds of friendship, our shared values and our collective commitment to business excellence. Speaking to your President yesterday, I could see why you have been described as one of the most exciting groups in the LBS Alumni. You group is defined by its diversity, its passion and its balance mix of fun and business which you are demonstrating today.
As senior managers we are actively involved in debates that shape the destiny of our organizations. Our primary responsibility collectively as managers is to build sustained wealth of our shareholders. I like to speak to you on something critical that we need to do, if we would create and not destroy shareholder wealth. I will like to speak to you today on the “the need to de-commoditize our industries”. Commodity businesses are like selling cashew and groundnuts. Everybody’s product is fundamentally the same. Unless, there is a large unmet demand, with very few players, everybody competes on price. Prices keep falling rapidly. When competition gets intense, there is price war, no-one makes really good profit, some players loose their shirts, they close down and shareholder wealth is destroyed. Many of our industries today are beginning to share the character of cashew and groundnut industries. We all produce the same type of things, in the same way, for the same people, in the same places with perhaps the same instruments. Driven by competition forces, many industries are becoming commoditized with looming price wars and constrained profitability.
I will like to quote from an earlier lecture I gave at the launch of Nigeria Marketing Memoirs, titled “ Be Different or Die ( Please, see article on this blog)
“…Competition across industries today has never been more intense in our land. The Nigeria economy has become more liberalized and markets are opening up. The international credit rating of the Nigeria economy by Fitch and Standard and Poor, that puts us in the same class as leading world emerging economies like Brazil and Turkey makes Nigeria, a good destination for foreign direct investment. Democracy has been good for Nigeria and we pray for a smooth and orderly democratic transition. Multinational companies that abandoned Nigeria in the days of military rule have come back fully. Others that were on the ground, that practically kept their investment at a minimum to prepare to divest on the long run, have upscaled their investments. What is interesting about this is that leading firms in the same industry are upscaling their investments at the same time creating a level of intra-industry or intra-category competition on a scale that has never been seen. We see this especially in the manufacturing sector, in industries like food and beverages and the breweries.
On the other hand, we see competition pressures driven up by the forces of deregulation and re-regulation. Monopoly powers which protected the in efficiencies of incumbent players are breaking down as we have seen in telecommunications, and we will see in other utility industries. Deregulation in financial services is leading to the convergence of playing fields of insurance and traditional banking that has been hitherto separated. We now hear words like “bancassurance”, a lingo which had not existed in the Nigeria financial services vocabulary. And re-regulation as a result of the Soludo Solution in financial services has created new competitive situation of well resourced industry armies, consolidated firms with consolidated arsenals pointing towards each other.
Digital technology which we call digitalization has also been a key driver of the new competitive pressure. It is creating substitute products with new economics that is forcing down prices in industries. In telecommunications, we can see the now established presence of international calling card business using new internet technologies that have forced down international calling rates from as much as N120 five years ago to about N15 today. Digital technology is creating convergence in industries that we will traditional consider as very distant from each other. A payment services nexus is emerging between the financial services and telecommunications industries. The two industries can bring different assets in market power and competencies to compete or co-operate in the emerging nexus.
Our simple story is that the combination of the three dimensional forces of Democracy, Deregulation and Digitalization which we call 3D forces is fundamentally changing the structure of many industries with potential seismic effects. This combination creates new challenges as well as opportunities. Old paradigm are turned on their heads. Rules of the game are changed. The defining paradigm of this new competitive situation is the rise of the power of the customer to new levels across industries. The customer is the beneficiary of the new competitive situation. The customer now has got real and many choices. He has also become more sophisticated. He is more widely traveled compared to the past. He is exposed to international media through satellite television, movies and DVDs. He knows the standards of advance markets and demands that his products perform to the same standards. He understands the economics of his relationship with your business at an amazing level. He is also becoming organized along with his peers in associations to protect their interests. We are witnessing a new phenomenon of organized customer power, something that we are not used to in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. The customer may no longer be much atomized. The organized association of customers supported by Customer rights advocacy movements, challenges traditional marketing practice in Nigeria.
As we have said earlier, our collective response to these new competitive situation has been largely to copy each other. We are all running after the same customers, offering them the same things, in the same way. Players are essentially copying each other with the result that customers can no longer see differences in offerings and services among players. There is a growing commoditization of industries especially in the service sector, a situation where we all run after the same customers, with the same offerings, in the same way. Price has become the only point of difference, which in itself is not a sustainable difference as players drop prices easily to match each other. Price wars are now on the increase, disguised as lotteries and promotions across industries. Even the banks are now doing lotteries. Industry value and profitability are being destroyed as a result of businesses not being able to deliver relevant, unique and tangible differentiation to customers. The consequences for re-investment and growth are serious if businesses cannot make good returns on their investments. Public savings mobilized into the stock market at an un-precendented level in the last two years may be threatened and even destroyed. The worst situation for savings and investments in Nigeria is for the public to loose confidence in the capital market because businesses have failed to give them good economic returns on their investments. It will take many years to rebuild public confidence in the capital market…..”
Businesses needs to return to the fundamental essence of strategy which is to elect to serve unique customer groups in a unique way with unique offerings based on the firm’s unique capabilities and competencies. As senior managers in our businesses, who feel the heat of commoditization of price wars in our operating unit, akin to bayonet to bayonet street fighting and blood letting, we will need to re-pose the question to our leaders “ How would we deliver unique values to our customers in ways that cannot be easily matched by others?” This perhaps today may be the biggest question of business in Nigeria.
While this question looks simple, it is a real tough and hard one. The most usual stereotype answers usually sounds like “We will serve the customers better” (Emphasis better). There is however a fundamental difference between the words “ better” and “unique”. As I searched this morning my various dictionaries, I could not find where either of these words were used as synonyms for each other. Key synonyms for better were “improved, enhance” while the key synonyms for unique were “sole, one of its kind, matchless, distinctive, irreplaceable”. In essence, doing things better is not necessarily doing them uniquely. This is one of the biggest lessons for Nigeria businesses especially in the service sector that better is not necessarily unique. Using the business jargon, better is operational excellence, uniqueness is strategy. Operational excellence is therefore not strategy.
Many of us in the same industries are becoming operationally excellent in the same way but not necessarily becoming unique. Our investments in operational excellence may therefore not be paying off, effectively on our bottom-line as we may not be able to charge significant price-premium, ensure good profit and create sustained shareholder value.
As senior managers, let us therefore engage our business leaders and the boards of corporate organizations that operational excellence is not the same thing as strategy. That efficiency in serving the wrong markets is just a good as inefficiency on the long run. That even when organizations serve the right markets efficiently and they do so in ways that do not deliver unique values and offerings to their customers, their efficiency will not be effective on their bottom line. They will only become efficient, perpetual price -cutters who destroy economic value and the wealth of their shareholders.
Yet Brothers and sisters, being unique is easier said than done. It is tough these days to find and sustain uniqueness in a world where we all go the same LBS, we have access to the same technologies and recruit the same type of people. There will be two critical sources of building uniqueness in the coming period. They are
a) Building organizational capability to unlock and find unique customer insights on which unique products and services could be built. There are structured methods and processes of doing these. Organizations will need to develop and find them.
b) Learning and institutionalization of organization memory: As we all try the same things at least at the beginning, organizations who learn best from their experience and their environment and have developed a structured way of using such learning to build organization memory to serve their elected markets uniquely, are likely to see on the long run what others do not see.
The combination of organizational capability to unlock unique customer insights in a structured learning process will help in building the necessary proprietary assets on which unique service capability could be built. By so doing, we will be de-commoditizing our industries, reduce the tendency for price wars which destroy economic value and shareholder wealth.
I thank you for listening.
Olu Akanmu. December 2006
Professor Michael Porter of the Harvard Business School was recently in Nigeria to speak to Nigeria CEOs at a BusinessDay CEO forum. One of the theme of his presentation was the need for CEOs to lead their business to deliver unique value proposition to their customers, to compete differently from rivals and understand the difference between Operational Excllence and Strategy, even in this recessionary economy. Quoting Porter, "the worst error in Strategy is to compete with rivals on the same dimensions". This article below, a lecture delivered at the Lagos Business School SMP 25 Alumni Re-Union in December 2006, gives a deeper Nigerian flavour to some of the theme of Professor Porter's lecture. Another article " Be Different or Die" also on this blog is also strongly recommended.
I congratulate you, the SMP Silver Class on your Re-union. It is important to always come together to strengthen our bonds of friendship, our shared values and our collective commitment to business excellence. Speaking to your President yesterday, I could see why you have been described as one of the most exciting groups in the LBS Alumni. You group is defined by its diversity, its passion and its balance mix of fun and business which you are demonstrating today.
As senior managers we are actively involved in debates that shape the destiny of our organizations. Our primary responsibility collectively as managers is to build sustained wealth of our shareholders. I like to speak to you on something critical that we need to do, if we would create and not destroy shareholder wealth. I will like to speak to you today on the “the need to de-commoditize our industries”. Commodity businesses are like selling cashew and groundnuts. Everybody’s product is fundamentally the same. Unless, there is a large unmet demand, with very few players, everybody competes on price. Prices keep falling rapidly. When competition gets intense, there is price war, no-one makes really good profit, some players loose their shirts, they close down and shareholder wealth is destroyed. Many of our industries today are beginning to share the character of cashew and groundnut industries. We all produce the same type of things, in the same way, for the same people, in the same places with perhaps the same instruments. Driven by competition forces, many industries are becoming commoditized with looming price wars and constrained profitability.
I will like to quote from an earlier lecture I gave at the launch of Nigeria Marketing Memoirs, titled “ Be Different or Die ( Please, see article on this blog)
“…Competition across industries today has never been more intense in our land. The Nigeria economy has become more liberalized and markets are opening up. The international credit rating of the Nigeria economy by Fitch and Standard and Poor, that puts us in the same class as leading world emerging economies like Brazil and Turkey makes Nigeria, a good destination for foreign direct investment. Democracy has been good for Nigeria and we pray for a smooth and orderly democratic transition. Multinational companies that abandoned Nigeria in the days of military rule have come back fully. Others that were on the ground, that practically kept their investment at a minimum to prepare to divest on the long run, have upscaled their investments. What is interesting about this is that leading firms in the same industry are upscaling their investments at the same time creating a level of intra-industry or intra-category competition on a scale that has never been seen. We see this especially in the manufacturing sector, in industries like food and beverages and the breweries.
On the other hand, we see competition pressures driven up by the forces of deregulation and re-regulation. Monopoly powers which protected the in efficiencies of incumbent players are breaking down as we have seen in telecommunications, and we will see in other utility industries. Deregulation in financial services is leading to the convergence of playing fields of insurance and traditional banking that has been hitherto separated. We now hear words like “bancassurance”, a lingo which had not existed in the Nigeria financial services vocabulary. And re-regulation as a result of the Soludo Solution in financial services has created new competitive situation of well resourced industry armies, consolidated firms with consolidated arsenals pointing towards each other.
Digital technology which we call digitalization has also been a key driver of the new competitive pressure. It is creating substitute products with new economics that is forcing down prices in industries. In telecommunications, we can see the now established presence of international calling card business using new internet technologies that have forced down international calling rates from as much as N120 five years ago to about N15 today. Digital technology is creating convergence in industries that we will traditional consider as very distant from each other. A payment services nexus is emerging between the financial services and telecommunications industries. The two industries can bring different assets in market power and competencies to compete or co-operate in the emerging nexus.
Our simple story is that the combination of the three dimensional forces of Democracy, Deregulation and Digitalization which we call 3D forces is fundamentally changing the structure of many industries with potential seismic effects. This combination creates new challenges as well as opportunities. Old paradigm are turned on their heads. Rules of the game are changed. The defining paradigm of this new competitive situation is the rise of the power of the customer to new levels across industries. The customer is the beneficiary of the new competitive situation. The customer now has got real and many choices. He has also become more sophisticated. He is more widely traveled compared to the past. He is exposed to international media through satellite television, movies and DVDs. He knows the standards of advance markets and demands that his products perform to the same standards. He understands the economics of his relationship with your business at an amazing level. He is also becoming organized along with his peers in associations to protect their interests. We are witnessing a new phenomenon of organized customer power, something that we are not used to in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. The customer may no longer be much atomized. The organized association of customers supported by Customer rights advocacy movements, challenges traditional marketing practice in Nigeria.
As we have said earlier, our collective response to these new competitive situation has been largely to copy each other. We are all running after the same customers, offering them the same things, in the same way. Players are essentially copying each other with the result that customers can no longer see differences in offerings and services among players. There is a growing commoditization of industries especially in the service sector, a situation where we all run after the same customers, with the same offerings, in the same way. Price has become the only point of difference, which in itself is not a sustainable difference as players drop prices easily to match each other. Price wars are now on the increase, disguised as lotteries and promotions across industries. Even the banks are now doing lotteries. Industry value and profitability are being destroyed as a result of businesses not being able to deliver relevant, unique and tangible differentiation to customers. The consequences for re-investment and growth are serious if businesses cannot make good returns on their investments. Public savings mobilized into the stock market at an un-precendented level in the last two years may be threatened and even destroyed. The worst situation for savings and investments in Nigeria is for the public to loose confidence in the capital market because businesses have failed to give them good economic returns on their investments. It will take many years to rebuild public confidence in the capital market…..”
Businesses needs to return to the fundamental essence of strategy which is to elect to serve unique customer groups in a unique way with unique offerings based on the firm’s unique capabilities and competencies. As senior managers in our businesses, who feel the heat of commoditization of price wars in our operating unit, akin to bayonet to bayonet street fighting and blood letting, we will need to re-pose the question to our leaders “ How would we deliver unique values to our customers in ways that cannot be easily matched by others?” This perhaps today may be the biggest question of business in Nigeria.
While this question looks simple, it is a real tough and hard one. The most usual stereotype answers usually sounds like “We will serve the customers better” (Emphasis better). There is however a fundamental difference between the words “ better” and “unique”. As I searched this morning my various dictionaries, I could not find where either of these words were used as synonyms for each other. Key synonyms for better were “improved, enhance” while the key synonyms for unique were “sole, one of its kind, matchless, distinctive, irreplaceable”. In essence, doing things better is not necessarily doing them uniquely. This is one of the biggest lessons for Nigeria businesses especially in the service sector that better is not necessarily unique. Using the business jargon, better is operational excellence, uniqueness is strategy. Operational excellence is therefore not strategy.
Many of us in the same industries are becoming operationally excellent in the same way but not necessarily becoming unique. Our investments in operational excellence may therefore not be paying off, effectively on our bottom-line as we may not be able to charge significant price-premium, ensure good profit and create sustained shareholder value.
As senior managers, let us therefore engage our business leaders and the boards of corporate organizations that operational excellence is not the same thing as strategy. That efficiency in serving the wrong markets is just a good as inefficiency on the long run. That even when organizations serve the right markets efficiently and they do so in ways that do not deliver unique values and offerings to their customers, their efficiency will not be effective on their bottom line. They will only become efficient, perpetual price -cutters who destroy economic value and the wealth of their shareholders.
Yet Brothers and sisters, being unique is easier said than done. It is tough these days to find and sustain uniqueness in a world where we all go the same LBS, we have access to the same technologies and recruit the same type of people. There will be two critical sources of building uniqueness in the coming period. They are
a) Building organizational capability to unlock and find unique customer insights on which unique products and services could be built. There are structured methods and processes of doing these. Organizations will need to develop and find them.
b) Learning and institutionalization of organization memory: As we all try the same things at least at the beginning, organizations who learn best from their experience and their environment and have developed a structured way of using such learning to build organization memory to serve their elected markets uniquely, are likely to see on the long run what others do not see.
The combination of organizational capability to unlock unique customer insights in a structured learning process will help in building the necessary proprietary assets on which unique service capability could be built. By so doing, we will be de-commoditizing our industries, reduce the tendency for price wars which destroy economic value and shareholder wealth.
I thank you for listening.
Olu Akanmu. December 2006
Sunday, February 22, 2009
Recession: It is not the time to abandon Strategy
By Olu Akanmu
As we move to the end of the last quarter of the year, it is clear to many businesses now that they have to do belt tightening. In first month of the year, we saw the stock market decline by as much as 30% and the naira depreciating significantly against the dollar. While declining asset prices as we discussed in “ Marketing Tasks and Issues in 2009” (See December 2008 posting) will impact consumer confidence, the depreciating naira relative to the dollar will result in significant input cost which may not necessarily be absorbable by consumers whose real household income may decline as a result of imported inflation and declining employment. Federal Allocation to states has significantly declined as a result of declining oil prices even in the first quarter of the year. The impact on household income in many states, where government is the biggest employer and economic spender, will be significant in the coming months.
The natural reaction of many businesses to the new economic challenge is to focus on the pursuit efficiency and the control of cost. After-all, if revenue projections are uncertain, the control of cost to maintain descent profit will be critical. The danger however is that what seemingly started as a tactical response to short term environmental challenge can assume a life of its own, consume the psyche of the organization and become the strategy of the business. Strategy is the art of long view. This recession or economic slow-down will probably last two or three years. A going-concern must have a view beyond three years even in an unpredictable emerging economy like Nigeria. While cost management and control, essentially the pursuit of operational excellence will be critical, building the capability to compete and deliver unique propositions to customers is a ball that must not be dropped. It takes nine months to have a baby. If firms, abandon or postpone their strategic initiatives at this time, till after the economic slow-down, they will probably not have the unique capability to exploit the new opportunities which will be re-presented to business at the economic turn to a new cycle of growth in the next two or three years. In essence, the choices that they make now, how they delicately balance cost management and strategic pursuit, will determine if they will be champions in the next economic turn.
This delicate balance might however be tough for some firms especially those who are vulnerable today because they have previously not built unique capabilities to compete and render differentiated services to their customers. Such firms will be most affected by the coming price wars because the commodity nature of their offerings provides little resilience to aggressive competition dictated y the contraction of markets or its slow-down. Such firms will have to battle for survival, to have today and think of tomorrow only if they survive to get there. The lesson however for other firms, is that to avoid the situations described above, they must never lose sight of building unique advantages and capabilities to deliver unique and differentiated products and services. Ultimately, even in an economic down-turn, previously built unique capabilities may be the greatest buffer to the kind of market shocks that we witness today. A theme that runs through many of our previously published articles, some of which could be found on this site (Please, see: Be Different or Die, Some Lessons for Nigeria CEOs) is that operational excellence is not strategy. That, it is critical for firms to recognize this, and not to substitute the pursuit of organizational effectiveness for strategy, which is the art of building unique capabilities to deliver unique product and services to customers.
How should the delicate balance of cost management and strategic pursuit be managed at these times? The first thing is to dimension the organization to determine what is core to its advantage today and its competitiveness tomorrow. All others outside that core can be classified as “nice to have” where outsourcing or other options could be pursued. Secondly, the organization must strive to deliver strategy effectively. In essence, it must do the unique things that it has elected to do, to be different, effectively at optimal prices and optimal quality. While operational excellence is not a substitute for strategy, it is a critical complement to deliver and execute strategy. Business opportunities are time-bound and exist typically as strategic windows, which draws and eventually closes. The timely pursuit and delivery of strategic initiatives, the execution of programs, the translation of strategy to real market advantage and business revenue is critical to these times. Thirdly, organizations must determine the minimum investment intensity or capability maintenance investment levels necessary to maintain its long term competitiveness. Investments below these levels are likely to be a waste and the firm, if it cannot maintain this minimum investment intensity should consider exiting such business and generate cash and resources to keep investments above the minimum intensity required in other businesses.
A discussion on recession and strategy cannot be complete without the subject of leadership. In normal times, organizations need strong leadership. In period of economic downturn, leadership is even more critical as organizations battle for survival. Recession represents a crisis to organizations. It is like war. Like nations in war that need strong leadership, organizations need the strongest of leadership in recessions. The heart and soul of the people must be engaged to win and pull through the difficult times. Leaders must make this happen. They must lead with the highest level of integrity and be a force of example of hard work and sacrifice to the organization rank and file. A good army has generals, colonels, majors and lieutenants. War is never won by competent generals and incompetent lieutenants. In recession times, leaders must invest heavily in leadership competency development several levels below them. Every leader must be trained on how they can engage the heart and soul of people in their unit in alignment with the transformational battle plan of the organization, its tactical trade-offs and its strategic choices. And because resources are very scarce in this period, leadership training must be linked clearly with financial literacy. Every leader must understand how value is created or destroyed in the organization. Cost rationalization and resource optimization will therefore not just be a decree from the top but something that is understood by those who need to execute it. Stronger financial literacy in the leadership cadre will also build a new behavior where leaders align their resources more strongly around value creating activities that support institutional sustainability.
In conclusion, times like this do not make strategy irrelevant. Firms must keep their long view, recognizing that the economy moves in cycles and that this slump shall turn upwards in the coming years. While they do cost management today, they must do so without damaging their long term capability to compete and take advantage of the next economic upturn. The clever balance of cost management and control with dogged pursuit of strategic initiatives for long term competitiveness is the art that firms will need at these times.
Olu Akanmu
February 2009
As we move to the end of the last quarter of the year, it is clear to many businesses now that they have to do belt tightening. In first month of the year, we saw the stock market decline by as much as 30% and the naira depreciating significantly against the dollar. While declining asset prices as we discussed in “ Marketing Tasks and Issues in 2009” (See December 2008 posting) will impact consumer confidence, the depreciating naira relative to the dollar will result in significant input cost which may not necessarily be absorbable by consumers whose real household income may decline as a result of imported inflation and declining employment. Federal Allocation to states has significantly declined as a result of declining oil prices even in the first quarter of the year. The impact on household income in many states, where government is the biggest employer and economic spender, will be significant in the coming months.
The natural reaction of many businesses to the new economic challenge is to focus on the pursuit efficiency and the control of cost. After-all, if revenue projections are uncertain, the control of cost to maintain descent profit will be critical. The danger however is that what seemingly started as a tactical response to short term environmental challenge can assume a life of its own, consume the psyche of the organization and become the strategy of the business. Strategy is the art of long view. This recession or economic slow-down will probably last two or three years. A going-concern must have a view beyond three years even in an unpredictable emerging economy like Nigeria. While cost management and control, essentially the pursuit of operational excellence will be critical, building the capability to compete and deliver unique propositions to customers is a ball that must not be dropped. It takes nine months to have a baby. If firms, abandon or postpone their strategic initiatives at this time, till after the economic slow-down, they will probably not have the unique capability to exploit the new opportunities which will be re-presented to business at the economic turn to a new cycle of growth in the next two or three years. In essence, the choices that they make now, how they delicately balance cost management and strategic pursuit, will determine if they will be champions in the next economic turn.
This delicate balance might however be tough for some firms especially those who are vulnerable today because they have previously not built unique capabilities to compete and render differentiated services to their customers. Such firms will be most affected by the coming price wars because the commodity nature of their offerings provides little resilience to aggressive competition dictated y the contraction of markets or its slow-down. Such firms will have to battle for survival, to have today and think of tomorrow only if they survive to get there. The lesson however for other firms, is that to avoid the situations described above, they must never lose sight of building unique advantages and capabilities to deliver unique and differentiated products and services. Ultimately, even in an economic down-turn, previously built unique capabilities may be the greatest buffer to the kind of market shocks that we witness today. A theme that runs through many of our previously published articles, some of which could be found on this site (Please, see: Be Different or Die, Some Lessons for Nigeria CEOs) is that operational excellence is not strategy. That, it is critical for firms to recognize this, and not to substitute the pursuit of organizational effectiveness for strategy, which is the art of building unique capabilities to deliver unique product and services to customers.
How should the delicate balance of cost management and strategic pursuit be managed at these times? The first thing is to dimension the organization to determine what is core to its advantage today and its competitiveness tomorrow. All others outside that core can be classified as “nice to have” where outsourcing or other options could be pursued. Secondly, the organization must strive to deliver strategy effectively. In essence, it must do the unique things that it has elected to do, to be different, effectively at optimal prices and optimal quality. While operational excellence is not a substitute for strategy, it is a critical complement to deliver and execute strategy. Business opportunities are time-bound and exist typically as strategic windows, which draws and eventually closes. The timely pursuit and delivery of strategic initiatives, the execution of programs, the translation of strategy to real market advantage and business revenue is critical to these times. Thirdly, organizations must determine the minimum investment intensity or capability maintenance investment levels necessary to maintain its long term competitiveness. Investments below these levels are likely to be a waste and the firm, if it cannot maintain this minimum investment intensity should consider exiting such business and generate cash and resources to keep investments above the minimum intensity required in other businesses.
A discussion on recession and strategy cannot be complete without the subject of leadership. In normal times, organizations need strong leadership. In period of economic downturn, leadership is even more critical as organizations battle for survival. Recession represents a crisis to organizations. It is like war. Like nations in war that need strong leadership, organizations need the strongest of leadership in recessions. The heart and soul of the people must be engaged to win and pull through the difficult times. Leaders must make this happen. They must lead with the highest level of integrity and be a force of example of hard work and sacrifice to the organization rank and file. A good army has generals, colonels, majors and lieutenants. War is never won by competent generals and incompetent lieutenants. In recession times, leaders must invest heavily in leadership competency development several levels below them. Every leader must be trained on how they can engage the heart and soul of people in their unit in alignment with the transformational battle plan of the organization, its tactical trade-offs and its strategic choices. And because resources are very scarce in this period, leadership training must be linked clearly with financial literacy. Every leader must understand how value is created or destroyed in the organization. Cost rationalization and resource optimization will therefore not just be a decree from the top but something that is understood by those who need to execute it. Stronger financial literacy in the leadership cadre will also build a new behavior where leaders align their resources more strongly around value creating activities that support institutional sustainability.
In conclusion, times like this do not make strategy irrelevant. Firms must keep their long view, recognizing that the economy moves in cycles and that this slump shall turn upwards in the coming years. While they do cost management today, they must do so without damaging their long term capability to compete and take advantage of the next economic upturn. The clever balance of cost management and control with dogged pursuit of strategic initiatives for long term competitiveness is the art that firms will need at these times.
Olu Akanmu
February 2009
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