Welcome back to Omnikarma. Where photographers discuss marketing while Consumer Goods Professionals profess their faith for Arsene Wenger and Arsenal. Where predictions about the 2016 American election make polite conversation with strategic wine picking tips. Discussions about Global cuisine precede critiques on global leaders. And thank you for your support, comments and brickbats - the Omnikarma blog goes from strength to strength.
Today, we discuss one of my favorite Corporate topics - the methods and the madness involved in delivering outstanding business results. Since a marketer loves, lives and dies by jargon, I shall name this topic The Big Five by Five. (HBR, WSJ, FT and Forbes - please take note, you heard it here first). I summarize below this list of Five 'Must Have' processes and the Five 'Must Have' cultural DNA strands that you can learn from winning Consumer Goods businesses. All of these nuggets have been drawn from my experiences of the past twenty years at some of the best Consumer Goods companies in the world - Procter & Gamble, Reckitt Benckiser and Beiersdorf - not to forget my observations of Private Equity, competitors, agencies and suppliers in the Industry.
A bit of context might help set the tone for this blog today. As many of you may know, I have worked with teams across Asia, Africa, the Middle East, Europe and Latin America. As a member of work groups across these markets, I often encountered businesses or work situations that either needed serious 'reset'/'turnaround' or some businesses that needed 'More of the Same' i.e. do not spoil a winning formula. What was not very surprising was that the factors that determined success in most of these cases had similarities running across their centre folds. For instance, one business had missed its financial forecast six months in a row - as a result the General Manager & Sales Director were removed and a new team was installed to clean up the mess. In another situation, a team had delivered a record number of innovations into market with amazing success rate - and the new team had to replicate this success.
Blogger's little revelation: The original list was titled 'The Big Ten by Ten' and I eventually settled for the 'The Big Five by Five'.
'The Big Five by Five' list has been divided into two parts - First, I shall discuss the Five critical Processes or Systems and then I elaborate on the Five cultural traits or corporate behaviours that outstanding businesses possess/demonstrate.
1. A process of rigorous priority setting.
The best teams that I worked with set few, easy to understand, stretching and overarching priorities for the entire organization. Period. And it goes without saying - winning businesses have a clear understanding of 'No Go' areas. i.e. Which Opportunities and business challenges NOT to focus on or pursue. One successful firm that I worked with clearly articulated which product categories, geographies and retail channels that their company would/would not compete in using a tool called the 'Brand Web'. Teams that presented projects or innovations or expansion outside of the Brand Web usually got extreme 'ticking off' - to the extent that over time employees rarely dared to present non-priority projects at Board meetings. Importantly, the priorities were exactly the same for employees from all functions ensuring everyone was working towards common goals. However I also encountered some poorly managed situations. For example one company had to support more than 15 brands in a relatively small European market. As a Marketing Director, I struggled to invest time and money beyond the Top 5 brands in terms of turnover and profits. Still this company continued to launch innovations and produce TV films for more than 12 brands and insisted our market invested behind all these brands.
2. Processes that aid Intra functional, Inter functional and Client-Supplier alignment sessions.
Great teams communicate. They communicate hourly, daily, weekly...they communicate formally and informally. They communicate within functions, across functions and communicate regularly with suppliers like agencies and third party manufacturers. In one successful team that I was part of, the Advertising Agency let me use their London offices to conduct meetings with my own team members on my visits to the U.K. We became such great partners in the whole business growth process. One other leadership team I was part of used a 'Whatsapp' group to quickly share photographs, competitor news and even wish each other on special occasions. In fact one of the best processes that I observed at winning companies was the 'Monthly Marketing-Sales-Supply Chain' alignment meeting to agree on timings of launches, sales volume forecasts and timing of the start of advertising support. Rarely did this team fail in their in-market execution of new product launches. One ex-boss reminded me - 'In a matrix organization, the only advice I can offer you - err on the side of over communicating to everyone around you'.
3. Honest, regular and rigorous sales forecasting, usually led by the sales function but supported by the marketing and supply chain functions.
Given the external and internal environments within the Consumer Goods industry, accurate Financial forecasting and delivering against these forecasts are both complex but necessary tasks to achieve consistently over the long term. Needless to say - one of the primary inputs into a financial forecast is an accurate best estimate of future sales estimates. I have often encountered teams that relied on the Finance, Supply Chain or marketing team members to deliver the sales forecast. But Hey - we are talking about the sales forecast here. Who else should we turn to for accurate sales numbers - The Sales Guys and Gals, of course. I have often heard arguments from senior managers that 'Hey, I cannot trust the over optimistic sales guys to deliver a realistic forecast' or 'The Supply Chain guys have the best understanding of how much to order'. We often forget that Sales forecasts in the consumer goods industry are usually a function of primary demand (how much of the company's product that consumers would buy) and secondary demand (how much a retailer would order in anticipation of primary demand). Given that in most companies, we realize our sales revenues from the secondary demand it is critical that the forward sales forecast is owned by the Sales managers - but with inputs on underlying trends/seasonality etc. using good forecasting tools and the impact of price changes/promotions/advertising/new product launches from the marketers (who in turn should work with the research colleagues to improve the quality of these inputs). In one subsidiary, the Sales Director was fired because he had missed the sales forecast by a factor of more than minus 10% for 6 months running. A new Sales Director was hired and he immediately trained his sales team to work on the forecasting tools, improve the forecast by adding multiple reality checks along the way and he even changed the sales incentive schemes to include sales forecast accuracy as one of the critical KPIs. The company's sales forecasts and subsequently financial forecast accuracy improved dramatically over the following months. I know that many of you from the industry may disagree with me on this point but I am highlighting what I have learnt across markets on this critical topic. i.e. - get the sales managers to own the sales forecast - not anyone else !
4. A mean 'Finance' team that constantly challenges the status quo.
One might imagine that Finance Directors (or FDs as they are fondly called in our industry) in Consumer Goods' firms are expected to focus on reporting, managing payments and receivables plus drive down costs in the system. In one Middle Eastern subsidiary of a large American multinational, the General manager and the FD were like inseparable twins. The FD and his team were given full freedom to challenge supply chain colleagues on high inventory levels, marketers on margin dilutive new products and sales managers on overdue receivables. Every consumer or trade promotion proposal was challenged on the sales forecast & profitability. While this created a culture of constant conflict, the financial performance of the subsidiary improved dramatically during the tenure of this FD. Key process interventions like installation of pre and post promotion analyses ensured marketers and sales folks focused on delivering strong ROI on promotions. Net Working Capital improved as a results of improved payables and reduction in inventories. So while traditional wisdom would ensure that the Marketers and Sales teams dominated decision making, the inclusion of a 'challenging' finance team ensured superior financial performance.
5. A systematic balance of financial delivery between Margins and Real money in the bank.
Between 2007 and 2014, I worked across four different European businesses - what one would define as the 'Dark era' for Consumer Goods companies struggling to find their bearings during the recession. The high consumer prices set prior to this period began to bite as Private Label competition, expansion of Hard Discounters (like Aldi and Lidl) and intense price wars between retailers (in the U.K, at least 1 out of 2 products sold across many categories in 2013 and 2014 was sold on price promotion) in started to take their toll on the revenues of the consumer goods companies. The smartest teams that navigated through these tough times did one thing very well. They made a choice between making decent/fair share sales and profits and NO/LOW Sales or profits. They worked with the teams to focus on 'high value' innovations and promotions that were attractive to the cash strapped shoppers and the promotion trigger happy retailers. And the worst teams continued to have constraints by passing on revenue generating opportunities that delivered sales BELOW their historic profit margins. Do the math: Would you rather have a hundred thousand Euros of revenues that delivered 40 per cent margins or Zero revenues that delivered 60 per cent margins ?
Next, we shall focus on the Cultural aspects one can learn from winning Consumer Goods companies .
1. A culture of setting and communicating business targets, VERY EARLY in the year.
This point might sound fairly simple. But very seldom practiced by many teams. Let me explain. One of the companies I worked for had (and still has) the rigor of sharing the annual performance targets on the first day of work in January after resumption of Christmas holidays. In fact the boss often greeted you on week 1 in January with your annual performance and bonus targets. And due to the intense performance driven culture of this firm, every employee could plan his annual operating plan almost from Day 1. Needless to say, this company is still a darling of the stock market with revenues, profits and its share price being some of the best in the Consumer Goods industry. On the other hand, one Country team that I worked with had not received their annual targets even by October of the Calendar year. The team members were extremely demotivated and lack of clarity remained across the company. And as you would have guessed, the annual performance evaluation was a complete shocker. Almost everyone in this subsidiary ended up getting an 'Average' rating (simply because the managers could not decide achievement vs. targets) for the year followed by heavy attrition of the top performers immediately after. So I would highly encourage teams to start working on the target setting in the previous year with a view to a sign-off before you head out for your Christmas break in end December.
2. No functional Silos.
Easily understood phrase but rarely practiced in the corporate world. After many years of Sales vs. Marketing vs. Supply Chain vs. Finance quarrels at a European subsidiary, a previous boss of mine decided to create cross functional category teams. Teams consisted of employees from different functions. He deliberately decided NOT to appoint a team leader in the early phase of this transformation. We were thoroughly surprised to observe the team dynamics and the subsequent results. Within a limited span of time, the team dynamics changed from inter functional conflicts to Top management vs. the team challenges (in a positive way). The cross functional teams began to support each other during presentations - to the extent that the entire team started attending Customer meetings - hitherto the Kingdom of the Key account managers. Team members even backed up for colleagues from outside their function that went on annual leave. Not surprisingly, the most experienced and engaging team members became the natural leaders of each team. Exceptional results followed and in one instance - we took the market leadership of a very big category from a well established market leader.
3. A team with a Passion for ambiguity BUT healthy dissatisfaction for the Status Quo.
You get two kinds of employees at big Multinational Consumer Goods companies - one that loves the structure/processes/systems/rules and the other that thrives on ambiguity. There is no doubt that you need both types of people for a team to succeed. But when it comes to business challenges (often encountered by Consumer Goods companies) like entering new categories or markets with limited information, managing turnarounds or difficult change management situations or when you play in categories with rapidly changing consumer needs or tastes (e.g. make-up) you need folks that can embrace ambiguity and create structure within the ambiguity. I call this skill 'navigating in a dark room with your eyes completely shut'. Here, the core value of one of my previous employers comes to my mind - 'A healthy dissatisfaction for the status quo'. One of the General Managers of a Middle Eastern subsidiary of a U.S Consumer Goods company kept reminding all marketers of the 'Just One more' Challenge. His view was that when a brand had a leadership market share, it was time for the 'Just one more challenge'. What if we could get every consumer using the brand to use the brand for one additional occasion. What if we could convince every consumer using the product to dose correctly. What if we could motivate our light users to become medium or heavy users. The list was endless and soon the managers under him started pushing for higher targets even on leader brands. A fine example of 'Healthy Dissatisfaction for the Status Quo' came to the surface when the detergent portfolio of the company (already enjoying a 75% market share with 3 brands) came under attack from a new German competitor. The motto of our General Manager was 'I do not lose even a 1% share' post the entry of the competitor. The team worked very hard and despite more than 18 months of relentless investments from the Germans, we continued to enjoy the 75% market share.
4. A Work Hard, Play Harder culture.
In Jeddah it was the Wednesday afternoon Mandi or Fuddruckers at Tahlia street with the rest of the ABMs. In Bombay (Now Mumbai), it was the Friday night out at Toto's Garage, Bandra. Amsterdam - borrel on Friday afternoons and Birmingham - G&Ts with the agency on Thursday evenings. One common thread ran across all these occasions - Play Hard after a long day at work ! Maybe the folks from Investment banks and Consulting Firms may have far more exotic tales to share but at Consumer Goods companies - great bosses always took their teams out after a hard day at the office. Maybe it is a good time to make that reservation for a Thursday evening out with the team (why Thursday - you may ask. One young Dutch Brand Manager once revealed this secret - "always go drinking with work colleagues on a Thursday night, then you have the hangover at office on Friday...go drinking on a Friday - your weekend is hell").
5. Not here to participate BUT to win.
My final nugget of wisdom actually came from a number of bosses from the Consumer Goods firms. We are not in the Olympics - where taking part is critical. Here, we are in a Dog eats Dog world. One wrong move and your competitor will eat your market share. So the advice is - if you want to retain your job and earn all those fast track promotions - play to win, not to participate.
That is about it. I hope you enjoyed this long read. Please do share your feedback. And see you soon on another Omnikarma blog.
Today, we discuss one of my favorite Corporate topics - the methods and the madness involved in delivering outstanding business results. Since a marketer loves, lives and dies by jargon, I shall name this topic The Big Five by Five. (HBR, WSJ, FT and Forbes - please take note, you heard it here first). I summarize below this list of Five 'Must Have' processes and the Five 'Must Have' cultural DNA strands that you can learn from winning Consumer Goods businesses. All of these nuggets have been drawn from my experiences of the past twenty years at some of the best Consumer Goods companies in the world - Procter & Gamble, Reckitt Benckiser and Beiersdorf - not to forget my observations of Private Equity, competitors, agencies and suppliers in the Industry.
A bit of context might help set the tone for this blog today. As many of you may know, I have worked with teams across Asia, Africa, the Middle East, Europe and Latin America. As a member of work groups across these markets, I often encountered businesses or work situations that either needed serious 'reset'/'turnaround' or some businesses that needed 'More of the Same' i.e. do not spoil a winning formula. What was not very surprising was that the factors that determined success in most of these cases had similarities running across their centre folds. For instance, one business had missed its financial forecast six months in a row - as a result the General Manager & Sales Director were removed and a new team was installed to clean up the mess. In another situation, a team had delivered a record number of innovations into market with amazing success rate - and the new team had to replicate this success.
Blogger's little revelation: The original list was titled 'The Big Ten by Ten' and I eventually settled for the 'The Big Five by Five'.
'The Big Five by Five' list has been divided into two parts - First, I shall discuss the Five critical Processes or Systems and then I elaborate on the Five cultural traits or corporate behaviours that outstanding businesses possess/demonstrate.
1. A process of rigorous priority setting.
The best teams that I worked with set few, easy to understand, stretching and overarching priorities for the entire organization. Period. And it goes without saying - winning businesses have a clear understanding of 'No Go' areas. i.e. Which Opportunities and business challenges NOT to focus on or pursue. One successful firm that I worked with clearly articulated which product categories, geographies and retail channels that their company would/would not compete in using a tool called the 'Brand Web'. Teams that presented projects or innovations or expansion outside of the Brand Web usually got extreme 'ticking off' - to the extent that over time employees rarely dared to present non-priority projects at Board meetings. Importantly, the priorities were exactly the same for employees from all functions ensuring everyone was working towards common goals. However I also encountered some poorly managed situations. For example one company had to support more than 15 brands in a relatively small European market. As a Marketing Director, I struggled to invest time and money beyond the Top 5 brands in terms of turnover and profits. Still this company continued to launch innovations and produce TV films for more than 12 brands and insisted our market invested behind all these brands.
2. Processes that aid Intra functional, Inter functional and Client-Supplier alignment sessions.
Great teams communicate. They communicate hourly, daily, weekly...they communicate formally and informally. They communicate within functions, across functions and communicate regularly with suppliers like agencies and third party manufacturers. In one successful team that I was part of, the Advertising Agency let me use their London offices to conduct meetings with my own team members on my visits to the U.K. We became such great partners in the whole business growth process. One other leadership team I was part of used a 'Whatsapp' group to quickly share photographs, competitor news and even wish each other on special occasions. In fact one of the best processes that I observed at winning companies was the 'Monthly Marketing-Sales-Supply Chain' alignment meeting to agree on timings of launches, sales volume forecasts and timing of the start of advertising support. Rarely did this team fail in their in-market execution of new product launches. One ex-boss reminded me - 'In a matrix organization, the only advice I can offer you - err on the side of over communicating to everyone around you'.
3. Honest, regular and rigorous sales forecasting, usually led by the sales function but supported by the marketing and supply chain functions.
Given the external and internal environments within the Consumer Goods industry, accurate Financial forecasting and delivering against these forecasts are both complex but necessary tasks to achieve consistently over the long term. Needless to say - one of the primary inputs into a financial forecast is an accurate best estimate of future sales estimates. I have often encountered teams that relied on the Finance, Supply Chain or marketing team members to deliver the sales forecast. But Hey - we are talking about the sales forecast here. Who else should we turn to for accurate sales numbers - The Sales Guys and Gals, of course. I have often heard arguments from senior managers that 'Hey, I cannot trust the over optimistic sales guys to deliver a realistic forecast' or 'The Supply Chain guys have the best understanding of how much to order'. We often forget that Sales forecasts in the consumer goods industry are usually a function of primary demand (how much of the company's product that consumers would buy) and secondary demand (how much a retailer would order in anticipation of primary demand). Given that in most companies, we realize our sales revenues from the secondary demand it is critical that the forward sales forecast is owned by the Sales managers - but with inputs on underlying trends/seasonality etc. using good forecasting tools and the impact of price changes/promotions/advertising/new product launches from the marketers (who in turn should work with the research colleagues to improve the quality of these inputs). In one subsidiary, the Sales Director was fired because he had missed the sales forecast by a factor of more than minus 10% for 6 months running. A new Sales Director was hired and he immediately trained his sales team to work on the forecasting tools, improve the forecast by adding multiple reality checks along the way and he even changed the sales incentive schemes to include sales forecast accuracy as one of the critical KPIs. The company's sales forecasts and subsequently financial forecast accuracy improved dramatically over the following months. I know that many of you from the industry may disagree with me on this point but I am highlighting what I have learnt across markets on this critical topic. i.e. - get the sales managers to own the sales forecast - not anyone else !
4. A mean 'Finance' team that constantly challenges the status quo.
One might imagine that Finance Directors (or FDs as they are fondly called in our industry) in Consumer Goods' firms are expected to focus on reporting, managing payments and receivables plus drive down costs in the system. In one Middle Eastern subsidiary of a large American multinational, the General manager and the FD were like inseparable twins. The FD and his team were given full freedom to challenge supply chain colleagues on high inventory levels, marketers on margin dilutive new products and sales managers on overdue receivables. Every consumer or trade promotion proposal was challenged on the sales forecast & profitability. While this created a culture of constant conflict, the financial performance of the subsidiary improved dramatically during the tenure of this FD. Key process interventions like installation of pre and post promotion analyses ensured marketers and sales folks focused on delivering strong ROI on promotions. Net Working Capital improved as a results of improved payables and reduction in inventories. So while traditional wisdom would ensure that the Marketers and Sales teams dominated decision making, the inclusion of a 'challenging' finance team ensured superior financial performance.
5. A systematic balance of financial delivery between Margins and Real money in the bank.
Between 2007 and 2014, I worked across four different European businesses - what one would define as the 'Dark era' for Consumer Goods companies struggling to find their bearings during the recession. The high consumer prices set prior to this period began to bite as Private Label competition, expansion of Hard Discounters (like Aldi and Lidl) and intense price wars between retailers (in the U.K, at least 1 out of 2 products sold across many categories in 2013 and 2014 was sold on price promotion) in started to take their toll on the revenues of the consumer goods companies. The smartest teams that navigated through these tough times did one thing very well. They made a choice between making decent/fair share sales and profits and NO/LOW Sales or profits. They worked with the teams to focus on 'high value' innovations and promotions that were attractive to the cash strapped shoppers and the promotion trigger happy retailers. And the worst teams continued to have constraints by passing on revenue generating opportunities that delivered sales BELOW their historic profit margins. Do the math: Would you rather have a hundred thousand Euros of revenues that delivered 40 per cent margins or Zero revenues that delivered 60 per cent margins ?
Next, we shall focus on the Cultural aspects one can learn from winning Consumer Goods companies .
1. A culture of setting and communicating business targets, VERY EARLY in the year.
This point might sound fairly simple. But very seldom practiced by many teams. Let me explain. One of the companies I worked for had (and still has) the rigor of sharing the annual performance targets on the first day of work in January after resumption of Christmas holidays. In fact the boss often greeted you on week 1 in January with your annual performance and bonus targets. And due to the intense performance driven culture of this firm, every employee could plan his annual operating plan almost from Day 1. Needless to say, this company is still a darling of the stock market with revenues, profits and its share price being some of the best in the Consumer Goods industry. On the other hand, one Country team that I worked with had not received their annual targets even by October of the Calendar year. The team members were extremely demotivated and lack of clarity remained across the company. And as you would have guessed, the annual performance evaluation was a complete shocker. Almost everyone in this subsidiary ended up getting an 'Average' rating (simply because the managers could not decide achievement vs. targets) for the year followed by heavy attrition of the top performers immediately after. So I would highly encourage teams to start working on the target setting in the previous year with a view to a sign-off before you head out for your Christmas break in end December.
2. No functional Silos.
Easily understood phrase but rarely practiced in the corporate world. After many years of Sales vs. Marketing vs. Supply Chain vs. Finance quarrels at a European subsidiary, a previous boss of mine decided to create cross functional category teams. Teams consisted of employees from different functions. He deliberately decided NOT to appoint a team leader in the early phase of this transformation. We were thoroughly surprised to observe the team dynamics and the subsequent results. Within a limited span of time, the team dynamics changed from inter functional conflicts to Top management vs. the team challenges (in a positive way). The cross functional teams began to support each other during presentations - to the extent that the entire team started attending Customer meetings - hitherto the Kingdom of the Key account managers. Team members even backed up for colleagues from outside their function that went on annual leave. Not surprisingly, the most experienced and engaging team members became the natural leaders of each team. Exceptional results followed and in one instance - we took the market leadership of a very big category from a well established market leader.
3. A team with a Passion for ambiguity BUT healthy dissatisfaction for the Status Quo.
You get two kinds of employees at big Multinational Consumer Goods companies - one that loves the structure/processes/systems/rules and the other that thrives on ambiguity. There is no doubt that you need both types of people for a team to succeed. But when it comes to business challenges (often encountered by Consumer Goods companies) like entering new categories or markets with limited information, managing turnarounds or difficult change management situations or when you play in categories with rapidly changing consumer needs or tastes (e.g. make-up) you need folks that can embrace ambiguity and create structure within the ambiguity. I call this skill 'navigating in a dark room with your eyes completely shut'. Here, the core value of one of my previous employers comes to my mind - 'A healthy dissatisfaction for the status quo'. One of the General Managers of a Middle Eastern subsidiary of a U.S Consumer Goods company kept reminding all marketers of the 'Just One more' Challenge. His view was that when a brand had a leadership market share, it was time for the 'Just one more challenge'. What if we could get every consumer using the brand to use the brand for one additional occasion. What if we could convince every consumer using the product to dose correctly. What if we could motivate our light users to become medium or heavy users. The list was endless and soon the managers under him started pushing for higher targets even on leader brands. A fine example of 'Healthy Dissatisfaction for the Status Quo' came to the surface when the detergent portfolio of the company (already enjoying a 75% market share with 3 brands) came under attack from a new German competitor. The motto of our General Manager was 'I do not lose even a 1% share' post the entry of the competitor. The team worked very hard and despite more than 18 months of relentless investments from the Germans, we continued to enjoy the 75% market share.
4. A Work Hard, Play Harder culture.
In Jeddah it was the Wednesday afternoon Mandi or Fuddruckers at Tahlia street with the rest of the ABMs. In Bombay (Now Mumbai), it was the Friday night out at Toto's Garage, Bandra. Amsterdam - borrel on Friday afternoons and Birmingham - G&Ts with the agency on Thursday evenings. One common thread ran across all these occasions - Play Hard after a long day at work ! Maybe the folks from Investment banks and Consulting Firms may have far more exotic tales to share but at Consumer Goods companies - great bosses always took their teams out after a hard day at the office. Maybe it is a good time to make that reservation for a Thursday evening out with the team (why Thursday - you may ask. One young Dutch Brand Manager once revealed this secret - "always go drinking with work colleagues on a Thursday night, then you have the hangover at office on Friday...go drinking on a Friday - your weekend is hell").
5. Not here to participate BUT to win.
My final nugget of wisdom actually came from a number of bosses from the Consumer Goods firms. We are not in the Olympics - where taking part is critical. Here, we are in a Dog eats Dog world. One wrong move and your competitor will eat your market share. So the advice is - if you want to retain your job and earn all those fast track promotions - play to win, not to participate.
That is about it. I hope you enjoyed this long read. Please do share your feedback. And see you soon on another Omnikarma blog.
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