Identifying opportunities early is necessary, but not sufficient, to seize them. A company must also be able to strike decisively when the time is right. Managers at Brazil’s Banco Itaú recognized that the privatization of state banks freed a new set of valuable resources – customer relationships and locations which had not been obtainable previously, and Itaú spotted the value in these banks before its peers. Equally important was top executives’ willingness to declare the acquisitions as the main effort and redeploy whatever human and financial resources were required to seize the moment. Below some key insights:
- Mobilize best people for golden opportunity. As with experiments, it is critical to put the best people on the best opportunities. Itau’s CEO commissioned one of the most senior members of his team, a Senior Vice-President and Board Member, to spearhead the analysis of opportunities created by the privatization process. And this SVP, in turn, quickly appointed some of the bank’s most promising executives to form a fifty-person task force to evaluate the opportunity and create a post-acquisition plan in case Itaú decided to make an acquisition. Make no mistake, the managers appointed to lead this initiative were not corporate rejects whose careers were stagnated, rather they were among the most promising managers in the company, responsible for running its most profitable lines of business. Assigning them to this opportunity represented a real commitment on the part of Itaú executives.
- Rapid approval processes. Sometimes, seizing a golden opportunity comes down to signing a deal
Even in the most volatile environment, companies do not face a constant rush of golden opportunities. Instead, periodic golden opportunities are interspersed among many smaller chances. The trick is to keep in the information flow, talk through alternative scenarios, and keep discussing possible opportunities as a management team to decide identify the most attractive.
In the case of Itaú, the golden opportunity came with the privatization of state-owned banks beginning in the mid-1990’s. The Federal Government decided to privatize most public companies in telecommunications, energy, and banking to attract capital to these sectors after years of underinvestment. Roberto Setubal – a member of one of the families that controlled the bank – was appointed Itaú’s CEO in 1994 in the midst of this privatization. In addition to a variety of operational positions in the bank, Roberto Setubal had received a masters degree in engineering from Stanford University, and apprenticed under John Reed, the legendary former CEO of Citibank. Setubal’s breadth of experience helped him to quickly realize that the privatization process was a decisive opportunity for the bank’s future.
Between 1995 and 2002, Itaú purchased eight large banks. Major competitors, including Banco Bradesco and Unibanco, were less aggressive in acquiring assets during the privatization period. Itaú’s ability to see this opportunity was not the result of luck. Rather, the top management team had actively gathered and processed data to identify and evaluate potential opportunities:
- Stay in the flow of information. In a constantly changing environment the top management team must
In turbulent markets, companies can enhance their agility and minimize risk by orchestrating a network of resource providers. The story of Promon, a Brazilian engineering company, illustrates the advantages of orchestrating a network.
Promon initially grew on the back of government funded infrastructure projects that were the mainstay business of Brazil’s engineering firms during the 1970’s and early 1980’s. This all changed when a fiscal crisis in 1986 prevented the Brazilian government from commissioning new projects and forced it to renege on existing contracts. Most Brazilian engineering firms collapsed in the face of this sudden-death threat and disappeared.
Promon survived and thrived while its competitors floundered, in large part, because the company successfully transformed itself into an innovative systems integrator for the telecommunications, power and industrial segments. As an illustration, one joint-venture formed by Promon has 82 employees who supervise a project with 1,907 workers representing 573 separate subcontractor companies. Promon rolled out this system throughout the 1990’s. System integration projects increased from less than 20% in the late 1980’s to over 90% by the end of the 1990’s.
The company developed sophisticated skills for forging and managing partnerships, which allowed it to increase net revenues (including both revenues for services and the value of goods and services procured under its responsibility) from $10 million in 1987 – the year after the Brazilian government’s fiscal crisis – to $852 million in 2008, while decreasing total staff from 4,000 to approximately 1,360 professionals over the
How can managers survive and thrive in unpredictable markets? To shed light on this question, I and my co-author Martin Escobari, who is now a managing director of Advent International in Brazil, analyzed ten Brazilian companies that managed to survive and thrive amidst the turmoil of the Brazilian market during the 1990’s. In several cases these companies emerged as world-class competitors in global industries including aerospace, brewing and banking.
We published our findings in the book Success Against the Odds. My posts through the rest of the summer will draw on our research and this book to bring to light some of the impressive success stories and the broader principles they illustrate about thriving in turbulent markets.
These firms’ success is an impressive accomplishment, because Brazil is one of the most unpredictable markets in the world. Brazilian managers during the 1990’s faced volatile exchange rates, sporadic availability of capital, inconsistent industrial policy, unpredictable rates of inflation and interest, and sharply increased levels of foreign competition, in addition to the competitive threats, shifting consumer preferences, and potential technological disruptions common to every country.
An elite group of Brazilian companies not only survived this turmoil, but actually emerged stronger at the end of the last decade. They responded quickly and effectively to shocks that threatened their very survival and
The model of emerging market innovation that most people have in mind is a multinational corporation pioneers a novel product or service in their sophisticated home market, drops some features and cuts the price, and then exports the stripped-down innovation into emerging markets.
Increasingly, however, innovation flows the other way. Companies develop a product that appeals to emerging market consumers who combine discerning tastes with low disposable income, then managers quickly recognize that these products would appeal to some segments within mature markets as well.
At a recent London Business School panel on multinationals in emerging markets, I had the chance to discuss this reverse innovation with Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte.
- Distinguish between emerging consumers and emerging markets. Paul noted that Nestlé distinguishes
Yesterday the London Business School held its annual Global Leadership Summit, I moderated a panel on how multinationals can seize opportunities in emerging markets. My panelists were Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte. (The podcast of the full panel is here).
Emerging markets are important for each of these companies. Vodafone books 22% of its revenues in emerging markets including India, Egypt, and Turkey. Deutsche Bank earns about €3 billion in these markets. Currently emerging markets account for approximately 32% Nestlé total sales (and more than half the firm’s factories), but Nestlé intends to increase revenues from emerging markets to 45%. Deloitte has about 15% of headcount in the BRIC countries.
One of the questions we discussed was other than their own company, which multinationals do the panelists most admire for their performance in emerging markets. Their answers are interesting.
- Tesco. John noted that by the end of this year, Tesco will have more retail space in Asia than the UK.
The nature of work has shifted in the century since Henry Ford introduced the Model T. Today, activities adding the most value–entering new markets, for example, or shifting business models–cannot be reduced to standardized operating procedures. Economic activity has migrated beyond the boundaries of the firm and now takes place in an ecosystem of organizations that are interlinked but independent.
While work has changed, the tools to get things done have not. Executives invoke hierarchical power in a networked world, and try to standardize non-routine activities. Leaders rely on power and process not because they work, but because they are familiar.
An alternative approach frames an organization not as a hierarchy of power or bundle of processes, but as a set of overlapping networks of commitments that extend up and down the chain of command, across units within the organization, and beyond the boundary of the firm. Effective execution, in this view, occurs when people make the right commitments and fulfill them with vigor. Organizations can enhance the quality of execution by requiring public commitments, which confer five key benefits.
- Increase peer pressure to perform. Many executives rely on their positional power to drive execution. In
Execution is about getting things done. When driving execution in their organizations, hard-nosed managers dismiss talk and demand action. Phrases like “cheap talk,” “all talk, no action,” and “rhetoric versus reality” illustrate the common distinction drawn between talking.
This bias for action reveals a deep-seated belief that action changes the real world, while talking is mere commentary. Sports announcers (and fans in pubs) debate England’s disappointing performance against Algeria, but their conversations have no impact on the result. Action, in contrast, takes place when players like Wayne Rooney or Steven Gerrard step on the field and take charge of the game.
This apparently sensible distinction between talk and action ignores a crucial insight: In many situations, talking is doing. When people make a sincere promise to do something in the future, they are not merely commenting on the real world. Instead, their commitment can change the situation in a meaningful way, particularly if it induces other people to change their behavior based on the promise.
The head of engineering in a software company, for example, might make a promise to his counterpart in
Anomalies, as I argued in an earlier post, are gaps between reality and the mental maps we use to guide actions. Incongruities often point to opportunities to create economic value.
5. This could work in our industry (but we don’t do it). In 1976, Dr. Govindappa Venkataswamy retired at the age of 58 as a practicing ophthalmologist, and opened an 11-bed clinic in Madurai, India with two other ophthalmologists. Dr. V. was frustrated that existing procedures could not clear India’s backlog of 20 million blind. The “aha” moment came for Dr V. while passing a McDonalds on a trip to the United States. Amazed that McDonalds could serve millions of hamburgers daily, at low cost and with uniform quality, he wanted to learn whether a standardized approach could be used to remove cataracts, the leading cause of blindness in India. After visiting Hamburger University in Oak Brook, Illinois, Dr. V. refined an assembly-line model of screening, preparing and operating on patients, that allowed staff at his Aravind Clinic to conduct nearly ten times as many operations per year compared to doctors in the state-owned hospitals.
4. We should have this at home (but we don’t). In the early 1990s, a Swedish business student tried to store his belongings, but found that all the local self-storage facilities were full. Surprised by the demand for a
Faced with a complex and dynamic world, we rely on simplified mental maps to focus attention and guide our action. A start-up business plan, large company’s strategy, and a general’s battle plan are all examples of the mental maps that guide action in a turbulent world. Unfortunately, people often mistake their map for the underlying terrain, and ignore anomalies, or unexpected events that defy their assumptions.
That is a shame. These gaps between our mental maps and reality often point to new opportunities to create economic value. Instead of ignoring or dismissing them, we should actively explore them to see if they reveal an unexpected opportunity. The most welcome anomaly occurs when a product or service exceeds all expectations. When Honda entered the US motorcycle market they expected to sell large motorcycles to leather clad bikers. It was not until a mechanical failure forced them to recall their large models that they aggressively marketed their 50cc bike, which took off in defiance of their ingoing assumptions.
Surprisingly, firms often fail to exploit unexpected success. A few years ago, a London shopkeeper began selling American donuts, which were among his best-selling and most profitable items. A few months later, he eliminated the donuts, because they sold out so fast that afternoon commuters complained when they couldn’t get one. This post and the next will list ten anomalies that often reveal new opportunities.
10. There should be a product here (but there isn’t). As accessories editor for Mademoiselle magazine in the early 1990s, Kate Brosnahan spotted a gap in the handbag market between functional bags that lacked