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
Consolidation of the Brazilian banking sector in 2001 reached the final stage in the seven-year cycle, which began with the implementation of the Real plan. During this cycle, the competitive environment has been altered by the privatization of basically all the state-owned banks, the restructuring of the federally-owned banks, the absorption of many large private-sector Brazilian banks, and by a free market for international banks…Itaú is clearly one of the winners in this consolidation process. Olavo Setubal, chairman of Banco Itaú, 2001 letter to shareholders
Setubal had good reason to feel proud. Between 1995 – the first year after the Real plan stabilized Brazil’s inflation – and 2001, Banco Itaú (Itaú) posted an average return on equity of 21%, grew its asset base from $25.1 billion to $34.8 billion, and enjoyed the highest market capitalization of any private sector bank in Latin America.
Itaú’s performance was particularly impressive when compared to its rivals. Itaú posted significantly better returns on equity than other Brazilian banks. Itaú’s performance allowed it to avoid the fate of Mexican and Argentinean banks, which were for the most part displaced or acquired by multinational banks once their markets were opened to foreign competitors.
Banco Itaú, however, had not always been one of Brazil’s premier banks. The bank was born in 1945 as Banco Central de Crédito, and for its first twenty years remained a credible, but small regional player. Between 1964 and
To understand how companies thrive in turbulent markets, Martin Escobari and I studied ten Brazilian companies that thrived despite Brazil’s turbulence during the 1990s. Brahma (brewing and beverages which through a series of acquisitions created Anheuser Busch InBev), Embraer (aircraft production), Votorantim (diversified conglomerate specializing in basic industries), Banco Itaú (banking), Natura (cosmetics), América Latina Logística (logistics), Promon (engineering), Sabó (auto parts), Pão de Açúcar (food retailing), and Aracruz (pulp and paper).
We paired each of the ten with a comparable firm that was less successful in managing turbulence. These paired companies provide a valuable contrast to our more successful firms. The similarities among the more successful companies, as well as the differences between them and their less successful peers, form the foundation for the findings in this book.
There are a few things to note about the companies we studied. First, they represent a broad cross-section of the economy. Most studies of management in turbulent environments have focused on U.S. information technology companies, primarily in the period between 1980 and 2000. By sampling across a variety of industries we hope to glean general insights about managing in unpredictability that would not emerge from a