Mark P. McDonaldOver the summer McKinsey published their top 10 trends for the next year or so in Harvard Business Review in July 2009 http://tinyurl.com/l2ooj3. This post discusses the trend related to industries changing in the face of consolidation and restructuring.
Industries taking new shape – an accelerating trend
McKinsey highlight changing industry structures as one of their ten trends to watch for 2010. They point out that industries are changing in the face of the recession that widens the gap between strong and weak rivals and continued disaggregation of industry structures. McKinsey recommends that managers be ready to play at two speeds: one to seize immediate opportunities created by the crisis such as M&A consolidation and second from how they can shape the evolution their industry’s structure over time.
Every economic crisis creates winners and losers. Collectively the fate of companies sets the course of the industry, particularly as companies enter and exit existing industry structures. McKinsey is right to view this situation as one of transformation and reshaping industry structures, players and rules.
According to the 2009 CIO survey of more than 1500 CIOs, IT plays an important role in supporting the winners and keeping pace with losers. The survey studied the relationship between enterprise and IT effectiveness across 20 different characteristics and found that effective enterprises have effective IT. The figure below highlights the distribution of firms between enterprise and IT effectiveness.
Follow this LINK for a posting that discusses this graphic and the study in more detail.
Industry restructuring requires solid operations, information and management systems that sense changes in the market and respond accordingly. The effective enterprises in the survey shared these characteristics, as they were strong in:
- Executives having an understanding of market and customer needs
- Executives being able to communicate those needs across the enterprise
- The Enterprise having an information management strategy
- The Enterprise having clear and effective governance
Companies with these characteristics enjoyed significantly higher ROA, ROE and ROIC than their peers. Follow this LINK for more details about effectiveness and financial performance.
The IT organizations in these companies had characteristics that complimented the sources of enterprise effectiveness.
- IT had the right number of skilled people was the single biggest factor in IT effectiveness.
- IT has a culture of innovation
- IT has the funding to meet its business needs, and
- IT delivers technology innovation
Donald Sull in his upcoming book “The Upside of Turbulence” analyzes companies and their ability to manage the type of industrial shape shifting described in this trend. His conclusion is that companies have to be shift their mental maps, become more agile and absorb short-term stress to survive and grow in this environment. Those recommendations involve being effective now without losing sight of the need to change to be effective in the future.
Bottom line
Executives need to create an effective enterprise more than ever in an environment of structural change at the enterprise and industry level. Effectiveness means being able to accomplish your financial and operational goals that are the stepping-stones for gaining market share and profitability. Effective enterprises require effective IT and investments in IT effectiveness pay off.
Category: 2010 Leadership Strategy Tags: 2010 planning, Business Leadership, Business Strategy, IT and Business, Strategy and Planning
2 responses so far ↓
1 Andrew Meyer September 7, 2009 at 9:44 am
Mark,
thanks for a great series on an interesting study. I really appreciate it and I think you’ll see why.
McKinsey has a particular perspective and certainly CIO’s have a particular perspective. Asking a CIO about the importance of enterprise IT is like asking a barber about the importance of haircuts.
I agree that this depression will change the business environment and determine who will be successful and who will not. I think large companies will have difficulty. They have a business model, processes and infrastructure built for one environment and the environment has changed. I suspect it will be very difficult for those businesses to change.
In this new environment, companies that can take advantage of IT capabilities at a massively lower price point will have a huge advantage. SaaS, Virtualization and experienced people will enable smaller companies to leverage ERP, CRM and KM at a fraction of what it costs larger businesses. Successful, operating companies that can cut their prices by 30%, increase the services they offer their customers and improve their customer service will boom. They will do this by leveraging technologies, especially cloud technologies, to greatly improve productivity of business people without increasing staff.
The model for this economy is Craigslist. $100M in revenue with 28 employees. (http://bit.ly/5QsbO)
Large companies will have difficulty increasing their profit margins if they have to cut their prices drastically. Newspapers are a perfect example of the problem facing many other businesses. They are too large. If Newspapers were half their current size, they would be doing fine. Unfortunately, they cannot stomach laying off 50% of their staff to continue operating in a new environment. Many other businesses will face the same problem. Small businesses will be able to grow leveraging low cost, often cloud based technologies.
Less is more will be the motto. I’m not sure that’s how McKinsey or CIO’s at large companies would like the future to go, but couldn’t companies like Gartner really be thought of as “cloud like” replacements for companies like McKinsey?
2 McKinsey – The 10 Trends You Have to Watch: and what they mean for IT – summary September 14, 2009 at 7:49 am
[...] Industries Taking New Shape – an accelerating trend [...]
Leave a Comment