Mark McDonald

Planning starts with a view on the sources of revenue growth, or recently revenue retention as the top line determines the resources you will have for the year.  Revenue planning has been more art than science for the past few years given the global financial crisis, the recession and fluctuating currency values.

The observation that markets are fracking also makes revenue planning difficult at best.  Fracking is a geologic term referring to ‘fractured cracking’ of solid rock.  Oil and gas companies inject water and other solvents into the ground to frack the rock capturing oil and gas trapped in small pockets within stone. Sorry it does not the term popularized in Battlestar Galatica.

There are multiple causes of market fracking.  One is economic conditions as countries once part of a ‘common’ market face disparate and radically different futures.  Another reason is political as changes in leadership have different priorities and policies.  Competition is perhaps the most active form of fracking as marketing efforts seek to define every smaller niche markets and segmentations.

Market fracking is important in strategic thinking as:

• Firms in Europe and North America are looking for growth to come outside of their home countries.  Companies have a reasonable idea regarding economic conditions in their home country, but projecting what will work outside of your traditional territory is challenging.  P&G has been a master at getting and staying involved outside of the U.S. and therefore making every market a ‘home’ market.
• Firms leave themselves open to fracking by not understanding the actual profitability of their existing customers.  In many industries a small minority of customers generate more than 100% of the companies profits, effectively subsidizing the rest of the customer base.  Capital One transformed the credit card industry by knowing who were the most profitable customers and taking them away from unsuspecting competitors who thought all card holders were more or less the same.
• Technology enables fracking as online channels and social media groups have greater autonomy to define themselves, aggregate their interests and advocate their positions.

Given these observations, what should the CIO and other executive do?  Here are some thoughts:

• Recognize the need for local solutions to attract local revenues.  Develop an approach that reuses as much of the corporate profile and resources as possible to create a global back office operating at scale supporting local front offices.  This may mean ‘de-automating’ some processes and systems which have different local cost structures and capabilities.  Do not overlook the scale efficiencies of global back office systems, like ERP, even if they seem like overkill in emerging markets.  Better to hire a few people to handle the ‘corporate burden’ knowing that they can always be redeployed than cast the future of your operation in multiple instances of silicon.
• Challenge conventional wisdom and know your most profitable/valuable customers are and whom are the customers costing you money.  Use that knowledge to migrate unprofitable customers into profitability or out of the company.  Use that knowledge to frack your competitors, even in mature markets.  If your competition does not know who their most profitable customers are, they will never know what hit them.
• Look for best practices in segments of your home country that can readily transfer to higher growth segments.  Markets in your home country are not homogenous and chances are ex pats, immigrants and others from oversees target markets are your customers right now.  Their word of mouth, their social presence and knowledge can be the difference between a successful local product launch, or a continued bludgeoning of local markets with home country solutions.

For the past 30 years, the global trade systems have looked to create global and super-regional markets.  That system was a natural extension of the desire to support economic growth, development and rising living standards.  However, political, economic and societal changes are dismantling global consumer markets at the same time they are strengthening global supply chains.

The combination of global back office consolidation coupled with front office market fragmentation makes this challenge particularly interesting and one particularly well suited for information and technology based solutions.

China may be the world’s factory, but they are far from a single storefront or market.

The same goes for just about every region, country and segment that either chooses to define its own needs, winners and losers or markets that we seek to create with finer digress of segmentation, targeting and marketing.

Taking this shift into account is an important part of your plans for 2011 and beyond.

1 Comment »

Category: Strategic planning Strategy     Tags: 2011 Planning, Business Strategy, economics, growth, IT and Business

Share