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7/29/2019 Growing Beyond-How High Performers Are Accelerating Ahead
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Growing Beyond
How high performers areaccelerating ahead
Growing Beyond
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In this report
Executive summary 2
Adjusting to the new reality 4
Customer reach: Getting closer but looking beyond 10
Operational agility: Moving quickly in a customized world 16
Cost competitiveness: Finding the right balance 22
Stakeholder condence: To inform, to explain, to engage 26
Conclusion 32
Further reading 34
About this report 36
The benchmark ndings for this report are drawn from a study undertaken in August
and September 2012 by the Economist Intelligence Unit (EIU), surveying 1,500
C-suite, board directors and senior managers from around the world.
As with our earlier studies, we have factored out the impact of sector and distinguished
between the highest and the lowest quartile of performers in both revenue and
EBITDA growth to see if we can identify specic patterns of action that might explain
the difference in performance.
Source for all charts: EIU panel survey, AugustSeptember 2012. All charts show
percentage of respondents.
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1Growing Beyond How high performers are accelerating ahead
Growth has become the magic word for both business and government. Taken for granted
in the pre-crisis years, the rst bite of the credit crunch in 2007 ushered in an age in
which growth has proven frustratingly elusive to many, rather than few. While no business
is immune to the health of the wider economy or its market, some companies have
continued to prosper, even thrive, during the most difcult conditions of recent years. And
the difference between these high performers and others is becoming more and more
pronounced.
What is it that high performers are doing differently?
What are the lessons that all businesses can learn?
These are the key questions addressed by a series of studies conducted by Ernst & Young
since 2008, with a view to providing practical insights to help our clients navigate the
harsh economic terrain. Our rst study showed how high performers were proactively
reacting to the rst wave of the credit crunch by seeking out Opportunities in adversity.
In 2009, we built on this with a study that analyzed the Lessons from change. In early
2011, we explored how the high performers were Competing for growth by adopting new
strategies for new markets and new products, and taking new approaches to managing the
talent that is essential to achieving their goals. Later in 2011, we returned to this theme,
analyzing how high performers are Growing Beyond, drawing out key lessons on how theywere growing beyond their competition by increasing their customer reach, operational
agility, cost competitiveness and stakeholder condence.
One year on and we test the water again.
What has changed since our last survey?
As we present this latest report in our Growing Beyond program, we would like to thank
all the business leaders from around the world and Ernst & Young professionals who have
taken the time to share their insights with us.
How high performerscontinue to grow beyond
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2 Growing Beyond How high performers are accelerating ahead
Executive summary
Accelerating ahead
of the pack
Ever since the onset of the global economic crisis, Ernst & Young has surveyed C-suite, board
directors and senior managers in large organizations to nd out how they run their businesses.
Our objective is to nd out what it is that high performersare doing differently and set out the lessons that other
businesses must learn if they are to emulate them.
The latest survey ndings enable us to gain a fresh insightinto decision-making in boardrooms across the world and
draw some key new conclusions.
Ernst & Young has identied four factors that drivecompetitive success in todays global economy: customer
reach, operational agility, cost competitiveness and
stakeholder condence.
This is how high performers are using these drivers to help them pull away from the competition:
Customer reach
High performers are more outward-looking and focused
on the market.
They seek deep understanding of their customers demands andexpectations and are increasing marketing spend to attain this.
They focus on nding new markets for existing products and
services. High performers are nearly three times more likely
than low performers to generate sales in new markets.
They plan more carefully when entering new markets. They
identify a clear demand for a current product or service, and
assess the scale and growth projections of that market.
They prioritize innovation. Nearly twice as many high performers
as low performers generate more than 10% of their sales fromproducts or services developed in the past three years, focusing
on incremental innovation of new products for current customers
and current products for new markets.
Operational agility
High performers respond smartly to change but,
more importantly, respond speedily.
They understand that the risks of being rst to market arebeginning to outweigh the opportunities, but that speed of
response is always critical.
High performers continue to accelerate, while low performers
are reaching the limits of their organizational capacity to
respond.
They understand that consistency can have a market cost that
outweighs its management value. It can reduce their ability to
respond to an increasingly varied and volatile world.
They adapt exibly to fast-changing circumstances, by deployingtechnology, devolving decision-making and enhancing the skills of
their workforce.
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3Growing Beyond How high performers are accelerating ahead
Key ndings
1 High performers aremore outward-lookingand focused on the market.
2 High performers respondsmartly to change but,more importantly, respond
speedily.
3 High performersunderstand what drivescost and what drives value.
4 High performers engagemore with stakeholdersand unleash their talent.
And the difference between high performers and the rest is becoming more and more pronounced.
Customerreach
Operationalagility
Stakeholderconfidence
Costcompetitiveness
Focus onkey segments
Createflexiblework/delivery
platforms
Acceleratespeed of response
Improvecollaboration
Optimizecapital
Masterinnovation
Sustain costreduction
Informpricing process
Pass oncost pressure
Prioritizemarkets
Reinforcebrand
Broaden product/service offer
Identify andexplain risks
Re-engage withinternal talent
Anticipateregulatory compliance
Enhancereporting
High
performers
seek ...
Figure 1: High performers are ahead with respect to how they:
These are just some of the actions
that divide higher-performing
companies and their lower-
performing competitors. With the
shadow of the economic crisis
continuing to cross large parts of
the global economy, businesses
of all sizes and markets have a
duty to constantly evaluate their
performance.
Examining how they execute
against these four key areas
customer reach, operational
agility, cost competitiveness and
stakeholder condence is animportant starting point.
Cost competitiveness
High performers understand what drives cost
and what drives value.
They are externally focused on value-creation and opportunity.They place more emphasis on customer segmentation and
market analysis. High performers recognize that understanding
what customers need, what they expect and what drives them is
crucial when determining pricing strategies.
Because they understand their customers, high performers can
be more condent about increasing prices.
They know the difference between eliminating waste and simply
cutting cost. They identify the actual organization-wide costs
involved in supplying their service or product.
High performers focus more on efciency than on reducing
headcount. Just a quarter of high performers have reduced
headcount, compared with 43% of low performers.
Stakeholder condence
High performers engage more with stakeholders and
unleash their talent.
High performers seek to make the value they create visible totheir external stakeholders and have signicantly increased
both the scope and frequency of reporting.
They understand that future success is global and value the
ability to lead effectively in a global business environment. They
offer their talent opportunities to operate internationally and see
access to talent as a reason to enter rapid-growth markets.
High performers place a greater focus on the individual. They
place greater emphasis on linking pay with performance and
providing customized development.
High performers unleash their talent onto the market by
devolving decision-making as far as they can and rene roles
and job descriptions to make them more exible.
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4 Growing Beyond How high performers are accelerating ahead4
Adjusting tothe new reality
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5Growing Beyond How high performers are accelerating ahead
We may not yet have seen the
worst
It is now over ve years since the start of the
global nancial crisis. The shocks of 2007 and
2008 heralded what is already one of the
longest periods of economic retrenchment in
history. While governments, markets and people
long for a period of stability and recovery, all
must face up to a stark possibility:we may not yet have seen the worst.
At least, that is the main conclusion from our latest study of how
high performers are surviving and indeed thriving in the new
economy. Of our 1,500 respondents, 83% predict that their market
will become more competitive over the next two years. Indeed,
this rises to 91% for our high performers, whose success we have
shown to be largely dependent on a deeper understanding of
market trends and customer demands. Looking ahead, these high
performers see difcult times our study suggests that they too
are beginning to struggle to grow beyond the parameters of theeconomic crisis in which the world is engulfed.
They are right to be concerned. The developed world struggles
under a mountain of personal, corporate and sovereign debt that
has reached proportions that can no longer be passed from current
generations to the next. Democratic governments struggle to nd
credible solutions that they can persuade their electorates to back.
And the corporate world seems to be increasingly polarized into
those who cant take action through lack of capital or opportunity
and those who wont, for fear of what lies ahead.
Even the rapid-growth markets have not escaped the fragility ofthe global economy. Economic expansion in 25 leading rapid-
growth countries has slowed sharply since the beginning of this
year, according to Ernst & Young's October 2012 Rapid-Growth
Markets Forecast. Our forecast for 2013 growth has fallen by
about a sixth to 5.3% this year.
Time, it is said, heals all woes, so eventually it is expected that
the global economy will recover and return to health. But is there
something that management should be doing rather than simply
watching the clock?
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6 Growing Beyond How high performers are accelerating ahead
Adjusting to the new reality
The new normal year ve
Our research and work with clients continues to conrm four key features that characterize
the new economy. They seem to be shaping the market in which we all compete and drivingincreased competitive intensity. These features are market variation, increased volatility,
growing cost pressure and deep uncertainty.
Market variationThe new economy is more varied than the old. We are competing
in a multi-speed world in which variation between countries and
sectors has never been greater. Indeed, this variation goes beyond
countries and sectors to regions and segments. For example, the
gap in economic performance between members of the European
Union is considerable: the ratio between Greece and Germany
currently stands at 1:1.3. However, the gap in performance
between the 29 states that comprise India is much greater, with
a ratio closer to 1:5. With growing customization and variable
performance, the fragmentation of markets into myriad niche
segments will continue.
VolatilityAnother enduring feature of todays interconnected market is
its volatility. Stock market indicators of volatility, such as the
VIX Index, seem to have settled down in recent months compared
with the past ve years. But this is more a signal that the market
is beginning to make a permanent adjustment to volatility
rather than heralding a new period of stability. Indeed, someare arguing that as the consumers of the rapid-growth markets
play a bigger role in the global economy, cyclical volatility has
inevitably increased.
Cost pressureAs consumers and governments rein back their expenditure,
and as borrowing to buy becomes harder, there is undoubtedly
a greater cost consciousness in the wider economy. At the same
time, however, the costs of many commodities continue to
rise. Thus margins are squeezed. In developed markets, many
employees are now enduring a fourth or fth year of below-
ination pay-rises. This prolongs the downturn through dampening
demand. In rapid-growth markets, however, wage ination is
becoming a major issue that threatens their competitive advantage
if passed to end users and their prot margin, if not.
UncertaintyIn the past 12 months, any global board looking to manage
strategic risk will have increased the weight it attaches to major
strategic threats. These threats include the break-up of the
Eurozone, the debt-default of the US, international conict in the
Middle East and a major political or economic incident in one of the
BRIC countries. Not surprisingly, perhaps, boards with cash prefer
to preserve their options to choose, rather than choose wrongly.
Similarly, within companies, employees remain uncertain about
their economic security or their economic prosperity. Consumer
condence is low. Employee engagement is strained.
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7Growing Beyond How high performers are accelerating ahead
A gap becomes a growing gulf
Five years after the start of the global downturn, many companies continue to struggle certainly
more than we would have expected at this stage in previous recessions. But a growing number aredemonstrating that they have learnt to master the new economy and are pulling ahead.
When we started this program in 2008, we asked companies to
say where they were focusing their efforts: from securing their
very survival, through to taking advantage of the market to
pursue new opportunities. We can see that, while the number in
crisis has fallen over the past four years, it continues to be very
signicant. The number of companies feeling defensive about their
current position has declined, but still accounts for one in ve
companies. A sizeable group are now actively seeking to either
improve performance from their current assets or restructure their
operations. But the biggest increase has occurred in the group whonow believe they can take advantage of market opportunities.
There is some variation across different regions of the world in
how companies view the market. The US and Asia-Pacic show
the biggest increase in the number of companies who believe they
can pursue opportunities. They also, however, show the biggest
increase in the number of companies in trouble. This suggests an
increased polarization of performance. The gap is growing.
Moreover, this emerging polarization in performance seems to hold
true across all major sectors. In none of the 13 sectors that we
have examined was there a material difference, except in miningand metals and private equity, where the pattern is comparable.
0
10
20
30
40
50
60
70
80
Securing Protecting Improving Restructuring Pursuing
Total
Private equity
Mining and metals
Other sectors
% significant increase and increase
Figure 3: Change in the importance of business activities (sectors)
Q: Over the next 12 months, what change do you expect in the importance that your organization attaches to the following activities? (Five-point scale)
Securing the survival of yourexisting business
74
Protecting your currentbusiness/assets 40
Improving the performance ofexisting business/assets 39
Restructuring the business tomeet new conditions 37
19Taking advantage of the situation topursue new market opportunities
65
22
30
23
26
-9
-18
-9
-14
+7
2008 2012 2008-12
65
22
30
23
26
Figure 2: Change in the importance of business activities
Q: Over the next 12 months, what change do you expect in the importance that your organization attaches to the following activities? (Five-point scale)
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8 Growing Beyond How high performers are accelerating ahead
Adjusting to the new reality
Staying ahead of the pack
We asked respondents to choose up to three factors that would determine their future
competitiveness over the next two years.
In general, the response to our survey
suggests an increasing focus on the
market, a continued focus on optimizing
costs and a growing focus on talent and
internal engagement. High performers,
however, focus more on customer reach
issues and human capital, while others
focus more internally on optimizing costs
and improving organization. These are
only differences in emphasis. Our key
overall nding is that optimal performance
requires a balance across all dimensions.
Care always needs to be taken when
aggregating results. In seeking the macro
pattern we must not lose the micro insights.
Sectors vary greatly in the weighting placed
on sources of competitive effectiveness.
The facing page maps high performer
versus low performer responses for 12
sectors. Each sector shows differences in
how high performers see the competitive
challenge compared with their competitors.
Customer reach is an area of major
difference in 9 of the 12 sectors. In 4 of
the sectors this is based on seeking
deeper customer relationships. In 7, the
difference is based on innovation and, in
8, based on market expansion.
Cost competitiveness is the second
area of focus, with branding non-price
competition the major area of
difference for ve sectors. Cost
optimization is seen as important for all
the sectors, but is much important for
the high performers.
Stakeholder condence is seen as less
important by most sectors, but it is an
area where the difference between high
and low performers is most material
especially in the area of talent.
Operational agility is seen as the least
important area for focus, with the
exception of technology. For ve sectors
this is a key area of high performance
focus.
Figure 5: Critical factors for competitiveness all respondents
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
High performers
Low performersStakeholderconfidence
Operationalagility
Costcompetitiveness
Customer reach
40% 50% 60%
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9Growing Beyond How high performers are accelerating ahead
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Customer relationships
Market expansion
Brand
Cost optimization
Sustainability
Talent
Stakeholder relationships
Regulatory risk
Agility
Technology
Innovation
Automotive
Insurance
Mining and metals
Power and utilities
Banking and capital markets
Life sciences
Oil and gas
Real estate
Consumer products
Media and entertainment
Private equity
Technology
High performers approach the world differently
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10 Growing Beyond How high performers are accelerating ahead
When asked what factor was most critical to their
companys competitiveness in the next two years,
high performers said deepening their relationship
with customers, while low performers said cost
optimization. There, fundamentally, is the crux of two
very different management approaches: one focused
on the market, the other on the operation. Both are
clearly important and necessary within an organization,
but our research suggests that high performance
is fundamentally driven by the predominance of a
markets model.
Customer reach
Getting closerbut looking beyond
What we learnt before
High-performing companies have been entering newmarkets by:
Taking care when expanding across borders they
maximize their growth potential at home rst and expand
only after carefully assessing opportunity, cost and risk.
Developing new markets and creating additional value
from current products new products for new sub-
segments or new opportunities for existing assets.
Adopting increased caution high performers are less
likely to slow themselves with internal consultation andmore likely to consult external stakeholders.
High-performing companies have been approachingproduct development by:
Carefully selecting customer segments that allow them to
create long-lasting competitive advantage.
Recognizing the value of innovation they are ahead in
utilizing their planning process to drive innovation.
Listening to their employees recognizing their
expertise in products and spotting new client needs.
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11Growing Beyond How high performers are accelerating ahead
Meeting a moving target
Targeting and satisfying customer needs
Its a simple aim, but its easier said than done particularly
in todays volatile market. Shifting economic terrain, as well
as ongoing macro-trends, such as globalization and sweeping
demographic change, mean that customer needs remain in
a state of ux. Only those organizations that possess a deep
understanding of customer demand and expectations will manage
to match their service or product with demand. The process of
marketing in which companies seek to shape choice to better
align demand and supply has risen as a focus area, especially for
high performers.
Existing clients remain the focus of most companies when they
are seeking new sales. Gaining a deep understanding of customers
and a close relationship with them is well-documented as a fruitful
area of focus when looking to reduce costs. It is the top success
factor among all categories of respondent. However, while it is still
very important, it has now been supplanted as the top response
of high performers. They now list nding new markets for existingproducts as being the most important area. These new markets
could be new geographies or new segments in existing geographic
markets.
The process of understanding and responding to changing market
demands is rising fast up the corporate list of priorities. The need
to invest more in marketing as a consequence, and to consider
adapting products, services and delivery methods for new markets,
is recognized more by high performers than low performers.
Similarly, the trade-off between growing volume and growing value
shows that high performers are over 50% more likely to increase
price than low performers and almost 40% less likely to cut price
to grow or protect volume.
We have not previously focused on non-organic routes of growing
revenue, through acquisition or merger. This is because, when they
prove successful, these routes can normally be seen to have driven
the faster attainment of a strategic goal already covered by the
framework. It is noticeable, however, that from parity in response
rates, we now see a much greater difference in the response of
high and low performers. High performers are now 40% more
likely to be considering merging with or acquiring competitors to
increase market share. This wave of sector restructuring has been
anticipated for some time. Interestingly, however, the responsesuggests that it covers all sectors, with no particular sector
standing out as more or less active.
High performers Low performers Gap: high vs. low Total
Develop new geographic markets to sell existingproducts/services
Introducing new products and/or services to meet evolvingneeds of existing clients or to attract new customer segments
Broadening existing product/service range to develop newcustomer segments in existing geographic markets
Increased investment on marketing and sales
Adapting existing product/service offerings for newgeographic markets
Opening new distribution channels/reorganizingto address markets through multiple channels
Merging with and/or acquiring competitors toincrease market share
Increasing prices
Cutting prices
58
57
51
42
38
36
35
19
13
39
49
39
33
30
35
25
12
21
48
53
46
37
33
39
31
14
15
+19
+8
+12
+9
+8
+1
+10
+7
-8
Figure 6: Actions taken to increase sales
Q: Which of the following actions is your company taking to increase sales?
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12 Growing Beyond How high performers are accelerating ahead
Customer reachGetting closer but looking beyond
On markets
Successful pioneers need a plan
Market expansion is a key feature of high performers strategies
and their top priority in developing sales. Essential though the
rapid-growth markets may be for the future, investing in other
developed markets seems to be at least as important. We may be
in the middle of a major rebalancing of the global economy, as
rapid-growth markets increase their market share, but today and
indeed for the next decade developed markets will continue to
account for over 50% of global demand and a signicantly higher
proportion of prot for companies.
A third of high performers have over 10% of their sales generated
in markets entered in the past three years, compared to 13% of low
performers. Apart from oil and gas, this is true for all sectors.
When asked to identify the developed countries on which they
should place their corporate bets, both high- and low-performing
survey respondents opted for the US. This is not surprising,
given the size of that market and its comparative resilience to the
wider global economy. Europe, however, performs less well, with
only 4 of the top 10 national markets. The rapid-growth markets
show, as expected, that the BRIC countries dominate, with China
increasingly pulling ahead as the major focus. Of note, however, is
the particular focus that high performers are placing on Brazil.
But care needs to be taken with simple lists such as these: behindthe gures lies considerable regional variation, as we have shown
before. Attractiveness is shaped by perspective, which in turn is
often inuenced by proximity. High-performing companies in the
US, for example, are far more likely to see most potential in their
domestic market, followed by other Anglo-Saxon markets, such as
the UK and Canada. Asia-Pacic based companies are more likely
to favor their own region (including India), while the preferences of
European companies are the most broadly spread. Ironic perhaps
that, through history rather than intent, European companies are
by some margin the most global in their spread of operations.
Certainly, there is little doubt that market opportunities exist
even in the current economic environment. Although global
trade collapsed during the nancial crisis, it has since rebounded
strongly, led by trade among emerging markets. By 2020, world
trade in goods will total around US$35t, two-and-a-half times its
3
28 28
22
63 3
7
39
19
9
21 1
4
37
25
14
31 2
0 % 1%5% 6%10% 11%20% 21%30% 31%50% Above 50%
High performers Low performers All respondents
Figure 7: Proportion of sales generated in recentlyentered markets
Case study: PCHLiam Casey is the Ireland-born CEO of PCH International.
The China-based supply chain management company is one
of the worlds leading manufacturers and distributors of
smartphone and tablet accessories, working with consumer
electronics brands to produce devices and ship them to
customers around the world.
PCHs base in Shenzhen, China a city with a population of
more than 10 million people that, only two decades ago, was
quiet and provincial has played a crucial role in its growth
story. Casey began his Chinese odyssey in 1995, leaving
his home in Cork, Ireland, to follow the example of a friend
who had been making a good living from importing Chinese
hardware into the US. After ying to Taiwan to attend a
trade show, Casey started his own business importing cables
from Shanghai to Cork.
Casey says that PCHs success as a start-up in China
depended on making processes as straightforward and
understandable as possible. The big challenge was to take
confusion out of business, so we had to keep things simple,
he says. Consequently, as Western businesses interest in
China grew, PCH was ideally placed to help them nd a clear
route into the Chinese manufacturing sector.
Source: Exceptional, Ernst & Young, 2012. Article author: Christian Doherty.
Q: What proportion of your sales is generated in markets which your organization/
company has entered in the past three years?
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13Growing Beyond How high performers are accelerating ahead
Developed markets
51
34
22
19
16
16
15
11
10
6
US
UK
Germany
Singapore
Australia
Canada
Japan
France
Hong Kong
Norway
High performers
40
31
28
14
14
12
14
14
8
4
Low performers
+11
+3
-6
+5
+2
+4
+1
-3
+2
+2
Gap: high vs. low
Rapid-growth markets
43
32
31
19
11
11
10
9
8
8
China
India
Brazil
Russia
South Africa
Indonesia
United Arab Emirates
Saudi Arabia
Poland
Singapore
High performers
37
29
20
21
8
7
3
11
10
9
Low performers
+6
+3
+11
-2
+3
+4
+7
-2
-2
-1
Gap: high vs. low
Figure 8: Top potential markets over the next ve years
Rapid-growth markets are driving
global growthRapid-growth markets are becoming ever more important.
They have grown on average by 5.8% per year over
the last decade, more than three times as fast as the
advanced economies combined. But, importantly, their
future potential is only now becoming clear. Continued
industrialization and urbanization, along with strong
population growth and the emergence of a substantial
middle-class, will further encourage their expansion.
Although there has been a slower rate of expansion this
year, a return to signicant growth is likely from 2013.
Soaring domestic demand will offer businesses exciting
new markets for goods and services in the years ahead. For
example, in 2011, two-thirds of consumer spending across
the world came from the advanced economies. But in 25
years time, Asia alone will have overtaken them as the
largest source of consumer spending, at almost 40%.
This level of demand will ensure that rapid-growth markets
eventually replace the advanced economies as the key
driver of global growth, and the shift in import demand
should also assist in rebalancing the global economy.
For further information, see the latest edition of
Ernst & Young's Rapid-Growth Markets Forecast.
value in 2010, according to Ernst & Youngs 2012 report, Trading
places: the emergence of new patterns of international trade. At
the same time, world trade in services will double to around US$6t.
As new regional trade agreements are reached, companies will be
assisted by lower trade barriers as well as falling global transport
and communications costs. This will enable organizations to market
their products around the world and coordinate with suppliers in
other countries.
Increased fragmentation demands more planning
High performers seem to have a more developed plan for their
market-entry strategies than low performers. Their decision to
enter a developed market is based on identifying a clear demand
for a current product or service, supported by the scale and growth
projections of that economy. For them, quantitative demographicsand income per capita analysis is not enough. A potential move
into new markets also prompts them to consider factors such as
purchasing behavior, the power of local brands and changes in
attitude and consumer behavior.
The increased variation in performance has resulted in a more
fragmented market. Take Europe as an example. The ongoing
problems of the Eurozone should not overshadow Germany, whose
consistently robust economic performance has continued, even in
recent years. But a closer analysis reveals that some German regions
particularly in the west of the country are vastly outperforming
other regions, mainly in the east. Market segmentation is deepeningand businesses dont now necessarily want to serve a whole country.
Instead they prefer to target a specic segment of a country.
Q: Which of the following developed/rapid-growth markets holds the greatest potential for your company over the next ve years? (Select up to three)
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14 Growing Beyond How high performers are accelerating ahead
Customer reachGetting closer but looking beyond
On product
Matching customers evolving needs
Developing or adapting products or services holds the key to
creating new revenue streams. Over half our respondents say
that selling new products to existing customers is their primary
source of increased sales particularly in banking and technology.
A further 33% report that they are adapting existing products for
new markets, with life sciences and technology, again, in the lead
(see Figure 6, page 11).
One of the major drivers of change continues to be the impact of
technology. Digital technology now allows for both more focused
communication and consequent customization than ever before.
Customers can search more widely for their specic requirements
and are much less willing to compromise than before. Marketsegments are constantly being redened by the "know it all, want
it all consumer." Moreover, while this started in consumer markets,
it now affects the way people interact with government and utilities
and how businesses interact with each other.
As explored in a recent Ernst & Young study This time its
personal: from consumer to co-creator digital technology is
driving a revolution in consumer demand. Market segments are
constantly evolving, brand loyalty challenged, communication
channels fragmented and consumers more informed and
demanding. To remain relevant to the new consumer, organizations
must undergo a similarly radical transformation. The implicationsfor businesses are great and include intensifying the dialogue with
customers, making service personal, delivering consistent multi-
channel service and providing an end-to-end brand experience.
Companies therefore need to tailor their goods and services to
match such niche requirements. Segmentation of the customer
base is the foundation for successful innovation, and is the third
most quoted source of increased protability for high performers.
Successful segmentation requires companies to be both quick to
exploit new opportunities and highly innovative in their breadth
of customer offerings. Yet this doesnt happen automatically. The
most innovative companies understand how to capitalize on the
opportunities in their environment. While innovation is important
to all companies, it is particularly important to high performers.
They deem it the second most important factor in determining
future success. Thirty-eight percent say they generate in excess
of 10% of their sales from products or services developed in the
past three years, as opposed to only 21% of low performers. But
getting the balance right is important. The real difference happens
between 11%20% of new products the difference in performance
of companies with over 30% of new products is immaterial.
Our research has found that those companies that embed
innovation into every aspect of their organization are the most
successful. Innovation is not a tactic: it is simply what they do.
Our recent study, Innovating for growth: innovation 2.0 a
spiral approach to business model innovation, suggests a loosely
structured, circular process that allows companies to connect with
the various points of the spiral in different ways and at different
times, ultimately reaching an innovative breakthrough. It sets
out how, for most innovative companies today, innovation is a
continuous cycle with ups and downs, input from different places,
repetition, failure, and many steps back and forth.
Q: What proportion of global sales are accounted for by products developed in the
past three years?
High performers Low performers All respondents
5
26
29
20
9
45
12
46
22
10
4 3 4
6
40
29
13
5
3 3
0% 1%5% 6%10% 11%20% 21%30% 31%50% Above 50%
Figure 9: Global sales generated by new productdevelopment
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16 Growing Beyond How high performers are accelerating ahead
Operational agility
Moving quickly ina customized world
What we learnt before
High performing companies have been gaining speedby:
Placing greater emphasis on empowering local-decision
making, as well as the need to encourage employees to
innovate without active management intervention.
Seeking speed from their suppliers and distribution
partners. They are signicantly more likely to be willing to
change both, in order to achieve a faster time to market.
Remembering the importance of longer-term strategicgoals. In most cases, lower performers seem to be working
to a shorter time-frame.
High performing companies have been increasingexibility by:
Organizing around the customer, to ensure that they
remain at the center of their thinking.
Effectively deploying digital sales tools to manipulate
masses of data to customize their response to a specic
client.
Recognizing that proactive human resource
programs may be required to get even good employees onside in the quest for speed and exibility.
There will always be a time lag from the point when
an organization sees opportunities (and threats) to
when it executes its plan of response. How successful
a company is in minimizing this elapsed time is
one of the many factors that separate high and low
performers. But the traditional source of speed has
been standardization of both product and process,
neither of which addresses a new, fragmented market
of dynamically evolving customer demand.
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17Growing Beyond How high performers are accelerating ahead
On speed
Being fast is more important than being rst
Only one person can ever be rst to do something and the record
of commercial success for such pioneers is at best mixed. Speed,
however, matters for everyone. Speed to market. Speed of change.
Speed of operations. These are often the difference between success
and failure. And in todays competitive market, organizations deploy
a variety of techniques to improve this aspect of their performance.
De-layering management to increase the pace of decision-making
is one example. Others include changing supply and distribution
channels to respond quicker to market changes, and seeking
partnering agreements with key suppliers and distributors.
In our previous studies, we found that high performers wereachieving their faster speeds by improving processes, especially by
devolving decision-making closer to the market, as well as seeking
speed from their supplier and distribution partners.
When analyzing the changes in speed to market compared to three
years ago, it appears, however, that while getting faster, the rate
of acceleration is no longer as great as it was. Although 74% of
high performers believe that their organization is getting faster
at developing new products and services, this is 6% lower than in
2011. Low performers are experiencing an even faster deceleration
49% in this survey compared to 61% in 2011. Indeed, the gap
between the two groups has grown.
Three years ago, many companies were in a ght for their very
survival and were under intense pressure to get new products to
market for urgently-required new revenue. Today, with growing
awareness that the road to recovery is long and challenging, there
may be less anxiety to rush a product to potential customers and a
greater willingness on the part of companies to pace themselves in
a more sustainable fashion.
Potentially, however, there is growing uncertainty about the
business environment individual companies face. Recovery is
not happening as planned, leaving some more optimistic playerslooking exposed. The risks of being rst to market are beginning
to outweigh the opportunities. Being fast to respond to a clear
opportunity seems a more efcient approach.
Equally some companies particularly low performers are
reaching the limits of their current organizational response,
having exhausted the incremental performance improvements
that can be achieved without major change to their operations.
The transformation of organizations typically slows the existing
operation down, regardless of the longer-term benets.
The DNA of the COO: time to claim the spotlight
Why is so little known about the role of the COO, despite its
long history? Ernst & Young's The DNA of the COO: time to
claim the spotlight uncovers a compelling story of a wide-
ranging role that still needs to justify its existence, despite
having a clear rationale.
TheDNA of the COO explores the expectations and aspirations
of those in the job, along with the skills, capabilities and
relationships they need to master in order to succeed.What we nd is a breed of executive that combines deep
operational knowledge with broad strategic insight, and who
has what it takes to become the next CEO. Yet we also nd a
role that is fraught with challenges. Successful COOs have to
adapt constantly to a fast-changing corporate and external
environment. They must possess a mastery of change, to
help translate strategic vision into action. And they must
ultimately help the business to innovate and grow.
The average COO is a 48-year-old male. He has typically
been in his current role for six years.
Over half (54%) of COOs have a Masters degree orhigher, although there is no particular qualication that
dominates, given how sector-specic the role can be.
Where companies have a COO role, it tends to be senior
66% of those polled are a member of the executive
committee or board.
COOs are generally very satised with their role, especially
their potential for career development and inuencing
corporate strategy.
Many COOs worry that they may not be sufciently
accepted or respected by other members of the
management team, but their peers do not share thisperception and, in fact, hold them in the highest regard.
Motivation and hard work are seen as the attributes that
have done most to get COOs where they are today.
The DNA of the COO incorporates analysis of two surveys:
a February 2012 pilot study of 200 COOs and an April
2012 survey of another 306 COOs and senior operations
professionals across Africa, America, Asia, Australia, Europe
and the Middle East. In the second survey, a further 43
respondents from across the C-suite were also polled to give
their perspective on how the COO is perceived by the rest
of the management team. You can download the report atey.com.
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18 Growing Beyond How high performers are accelerating ahead
Operational agility
Moving quickly in a customized world
High performers Low performers Gap: high vs. low Total
Increased use of technology
Enlarged the product/service portfolioto meet different market needs
Made internal support functionsmore responsive
Improved and/or broadenedworkforce skills
Decentralized decision-making
Made external partnerships
more efficient
Invested in more flexible
manufacturing processes
49
45
43
39
33
33
28
40
35
46
35
30
34
27
37
27
41
30
23
36
22
+12
+18
+2
+9
+10
-3
+6
Figure 12: Actions taken to increase exibility
On exibility
Consistency is a dangerous word
Consistency remains a favorite mantra for management.
Consistency facilitates efciencies in operations and the ability to
deliver a shared brand promise across service, sector and national
boundaries. But, while such consistency at the level of an individualclient may well be essential, there is also a risk that it reduces
the opportunity to respond in an increasingly varied and volatile
world. Indeed, the variation in markets and the volatility of recent
years has demonstrated how vital it is for companies to possess
the exibility to adapt to fast-changing circumstances. New trends,
shifting customer demands and an unpredictable, and ongoing,
nancial crisis are just a few of the reasons why companies need
to be ready to move quickly, whenever necessary to respond to
opportunities and threats.
In seeking exibility, organizations put different emphasis on
different tools, depending on their country of origin. In the US,
for example, both high and low performers place much greater
emphasis on the use and role of technology to achieve this goal.
By contrast, the Europeans stress breadth of product range and
decentralization of decision-making, while companies from
Asia-Pacic show a greater reliance on generating internal
responsiveness and increasing the use of external partnerships.
This may reect the stage of company development, but may also
be indicative of management and local culture.
Comparing actions in pursuit of exibility shows a stark contrastbetween high and low performers. High performers are far ahead
in their use of technology, the breadth of their product or service
portfolio, decentralizing decision-making and enhancing the skills
of their workforce to utilize this freedom. There seems to be a
collection of companies who have overcome the internal inertia of
large organizations and empowered their people to leverage the
organization to commercial success
Low performers, by contrast, seemed trapped in a hostile
ecosystem challenging their partners in the supply chain to do
more and still trying to connect their internal resources to the
harsh reality of the competitive challenge the company faces. The
"control culture" that developed in previous decades, as companies
sought to recreate previous success, has become one of the major
obstacles to competitive success.
Q: Which of the following actions has your company taken to increase its exibility over the past two years?
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19Growing Beyond How high performers are accelerating ahead
Case study: DuPont
When Ellen Kullman became CEO of Delaware-based science
company DuPont at the beginning of 2009, she had to move
fast. Demand collapsed in every country, in every businessoutside of agriculture, in a three-month period, and it was
totally unprecedented.
We literally had to get everybody to stop what they were
doing. Wed review a business, determine what was going on,
and a week later, it would be different.
In her rst few months in the top job, Kullman eliminated
about 4,500 jobs and narrowed DuPonts focus to 13
business lines. And that was just the start. We set out to
further streamline and simplify the company, and we took
out a layer of leadership and got really clear on what success
looks like coming out of the recession, says Kullman.
That clear view of the business began immediately after
she became CEO. We started within days, she says. If we
used to run a monthly review process, it became a weekly
process, and if a business was running a weekly process,
some months it was a daily process.
The results were nothing short of stunning. Earnings
increased by 23% in the third quarter of 2011, beating
estimates by US$500m.
Source: Exceptional, Ernst & Young, 2012. Article author: Lester Picker.
Taking advantage of technology
Increased use of technology is the most popular way that high
performers seek to improve their exibility. Almost half have
taken this step, compared to 37% of low performers. Compared
with earlier times, when technology was often a source ofstandardization, imposing its requirements on the world,
technology is now uid and multifaceted and provides the route to
far greater customization and exibility.
Take cloud computing, for example. Over the past few years a wide
array of hardware and software services have become available
over the internet. Both consumers and businesses are taking
advantage of the possibilities. Mature sales-force management
services, email and photo editing, and smartphone applications
are just some of the ways in which cloud computing represents
a fundamental shift. And then there is social networking, which
many organizations are now using to promote products and
services, and to communicate directly with their customers. As
cloud adoption becomes more widespread, its ability to help
businesses to become more agile is likely to lead to an increasing
pace of change in all industries worldwide.
But as business moves into the virtual world, and more and more
data is transmitted over the internet and via cloud computing,
the importance of information security grows. Some 60% of
respondents in Into the cloud, out of the fog: Ernst & Young's
2011 Global Information Security Survey believe that their risk has
increased, and only 3% feel their risk is decreasing. It is important
for information security to be strategically aligned with the broader
business agenda and based on an organizations risk tolerance.
This is just one of many challenges facing todays CIOs. The
inuence of information technology on business has grown so
quickly that many IT functions are still struggling to marry their
technical expertise with a new business perspective. In addition
to security issues, there are increasingly complex IT and business
operating models, new regulations and cost-efciency demands.
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20 Growing Beyond How high performers are accelerating ahead
Operational agility
Moving quickly in a customized world
Our 2012 report, The DNA of the CIO: opening the door to the
C-suite, found that less than one-in-ve of more than 300 CIOs
polled are members of their organizations top management team.
And just 43% said they participate in strategic decision-making.
In the evolution from providing tactical support for the business
to becoming a strategic partner, CIOs need to align the priorities
of IT to those of the business. CIOs also need to provide wise
counsel, turning information into insights when the business is
seeking to deploy new technology. The need to be faster to market
may encourage organizations to procure and implement new
technologies, but it is vital that they understand the risks that
those new technologies may present.
Companies today are investing in technology for many reasons,
but ve goals stand out: innovating processes to get faster, nding
new ways to engage with the market, developing new products,
reducing costs and increasing exibility. High performers place
much greater emphasis on using technology to engage with the
market and for developing new products and services.
Looking ahead three years, the opportunity to develop new
products and services through technology has risen to be top
priority for all and high performers continue to seek new ways to
engage with the market. They are also putting greatly increased
emphasis on nding new ways to collaborate with third parties.
Given the ongoing technological transformation and the need to
invest to stay competitive, organizations perhaps feel that reducing
technology spending is not a wise course of action at this time.
41
39
37
33
30
26
20
19
34
38
30
38
33
30
16
21
Engaging with and selling to
new customers
Innovating your processes to increase
your speed of response
Developing new products or services
Reducing your operating costs
Innovating your processes to increase
your flexibility
Reducing your production costs
Improving your reporting
More collaborative environment within
the organization and the supply chain
High performers Low performers
41
36
35
34
27
27
23
13
37
32
32
33
35
25
27
11
Developing new products or services
Engaging with and selling to
new customers
Innovating your processes to increase
your flexibility
Innovating your processes to increase
your speed of response
Reducing your operating costs
More collaborative environment within
the organization and the supply chain
Reducing your production costs
Improving your reporting
Today In three years
Figure 13: Objectives of current and future investment in use of technology
Q: Considering your organization's use of technology, please prioritize the objective of your organization's current investment today, and in three years' time.
(Select up to three)
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21Growing Beyond How high performers are accelerating ahead
Case study: Nycomed
In 2010, Nycomed, a privately owned, global pharmaceutical
company demonstrated how a exible, scalable nance
model can drive business value. It did this by introducing theGAIN program, which involved a comprehensive review of
the existing G&A operating model and cost structure for its
European business.
By comparing the ndings of a feasibility study with leading
practices for nance organizations, the following goals were
identied to improve the exibility and scalability of the
nance function:
Move transactional accounting and reporting processes
out of 24 local countries and into four hubs
Move accounts payable to Service Center Europe in Poland
Implement a scanning system and automatic approval for
invoices
Outsource legal statutory reporting to an external service
provider managed by the hubs on a regional level
Strengthen and focus on business controlling processes
supporting the local business to be retained in the local
sites
Ensure the nance role operates as a business partner
close to the local business
Implement SAP as the nancial backbone in nine Eastern
European countries and the UK, to have a Europe-wide
SAP platform
Implement automatic payment Implement standard travel expense process and outsource
to an external service provider
Source: Performance, Ernst & Young, 2012.
The DNA of the CIO: opening the door
to the C-suite
For many years, CIOs have been talking about becoming a
true partner to the business and the executive management
team to assist them in their strategic decision-making. But,
as The DNA of the CIO: opening the door to the C-suite
highlights, relatively few have broken out of their comfort
zones to actually make that step. The encouraging news is
that many CIOs nd the remit and responsibilities of their
existing role hugely rewarding and enjoyable. Nevertheless,
many more will need to test the limits of their comfort zones
if they want to become a relevant partner to the business
and better aligned with the biggest organizational issues.
Our report is based on our survey of 301 senior IT
professionals from Europe, North America, Asia, LatinAmerica, Australia and South Africa. It also draws on in-
depth interviews with a further 25 CIOs from these regions.
A further 40 respondents from across the rest of the C-suite
were polled to provide a perspective on how the CIO is
perceived by the rest of the executive management team.
Of the CIOs interviewed in our survey, 64% enjoy the
scope and remit of their role. The CIOs contribution in any
business can be wide ranging in its scope:
Execution: All CIOs are involved in the execution of the
basics keeping systems up and running, while keeping
close tabs on the organizations overall IT spend.
Enablement: This is where a more operational focus starts
to give way to something more strategic in nature from
improving business decisions by acting as an information
broker to proactively enhancing business processes.
Development: At the highest level, CIOs are called upon
to help develop the business further. From delivering
transformation through to introducing business model
innovation, this can be the most rewarding part of the job
but is only open to those who truly consider the rest of the
C-suite as equal peers and the least often pursued.
For more information, see the full report, available at
ey.com.
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22 Growing Beyond How high performers are accelerating ahead
Cost competitiveness
Finding the
right balance
What we learnt before
High-performing companies have been improving their
pricing through:
Seeking a deeper understanding of where value is created.
Price-setting is a dynamic dialogue affected by many
variables and high performers are proactive in seeking to
shape this dialogue.
Placing signicantly more emphasis on understanding
competitors pricing, enabling them to understand when
there is a short-term opportunity and also a more sustained
threat from a competitor.
Putting a stronger focus on premium pricing. As in our
previous studies, high performers seem to focus on seeking
premium pricing, wherever possible.
High-performing companies having been seeking
sustainable cost reduction through:
Being three times more likely than lower performers to
focus on front-ofce efciencies.
Finding the cost of capital marginally lower than low-
performers, and nding access to capital markedly easier.
Optimizing transfer pricing, reviewing intercompany
lending structures and reassessing corporate and enterprise
locations.
Low costs do not automatically translate into high
prots. The best-performing companies not only
understand what drives cost, but more importantly
understand how that spend creates value. To get
pricing right, the company must identify how value is
created and the total value-chain-wide costs involved
in supplying the service or product. Possessing an
informed pricing policy, an effective program of cost
reduction and well-managed cash ow are just a few
of the ways in which high performers approach this
challenge. Cutting costs in isolation will not lead to
sustainable success.
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23Growing Beyond How high performers are accelerating ahead
On price
Prot starts with pricing
The market may set the market price, but it doesnt determine
how much value is created or captured by individual companies.
The importance attached to brand strength when entering either
developed or emerging markets reects this. Brand is ultimately a
proxy for non-price based competition in any market.
Even in todays difcult commercial environment, 9% of all
respondents are planning to increase price by more than 20%
in the next two years. This reects the cost pressure that all
organizations are facing. As ination costs edge upwards, and the
price of goods, labor and raw material gets more expensive, all
companies have the difcult task of adjusting their prices without
alienating their current or future customer base. But failing
to maintain price or build premium brand positions is dangerous.
This results directly in a massive downward dynamic withinorganizations that is internally focused and demoralizing.
More than half of high performers believe that they can increase
price by more than 5% a proxy perhaps for the real rate of
ination in the next two years. This is marginally up from two
years ago. In contrast, only 14% of low performers now believe
they can increase their price by more than 5% down from 21%
from two years ago. This sets an entirely different context for
these organizations: one externally focused on value-creation and
opportunity, the other internally focused on reductions and cuts.
Fundamentally, this ability to increase price shows the value of the
actions taken by high performers to better understand current and
future demand and build a brand that captures the most value from
this. Because they know what their customers want, and how they
value it, high performers are more condent about how far they
can go with price increases. There is signicant variation between
sectors in the extent to which price rises are seen to increase
sales. While the level of overall response does not vary materially
across sectors, high performers in banking, mining and metals
and life sciences see opportunities in this area. These sectors also
scored highest on making changes to pricing policy in the past
three years. By contrast, high performers in technology, media and
entertainment and asset management saw little opportunity.
Increase by more than 20%
6%10% increase
1%5% increase
No change
Decline
19
31
29
13
9
Low performers
4
10
41
26
18
High performers Total
9
20
44
17
11
Increase by more than 20%
6%10% increase
1%5% increase
No change
Decline
28
19
27
12
12
High performers Total
14
21
31
20
11
Low performers
7
14
29
31
17
2012
2010
Figure 14: Future pricing of own primary products/services
Q: Over the next two years, how do you expect prices for your company's primary products/services to change?
Case study: Leica Camera AG
A passion for photography and an appetite for risk inspired
Andreas Kaufmann to invest in Leica Camera AG. As
Chairman of its supervisory board, he has helped to cement
the companys reputation as one of the worlds most
exclusive camera brands.
Under Kaufmanns leadership, Leica bought back its
distribution networks and changed contracts with dealersto ensure that they meet quality standards, hit price points
and distribute selectively. The company has also launched
a fresh approach to product development that saw all R&D
conducted with an eye toward price levels. In the past, if an
engineer had an idea to improve a camera, we might have
pursued that with abandon. With our new process, we rst
make sure that any developments working their way through
the pipeline will be ones that will sell at a particular price,
explains Kaufmann. Were not a luxury brand, but we are
elite, and price plays a role in how we see products.
Leica certainly seems to have found the right mix of
technical quality and distinctive design at prices acceptable
to the market. While its cameras may to the untrained eye,
at least appear retro in style, customers are still willing
to pay tens of thousands of dollars for them.
Source: Exceptional, Ernst & Young, 2012. Article author: Rhea Wessel.
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24 Growing Beyond How high performers are accelerating ahead
Cost competitiveness
Finding the right balance
On cost
Maximizing efciencies effectively
The increasing competition in the market underlines why
it is so important for companies never to lose sight of their
costs. Although cost reduction does not explain difference in
performance because companies should always be focused on
cost a combination of high operating expenses and increased
complexity in many markets is forcing companies to rethink their
approach. Our September 2011 research indicated that low
performers were much more likely to be lowering production
costs, reducing headcount or deferring R&D. They were twice as
likely to focus more on the back ofce, whereas high performers
were three times more likely to focus on front-ofce efciencies.
Cutting costs is not the same as eliminating waste. Although allcompanies have a similarly strong focus on reducing costs in
non-frontline activities, high performers take a more strategic
view and focus more on efciency than reducing headcount. High
performers also place more emphasis on customer segmentation
and market analysis, with 42% taking actions in this area compared
to 34% of low performers. Again, this shows that high performers
know the importance of understanding their customer. Recognizing
what they need and expect, and what drives them, is crucial when
determining the future viability of pricing strategies.
Management attitudes clearly vary between the two groups. Low
performers have been far more active in headcount reduction
43% versus 26% and have also been more prone to offshoring
their operations to lower-cost locations, and taking actions to
reduce their tax liability. They are also twice as likely as high
performers to take no signicant actions to increase protability.
Companies in similar sectors would be expected to face similar cost
pressures, but, as Figure 16 shows, there are important variations.The number one cost pressure for low performers is price erosion.
This reects failure to meet market demand effectively. The
consequence of this is dramatic, as it can divert the organization
away from the market and onto cost reduction, rather than taking
Continual focus on cost reduction in
non-front-line activities
Process innovation and advances
in technology
Back office integration and
efficiency initiatives
Customer segmentation and
profitability analysis
Pricing policy changes
Improved cash forecasting
Reduced headcount
Moved operations to lower
cost locations
Reduced tax liability
No significant changes
48
45
43
42
36
27
26
18
16
3
45
31
36
34
25
30
43
22
25
6
45
31
36
34
25
30
43
22
25
6
+3
+14
+7
+8
+11
-3
-17
-4
-9
-3
High performers TotalLow performers Gap: high vs. low
Figure 15: Changes over the past two years to increase protability
Q: What changes has your organization/company made (if any) to drive increased protability over the past two years?
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25Growing Beyond How high performers are accelerating ahead
more strategic actions to improve market share. In contrast,
high performers are more likely to be struggling with labor costs,
ination and the price of raw materials.
Again, however, there are regional variations to consider. High
and low performers in the US are far less likely to see labor costs,
exchange uctuation or input costs as principle cost concerns.
For them, the primary challenges are price erosion and decline in
demand. Companies in Asia-Pacic, however, report signicantly
higher concerns over labor costs and exchange rate uctuations
than those from the other regions, partly reecting the devaluation
of major developed currencies, such as the dollar, euro and pound.
Working capital competitiveness
Many companies have seen their working cash reduce and the
cost and availability of capital remains restrictive. All should seek
a stronger working capital position to free up cash, boost exibility
and improve margins. Ernst & Youngs 2011All tied up: working
capital management survey contacted some 2,000 of the largest
companies (by sales) based in the US and Europe. The report
covered six extra regions, including Asia and Latin America. It
found that, compared with 2010, the working capital performance
of companies in the US has improved, while stalling in Europe.
For companies headquartered outside the US and Europe, a big
disparity in performance is revealed. While part of this gap maybe explained by variations in market characteristics, payment
practices and supply chain infrastructures, there are also marked
differences in the degree of management focus on cash and
process efciency. It is therefore important for industry leaders to
continue implementing truly effective working capital management
strategies. The fact that US and European companies still have up
to US$1.2t of cash unnecessarily tied in working capital a sum
equivalent to nearly 7% of their combined sales points to the
potential for further signicant gains.
High performers TotalLow performers Gap: high vs. low
-4
Labor cost inflation 43
Exchange rate fluctuation 43
Input cost inflation (i.e., raw materials,energy, pre-fabricated products)
38
Increased regulatory andcompliance requirements
38
Price erosion
Demand decline
Investor/stakeholder pressure
36
25
22
Interest on and/or servicing debt 18
41
40
35
40
37
29
24
20
37
36
31
40
42
33
26
22
+6
+7
+7
-2
-6
-8
-4
Figure 16: Most signicant cost pressures
Q: Which of the following cost pressures are most signicant for your company?
Case study: GlaxoSmithKline
When Simon Dingemans became CFO of health care giant
GlaxoSmithKline (GSK) in April 2011, he saw a chance for
nance to be much more involved, to improve delivery and
to help drive performance much more directly. This meant
improving the quality of decision-making and focusing
nance on driving the returns out of the strategy that weve
laid out over the last two or three years, says the CFO.
When it comes to R&D, GSK is breaking down some of the
industrial infrastructure to create more exible, smaller
operating units. This strategy has allowed much better
targeting of resources, which has released considerable cost
savings. Enhanced productivity and nancial efciency has
improved the internal rate of return on R&D up from around
11% in 2010 to 12% in 2012.
Finance is also playing a part in simplifying GSKs business
more broadly and reaping the rewards. Driving cost out ofthe business by reducing and simplifying the manufacturing
and R&D footprints and by centralizing support functions
has, so far, produced annual savings of 2.2b (US$3.4b). A
further 600m (US$925m) of savings have been identied,
by really working the existing programs of footprint
reduction, process simplication and new infrastructure
investment to improve our processes, Dingemans says.
Source: Capital Insights, Ernst & Young, 2012.
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26 Growing Beyond How high performers are accelerating ahead
Stakeholder confidence
To inform, to explain,to engage
What we learnt before
High-performing companies have been engaging withexternal stakeholders by:
Talking about specics: they share both broader and
granular detail with more coverage of non-nancial KPIs,
putting signicantly more effort into identifying and
managing risk, and proactively measuring and reporting
their environmental performance.
Paying more attention to their long-term reputation
management and taking action to ensure a long-term
relationship with business owners, nanciers, key
contributors, inuencers and the communities they touch.
Being more likely to discuss the impact of regulatory
change and potential environmental risks.
High-performing companies have been buildinginternal engagement by:
Engaging proactively with their internal stakeholders as
critical contributors to the achievement of their growth
strategies.
Broadening their workforce skills, equipping their teams to
be more productive through training, mentoring and sharing
knowledge, and improving internal communications.
Beneting from past strength: high-performing companies
had less need to implement major headcount reductions
during the recession or cut back on staff benets.
Business is not just about numbers. The way a
company communicates its story to its stakeholders
has become ever more important. In part, this is
down to the rise of social media and the insatiable
appetite of the 24/7 media cycle. But it is also down
to the volatility of todays market. There is now a
heavier requirement for information about future
business plans and strategies. The way businesses
communicate to their internal and external audiences
is another factor that helps separate the high-
performing companies from the low. What lessons can
we draw?
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27Growing Beyond How high performers are accelerating ahead
On external
Making the value visible
Companies today are operating under two opposing pressures.
On the one hand, there is much greater scrutiny than ever before.
Enhanced governance processes, strengthened regulatory regimes
and increasingly demanding shareholders and stakeholders require
higher levels of disclosure and compliance than in previous years.
Yet on the other hand, the world of business has never been more
complex, as companies compete or collaborate as partners across
ever-changing value chains to serve disparate and dynamic market
segments. Success comes to those who can bring the value that
they create to the attention of their stakeholders.
Effectively communicating an organizations performance to
diverse, geographically spread stakeholders is far from easy. How
do you gain their attention? Should it be via multimedia or the
written word? Yet in todays uncertain economic times, building
and maintaining the condence of stakeholders is critical. Allorganizations need to tell their performance story effectively
and consistently to the investment community, regulators,
commentators and customers.
Previous research shows that the economic crisis has generated a
greater need for active communication with external stakeholders.
And this demand continues to be seen today. It should come as
little surprise that, according to our survey, nancial information
is in most demand. There are also growing requirements for
information on risk management and business planning.
Two areas of particular importance relate to sustainability and
human capital. Both are complex areas where we might perhaps
have expected to see a growing demand for meaningful information.
Unlike in previous years, however, there no longer seems to be
much difference between high and low performers in this area. The
scores are similar for almost all categories. Indeed, if anything, low
performers see a greater need to improve their performance.
The narrative story, of course, varies by sector and so we nd:
Media and entertainment companies planning to increase the
amount of nancial information they release
Technology and life sciences seeking to increase theircommunication around their business planning
Banking communicating more about risk
Power and utilities reporting more on sustainability
Enhanced communication can also help address another important
area of concern. Ernst & Youngs Growing Beyond: a place for
High performers TotalLow performers Gap: high vs. low
-4
Business planning and outlook 54
Financial information 53
Risk reporting and information on
how risk will be managed47
Information on innovation
and development26
Reporting on corporate social responsibility
and environmental sustainability
Frequency and detail of
reporting requirements
Information on human capital situation
and expected future development
23
22
17
New channels of reporting (i.e., digital
and mobile reporting formats)11
50
54
47
29
24
23
19
13
50
52
47
29
22
25
21
15
+4
+1
0
-3
+1
-3
-4
Figure 17: Areas with increased demand for information by stakeholders
Q: As a result of the recent economic and market volatility, for which of the following has demand from your company's stakeholders increased the most?
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28 Growing Beyond How high performers are accelerating ahead
Stakeholder confidence
To inform, to explain, to engage
integrity: 12th global fraud survey found that bribery, corruption
and fraud remain widespread. In the survey, based on 1,758
interviews with senior decision-makers in a sample of the largest
companies in 43 countries, 39% of respondents reported that
bribery or corrupt practices occur frequently in their countries.
The challenge is even greater in rapid-growth markets, where a
majority of respondents believe these practices to be common.
Multinational businesses have to confront this challenge.
At the same time, many countries are strengthening their
enforcement regimes. For example, the UK has introduced a
Bribery Act and India has implemented a raft of proposed anti-
bribery, anti-corruption (ABAC) legislation. As regulatory activity
intensies, the risk of external scrutiny of corporate activity also
increases. Senior management have to ensure that they and their
companies are not found wanting, should their activities come
under the spotlight.
Developing channels of communication with contacts across the
nance function and other executives within the business will help
boards ensure that they have a full and accurate picture of what
is occurring across their organization. Companies also need to be
prepared to deal with investigations and enforcement actions that
result from whistle-blowing complaints made directly to regulators.
Processes need to be in place for prompt investigation and
communication with enforcement agencies.
Case study: USAID
Few organizations have as diverse a mix of stakeholders as
USAID. The largest