The journal of high-performance business
accenture.com/outlook | 2013, Number 2
A new path to growth
How to stay a step
ahead of changing
consumer behavior
PLUS
What’s driving Asia Inc.’s new
global push?
Innovation: The Big Bang Disrupters
Restarting enterprise IT
Outlook
Outlook
Vol. XXV
2013, No. 2
Outlook is published by Accenture.
В© 2013 Accenture.
All rights reserved.
Editor-in-Chief
David Cudaback
Chairman & CEO
Pierre Nanterme
Managing Editor
Letitia B. Burton
Chief Marketing &
Communications Officer
Roxanne Taylor
Senior Editor
Jacqueline H. Kessler
Senior Contributing Editor
Paul F. Nunes
Contributing Editors
David Light
Craig Mindrum
Industry Editor
Wendy Cooper
Contributing Writers
Lance Ealey
John Kerr
Assistant Editor
Carolyn Shea
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The Long View
Engines of growth
Pierre Nanterme
Chairman & CEO
Accenture
The engines of global growth
have always been those companies
that outperform the competition
year after year, in lean times as
well as in flush years. In this issue
of Outlook, we take a detailed look
at two very different groups of
companies to determine why they
have been so successful and where
tomorrow’s growth engines are
likely to emerge.
The first group we studied is in
Asia. Can the region continue to
produce the kinds of businesses
that fueled pace-setting economic
growth in the past?
The article beginning on page
34 chronicles the emergence of
a new generation of Asian
companies that are following
a global trail blazed by corporate
giants, first from Japan and later
from South Korea. For the most
part, these up-and-comers from
China, India and other Asian
nations are not household names—
at least not yet.
The authors (whose work is based
on new research commissioned
by Accenture and produced by
The Economist Intelligence Unit)
have dubbed these companies the
“Asian globalizers” because of their
assertive overseas expansion.
in the economy or the marketplace
but also to manage multiple
product and technology lifecycles
simultaneously. Moreover, this
flexibility is matched by a robust but
balanced combination of financial,
technical and cultural strengths.
But what really sets these companies
apart, especially from many of their
predecessors, is their determination
to build genuinely borderless
companies through an emphasis
on the people side of running their
businesses—on talent, leadership,
empowerment and culture. This
emphasis could well give these
companies a competitive advantage
or make them promising partners—
or both.
As you set your own course for
growth, I hope you will find
the experiences of these dynamic
companies useful.
For the second group of companies,
we looked to Europe, where
maintaining growth in today’s
volatile economy has been especially
difficult. This is true even for
leading players in an economy
as powerful as Germany’s, where
Accenture, in collaboration with
the German newspaper Die Welt,
has been tracking the performance
of the country’s 500 biggest
companies for three years.
Through this ongoing research
(which is the basis for the article
beginning on page 82), we have been
able to identify the top performers
within this larger group, as well as
their distinguishing characteristics.
We found that the most successful
German companies have mastered
virtually continuous transformation,
thanks to a remarkable agility
that allows them not only to
adapt quickly to sudden changes
1
Contents
Perspective
Industry Report
Features
The Long View
Retail
Marketing
1 Engines of growth
By Pierre Nanterme
Interview: Felipe CalderГіn
4Green Growth: How to
manage a false dilemma
Economic growth and
protecting the environment
are not incompatible, insists
this former president of
Mexico. But the need to act
is urgent and will require
a concerted global effort if
the world’s economy is to
adapt successfully to future
climate change.
The transition that enterprise IT is
currently undergoing is going to force
senior executives to consider anew
everything from strategy and mission
to infrastructure, applications, security,
organization and much, much more.
“A fresh start for enterprise IT” (page 26)
2
Outlook 2013, Number 2
10Who are the Millennial
shoppers? And what do
they really want?
By Christopher Donnelly and
Renato Scaff
The digital prowess and
market savvy of Millennials
make them a difficult group
for retailers to bracket—do
they break all the rules, or
are they more like other
consumers? New research
puts to rest a number
of Millennial myths and
provides insights marketers
can use to engage and serve
tomorrow’s trillion-dollar
demographic.
18A new path to growth:
How to stay a step
ahead of changing
consumer behavior
By Paul F. Nunes, Samuel Yardley
and Mark Spelman
In their search for high
growth, companies today
no longer can count on
demographic changes or
emerging markets. Instead,
they must understand
and capitalize on a third
route that is driving rapid
growth in a wide variety
of industries.
Information Technology
26A fresh start for
enterprise IT
By Allan E. Alter, Paul R.
Daugherty, Jeanne G. Harris and
Frank B. Modruson
In the face of rapidly evolving
changes in technology
and mounting competitive
pressure, organizations must
hit the reset button for how
they use IT. The solution isn’t
to bring existing programs
to a halt and start over. But
it’s almost as bold: restarting
IT while in motion.
F or additional thought leadership from Accenture, including the Accenture Institute for
High Performance and Accenture Technology Labs, please visit www.accenture.com/ideas.
For a personalized electronic newsletter tailored to highlight specific industries and
issues, subscribe to My Outlook at www.accenture.com/myoutlook.
Asia
34The human touch
behind Asia Inc.’s
global push
By Arika M. Allen, Paul Gosling,
Grant D. Powell and Claire Yang
A new generation of Asian
companies is going global
and actively managing talent,
leadership, empowerment and
communications to overcome
obstacles and drive growth.
These culturally savvy leaders
are rendering stereotypes
obsolete, setting the standard
for other Asian globalizers
and posing a new threat for
established multinationals.
Innovation
46Big Bang Disruption:
The innovator’s disaster
By Paul F. Nunes and Larry Downes
As business costs are driven
ever lower, some companies
are creating disruptive
products that, right out of
the gate, are simultaneously
better and cheaper than
existing products. The
upshot? Success for those
who play by the new rules
of strategy and competition—
and disaster for incumbents
who can’t adapt fast enough.
Risk Management
56The art of managing
innovation risk
Talent & Organization
74A healthy talent
advantage
By Adi Alon, Wouter Koetzier and
Steve Culp
By David Smith, Breck Marshall
and J.P. Stephan
Improvisation and
experimentation can
lead to big, breakthrough
innovation. And innovation,
fused with an agile,
sophisticated approach to
risk management, can create
a powerful, value-driving
partnership.
The challenges are daunting.
But by weaving healthcare
coverage decisions into their
talent strategies, and by
managing implications of
the Affordable Care Act as
a strategic change program,
US companies can capitalize
on opportunities to create
a unique value proposition
for current and prospective
employees.
Business Process Outsourcing
64A better way to resolve
business conflicts
By Anoop Sagoo, Jeremy Oates
and Mary Lacity
Having a realistic perspective
that life is not perfect is a
good thing—whether you’re
a service provider or a
client. The ability to settle
the smaller issues promptly
and productively lays the
groundwork for dealing with
more serious, potentially
deal-breaking problems that
may arise down the road.
Germany
82How Germany’s top
companies thrive in
rough times
By Michael Brueckner, Peter
Pfannes and Frank Riemensperger
The most successful German
companies continuously
transform themselves to
increase and maintain overall
competitiveness. And they
owe this outstanding agility
to a balanced combination
of financial strength,
IT-enabled insight and
values-driven leadership.
3
Calderón: “Consensus
doesn’t mean unanimity.”
Interview
Felipe CalderГіn, former president, Mexico
Green Growth:
Managing a
false dilemma
E conomic growth and protecting the environment are not incompatible,
insists this statesman. But the need to act is urgent and will require a
concerted global effort if the world’s economy is to adapt successfully
to future climate change.
It would be only a slight exaggeration to say that Felipe CalderГіn
developed his passionate concern
about the environment at his
father’s knee. As a teenager in
the 1970s, he watched as Luis
CalderГіn Vega, a founder of
Mexico’s Partido Acción Nacional,
warned his party about the grave
impact of climate change, one of
the few senior politicians at the
time to raise the issue—in Mexico
or anywhere else.
Perhaps the most important lesson he learned from his father, the
younger CalderГіn recalls today, is
never to underestimate the ability
of one person to effect change.
As Mexico’s energy secretary
and later as president, Felipe
CalderГіn emerged as a global
leader in fighting the threat of
climate change and promoting
sustainable human development.
In an exclusive interview, his
first on Green Growth since
leaving office in December 2012,
CalderГіn sat down with Peter Lacy,
managing director of Accenture’s
Strategy and Sustainability
businesses in the Asia Pacific
region, to discuss Green Growth,
the efforts to date to address
climate change and the outlook
for the future.
PETER LACY: One of the defining
themes of your public life, both
domestically and globally, has been
Green Growth. What does Green
Growth really mean?
FELIPE CALDERГ“N: I always depart
from a false dilemma. During
the last decade, nations and
governments believed that it was
not possible to achieve two goals
at the same time, that growth
and protecting the environment
5
Interview
were incompatible. That is a
false dilemma. It is possible to
make economic growth and the
protection of the environment
compatible; it is possible to tackle
poverty and, at the same time,
to tackle climate change. The
mix of policies—all those policies
to tackle climate change and,
at the same time, to produce
economic growth—is Green Growth,
in my opinion.
“It is possible to act, in a
very modest way, in your
space, your own country,
your own government.”
Finding the way to make economic
policies compatible with environmental policies is probably the most
important challenge for human
beings in this century. I know
that given the current international
economic situation, it is really
difficult to also think about climate
issues. But the fact is, sooner or
later, we will need to face the
problem—not only the environmental
problem itself but the economic
problem of adaptation to climate
change in the future.
Can you give us some examples
of how you managed that false
dilemma when you were president
of Mexico?
We tried to apply policies that
could be understood by people,
companies and the government. A
lot of people inside the government
actually don’t believe in the
challenge we have ahead.
One example: a massive program
to substitute all appliances
for new appliances, mainly
refrigerators and air-conditioning
equipment, to reduce carbon
emissions from domestic sources.
We were able to exchange more
than 2 million refrigerators in
three years. We pioneered a mix
of public policy, small subsidies
to the very-low-income families
and an affordable credit program
for everyone.
6
Outlook 2013, Number 2
Secondly, the so-called green mortgages. In Mexico, the low-income
families, especially low-income
workers, have access to mortgages.
But it was impossible to reach the
workers below a certain income
level. We started a new program—
again, not only with the affordable
mortgages but also with upfront
subsidies, a down payment for all
those workers earning minimum
salaries or less. All those mortgages—
and we are talking about half
a million a year—are provided
on the condition that the house
they are buying has some kind
of innovative energy-saving
mechanism. It could be solar panels
for heating water, whatever.
Another example: the public sector
itself, PEMEX [the state petroleum
company]. We established clear
and concrete goals for payments
to reduce carbon emissions, for
instance. Another is regulation. We
are establishing better parameters
for the vehicle industry. Another
is promoting mass transit in some
cities. We are preparing—through the
public works bank or infrastructure
banks and other development banks
in Mexico—affordable credits for
municipalities. They can promote
public/private projects related with
mass transit in order to reduce
carbon emissions.
One of the barriers often cited to
doing more in this area is vested
interests— groups that stand to be
disadvantaged by regulation—slowing
down the process. Often, the argument
is about whether or not it makes
you non-competitive compared
to other countries. How did you
tackle that issue?
It is very important to understand
the companies’ point of view, and
they have a point. The question is,
how can we apply neutral policies
in order to avoid these kinds of
www.accenture.com/Outlook
biases, or these kinds of situations
of one company or one country
fulfilling the new regulation about
the environment and suffering
a loss of competitiveness as a
result? At the national level, we
need to involve the industries in
the general discussions.
It’s not enough to try to wake up
some kind of national commitment
to the environment. Something
else is needed, and that could be
the right economic incentives for
all those interested. And that could
be related to taxes, for instance, or
some kind of policy which gives
incentive for saving energy.
How did this work in Mexico during
your administration?
One example: At the beginning of
my administration, there were no
wind farms. In Mexico today, we
have 3,000 megawatts from wind
and a growing number of projects.
Some of them are made by private
companies. We provided them with
the right incentives. We are not paying any subsidy, but we facilitated
their access to the grid in a more
competitive way and more affordable
way, because it’s a public utility.
But there is no one-size-fits-allindustries approach, right?
We need to establish some kind of
order for the measures we will
apply at the aggregate level. My
point is this: It is very expensive,
for instance, for a company which
is on the frontier of technology
to make marginal reductions
of carbon emissions, and that
could be very expensive for some
industries. However, there are
other projects where we can get
a lot of advantage in terms of
carbon reduction. One of the
most important tasks for the
international community is to
detect what projects are more
viable than others for reducing
more carbon.
What sort of progress is being made
in this area?
There is some interesting research
that is estimating the net present
value of the grid measures. It’s
clear, for instance, that energysaving programs for energyintensive industries are not only
good for the environment but
are also absolutely viable in
financial terms. In other words,
that kind of measure applies not
only to carbon reduction but
also to profits for the industr y.
We need to establish the right
public policies and economic
incentives in order to move the
companies to take those measures
to reduce emissions.
If we are able to make the right
estimation of the net present value
of different projects related to saving
energy or reduction of carbon
emissions, we could make the first
step. Someone did research in
Mexico; they found that there are
140 projects in which the net present
value is positive.
It sounds like companies and
governments can work together in
some sort of win-win dynamic.
Industry could do a lot or governments could do a lot. But all
those efforts imply not only a
reduction in carbon emissions
but also profits or cost savings
for the companies—or for the
governments. If we start with
that, we can reach a better . . .
. . . price/efficiency equivalent?
Yes. We are not going into
very expensive measures for the
companies, but we are gaining
in terms of the environment, and
the companies could get money
from those measures.
From your experience, what would
you advise other policy makers to
be doing—or not doing—to drive
Green Growth successfully?
A lot of people don’t realize that
this is a serious issue. Unfortunately,
for a lot of leaders in the world,
climate change seems like a very
naГЇve way to lose money. It is a
very pragmatic arena—political
pressure, public opinion, jobs, the
performance of the government—
for thinking about climate change.
But we’re losing time. We need to
switch that mentality, and that is the
most urgent task we have ahead.
In order to do so, we need to
emphasize and repeat the issue at
every single meeting. I tried to do
that, and in every single meeting,
I was talking about climate change,
I was talking about the government
responsibilities.
Let me be honest. I remember when
I went to Canada, the prime minister
said in a press conference, when
he was asked about climate change,
that it was clear that the United
States was not taking any position
or any commitment by now, so his
government had to wait for the
American decisions in order to take
our next step. I was there, and I
said to the prime minister we could
see that the American congress
and government were not making
any decisions, but we couldn’t wait
for the American decision. It was a
little bit painful for him, in Canadian
public opinion, but it is the only
way to wake up that issue.
By calling it straight.
Yes. We need to put some political
incentives on track.
You have played a critical role in
the last few years in trying to build
bridges, broker deals on climate
change. What did you learn that you
7
Interview
“We can cut [the United
Nations’ budget] and
allocate half of that
to the environment,
and we can fix the
problem, at least for
the next 10 years.”
think should be factored into
future UN negotiations, as we try
to build a global architecture for
dealing with climate change?
First, we need to understand that
consensus doesn’t mean unanimity.
We need to break that kind of
tricky bet coming from some
countries. We need to move
ahead—over them, if you allow
me to say that. We cannot be
blocked every single day, every
single year, by the same guys.
Secondly, we need to change the
mechanisms inside the United
Nations. I do believe in diplomacy,
but the bureaucracy and the organization itself are not working. We
need to think seriously about that.
I remember when we had a discussion
with the secretary general, or his
staff, [and] I asked them what the
budget of the United Nations was.
It’s an incredible figure—I can’t even
remember, but it was billions. Well,
we can cut that, and we can allocate
half of that to the environment,
and we can fix the problem, at
least for the next 10 years.
What was their response?
Wow. Well, of course, they got
angry with me, and they hated me
a little bit. But it’s true. If you go
to the United Nations assembly,
you can see a massive bureaucracy
doing nothing. We need to think
in a very different way; we need to
change the United Nations itself.
What are the lessons of the Kyoto
Protocol?
That we also need to think about
new mechanisms even inside
the diplomacy itself. Kyoto was
a marvelous, amazing agreement
in its time, but ultimately, it was
a tremendous failure.
In the Kyoto Protocol, there are
commitments from developed
8
Outlook 2013, Number 2
countries for some amount of tons
of carbon. However, from a different
angle, we on the negotiating team
at the COP-16 climate change
negotiations established unilateral,
non-binding commitments from
developing countries. These public
commitments are, by far, larger
than the commitments made in
the protocols. I’m talking about
twice the millions of tons of carbon
emissions reduction commitment
than the Kyoto Protocol. And we
need developing countries to join
the fight because they account
for a larger proportion of carbon
emissions every day.
We also need to be more creative
and think of other mechanisms
to tackle climate change. That
could be carbon sequestration,
for example, not only to figure
out this technical mechanism to
sequester carbon, but all these green
projects, literally green projects,
related to plantation, forestry,
the REDD mechanism [the United
Nations Collaborative Programme
Reducing Emissions from Deforestation and Forest Degradation in
Developing Countries].
It’s a key issue—why? Because,
in my understanding, reduction
of emissions in industry is more
related to developed countries, but
carbon sequestration is more related
to developing countries. And the
economic capabilities and the
potential growth are in developing
countries right now. So we can shift
and focus on developing countries,
and towards carbon emissions or
sequestration of carbon, instead of
or as well as carbon reduction.
When you think about what’s required
to deal with climate change—what
we know about the science, what we
know about the need for speed, for
scale—are you hopeful?
www.accenture.com/Outlook
I know it is difficult, but I realize
that today, the economic circumstances are the most important
obstacle to a commitment for a lot
of countries. However, that will
change. Sooner or later, Europe
is going to start to grow again.
The United States, in one way or
another, in a good way or a bad
way, will fix its deficit. And in the
future, we will be able to catch
again the attention and the
commitment of everybody.
Is Green Growth the way to do that?
I don’t want to create, even for
myself, huge expectations about
that. But the only way to preserve
our hope is to insist on that, is to
work on that on a daily basis.
You have been recognized as a UNEP
Champion of the Earth and have
earned all sorts of other accolades
since your term as energy minister
and then as president. What would
you want your legacy on Green
Growth, on sustainability, to be?
I have fought to create the mechanisms that make this tremendous
effort we need to do viable. One
mechanism is Green Growth itself.
The other is to rescue diplomacy,
to allow it to establish a serious
commitment on a global level.
I am trying to wake up the global
conscience about the problem.
Of course, we need to work a lot,
and today, we are far away from
concrete action on a global level—
at least [from] what is required.
However, it is possible to act,
at least in a very modest way,
in your own space, your own
country, your own government,
your own policies.
Even on a personal level. One of
my hobbies, for instance, is to
plant trees. I really enjoy that.
For a number of years, I have had
a barbecue with my friends, [where]
I invite them to plant trees—hundreds
of trees, thousands of trees.
They work hard for their barbecue.
Yes! Actually, today, I am enjoying
the shade of some of the trees.
This is a very personal, even
emotional, issue for you. Where
does the passion come from?
Let me tell you this story. When
I was born, my father was 51 years
old. He was almost my grandfather.
In the ’70s, for the first time in
my life, I listened to him talk about
the environment, some kind of
climate change. My father started
to talk in the assembly of the party
about the future. He was saying
that the poles will melt one day, the
levels of the seas will increase, there
is some kind of acid rain that is
causing a lot of damage, and so on.
And even some of his best friends
at that time started to say, well, what
happened to Luis? He’s losing his
mind, he is very old.
world right now, in pension
funds, sovereign wealth funds
and so on; and, on the other
hand, there are a lot of needs
in terms of green projects. The
same with infrastructure projects.
The key issue is how to match
that. We need to find the right
instruments and the viable projects
to do so.
That was very early for a senior
politician to be raising this issue.
Yes, it was the ’70s. I had never
heard about it. Most of the people
said my father was crazy. But
I learned from him, in the sense
that I learned you are able to
start a change. Something will
happen. Maybe you fail, but if
you don’t start things, those
things will never happen, ever.
So, I started that.
He clearly had a big influence on you.
Sometimes, we never realize the
size of our own influence. But we
need to try. The surprising thing
is there are more people waiting
for the right thing, or the right
measures, so you need to try.
We need to fix these problems.
There is a lot of money in the
9
Industry Report | Retail
Who are the Millennial
shoppers? And what
do they really want?
By Christopher Donnelly and Renato Scaff
10
Outlook 2013, Number 2
The digital prowess and market savvy of Millennials make them a difficult
group for retailers to bracket—do they break all the rules, or are they more
like other consumers? New research puts to rest a number of Millennial
myths and provides insights marketers can use to engage and serve
tomorrow’s trillion-dollar demographic.
11
Industry Report | Retail
Millennials—born between 1980 and 2000—
are both the 20th century’s last generation
and its first truly digital one. This old century/
new technology dichotomy gives pause to
marketers attempting to understand and connect
with this key demographic.
But are Millennials really a unique
new breed of plugged-in, networked
savants? Or do these prized consumers share critical similarities
with previous generations?
them and their predecessors:
the Baby Boomers (born from
1946 to 1964) and Generation X
(1965 to 1979).
• More than half (55 percent) of the
To find out, Accenture conducted
proprietary global market research
on the shopping behaviors of 6,000
consumers, of which 1,707 were
Millennials, across eight countries
(see sidebar, page 16). We also looked
at the capabilities of 60 retailers
worldwide to determine whether
they were providing the customer
experience this generation demands.
To give some idea of the stakes
involved: There are roughly 80 million Millennials in the United States
alone, and each year they spend
approximately $600 billion. While
originally typecast as financially
dependent teens, today’s Millennials
include young adults in their 20s and
30s. Many have careers, are raising
kids and live in their own homes.
While Millennials are already a potent force, they will truly come into
their own by 2020, when we project
their spending in the United States
will grow to $1.4 trillion annually
and represent 30 percent of total
retail sales. Millennials will have
a major economic impact in other
markets our research covered as well.
Although Millennials have
earned a reputation for viewing
the world through a uniquely
digital lens, our results found some
remarkable similarities between
12
Outlook 2013, Number 2
survey respondents, in all three
demographics, said that they seek
out “the cheapest return option.”
• Forty-one percent of all three
groups said they practice
“showrooming”—examining
merchandise at a nearby retail
store and then shopping for
it online to find the lowest
price—more often than they
did a year ago. This shift is
due, in part, to the current
high penetration levels of
smartphones, which can enable
customers to search for an item
easily, even while in a store.
• T hirty-six percent of those
surveyed from all three generations
said they will go online to buy from
a retailer’s website if they want
a product when the company’s
stores are closed.
• O n average, 89 percent said
having access to real-time
product availability information
would influence their shopping
choices in terms of which stores
they would frequent.
The many similarities we found
across generations led us to
challenge three enduring myths
about Millennials.
www.accenture.com/Outlook
Myth #1: It’s all about online shopping
Millennials are certainly very
savvy online customers, but that
doesn’t mean they’ve stopped
frequenting brick-and-mortar venues.
In fact, interviews conducted
recently at one of America’s largest
shopping malls confirmed our survey
findings that many members of the
digital generation actually prefer
visiting stores to shopping online.
What’s more, our research findings
in the United States were reflected
in the other countries where we
surveyed as well. Echoing countless
generations of canny shoppers, one
Millennial told us, “You want to
touch it; you want to smell it; you
want to pick it up.”
Make no mistake: Online and mobile
channels are important to Millennials, providing the information
and insights they need to find the
best products and services. Many
hone their shopping skills on the
Internet, checking product ratings
and reviews or feedback on retailers,
for example, to confirm that both
product and vendor provide the best
value and service, respectively.
One challenge for retailers is the
Millennials’ seemingly omniscient
grasp of prices and promotions,
which this generation expects to
be the same in stores as they are
online. To cash in on in-store retailer
promotions, Millennials also want
mobile coupon scanning capabilities,
and having to print out coupons
prior to shopping could be a
deal-breaker. One summed it up
this way: “When I get to the store,
if I haven’t printed out my coupon
and I can’t use it, I walk out.”
When it comes to shopping,
we found that 68 percent of
all Millennials demand an
integrated, seamless experience
regardless of the channel. That
means being able to transition
effortlessly from smartphone to
personal computer to physical
store in their quest for the best
products and services.
Myth #2: Loyalty is lost
In a recent survey of retail
industry leaders, nearly 40 percent
said the No. 1 concern they have
about Millennials is their lack
of loyalty. But we found that
Millennials can be exceptionally
loyal customers—provided they
feel they’ve been treated right.
They demand a customer-centric
shopping experience—one tailored
to their wants and needs as
valued customers. As one shopper
put it, “You want to feel welcome
when you go to the stores.” In
describing the ideal shopping
experience, a Millennial noted,
“There is [something] about the
product and its cost, but there’s
also a big part about being treated
like a valued customer.”
Many seek personalized, targeted
promotions and discounts as the
price for their loyalty. “Loyalty
programs are big,” confirmed one
interviewee.
We found that 95 percent or more
of Millennials say they want their
brands to court them actively,
and coupons sent via email or
mailed to their homes currently
(or will in the future) have the
13
Industry Report | Retail
most influence on them. Other
channels, such as text messages,
have an influence on just over
half of all respondents in terms of
their shopping behaviors.
Myth #3: Millennials treat retailers and brands
the same as people on social networks
Although Millennials are
masters of social media, they
view Facebook and other sites
differently than many marketers
may assume, which can lead to
misunderstandings.
While clicking an icon on a social
network page might indicate that
they consider a retailer or brand
cool or hip, that doesn’t necessarily
mean they are loyal customers.
“I really don’t follow my retailers
on Facebook or Twitter,” said one.
Instead, they view social media relationships with brands and retailers
as transactional. “Social media?
I use it to get deals,” offered another.
Marketers, who are relentless
scorekeepers, can easily mistake
a pressed “like” button for far
more than it really is—which,
from the Millennials’ perspective,
is basically a way to find the best
offers. “I do �like’ certain retailers on
social media,” one Millennial noted,
“especially if it gives me access to
coupons or deals or more information. [Otherwise], I would have to
be pretty emotionally moved to just
�like’ [a retailer] for no reason.”
To reach Millennials on social media,
a brand or product must become a
routine part of their conversations
concerning product information,
updates and special offers. “It’s not
like you’re communicating a deal to
[your friends],” one person explained.
“It’s more like, �Hey, I got this new
thing, this new toy.’ ”
14
Outlook 2013, Number 2
The goal should be to create
positive buzz, to be talked about
by Millennials. Simply having
a presence on social media isn’t
enough—the aspiration should be
to become the topic of conversation
for all the right reasons. Contrary
to the famous public relations
maxim that all publicity is good
publicity, many firms have found,
to their regret, that the negative
online buzz they are generating can
zap both brand strength and sales.
Instead, companies need to engender
the type of positive online buzz
that can lift brands and sales alike.
Our research also highlighted the
quicksilver nature of social media.
Although Facebook remains by far
the largest social network in the
world, Millennials—perhaps as a
bellwether for the actions of other
generations—have begun to move on.
“[Facebook has] kind of died down,”
shrugged one. Others listed their
Facebook alternatives: Twitter,
LinkedIn, Tumblr, Pinterest and more.
For retailers, this proliferation means
that where the conversation takes
place is constantly evolving. Next
year, it could be an entirely new
site; in five years, the social media
channel itself could morph into
a completely different form.
Driven by the Millennials and future
digital generations as yet unnamed,
we believe retailing will change
more in the next five years than it
(Continued on page 16)
www.accenture.com/Outlook
Myth busting
Millennials still like brick-and-mortar stores. In fact, 82 percent of them
prefer bricks and mortar.
91%
68%
80%
prefer shopping
in drugstores
prefer shopping in
consumer electronics stores
prefer shopping in
apparel stores
84%
83%
prefer shopping
in department stores
prefer shopping in discount/
mass merchant stores
Millennials can be exceptionally loyal customers: 69% say that when it comes
to their favorite retail store, a “closed” sign does not change their minds.
28%
37%
4%
will return to the store
the next morning
will buy the item from
the retailer online
will buy the item via
the retailer’s mobile app
It takes more than Millennials liking a brand or a retailer on social media
to make them loyal customers.
28%
will make a purchase due to a social media recommendation
Source: Accenture analysis
15
Industry Report | Retail
(Continued from page 14)
has in the last 50. That’s because
consumer uptake of new communication technologies has continued
to compress over the past 125 years.
Look at radio: It took more than
30 years to achieve a consumer
adoption rate of 50 percent. Mobile
phones took only 15 years to
reach the same level, and social
media, a mere 3.5 years. The
message for retailers is simple:
While you had literally decades
to perfect your radio-era go-tomarket strategy, with social media
you will be lucky to get a year,
and in the future, a year might be
a best-case scenario.
Unfortunately, our research
shows that retailers are currently
under-delivering when it comes
to the demands of Millennials.
When Accenture evaluated
more than 60 global retailers to
understand how seamlessly they
deliver the customer experience,
we found that most of them had
big holes in their approaches.
We have identified six dimensions
as contributing to a seamless
retail experience. Today, most
retailers are making headway on
only two: providing a consistent
cross-channel experience and
offering personalized interactions.
The other four—connected shopping, integrated merchandising,
flexible fulfillment options, and
the capabilities and enriched
services that help make the overall
shopping experience better, faster
and more memorable—remain
works in progress.
Becoming seamless
We define seamlessness as the
ability to deliver a consistently
personalized, on-brand experience
for each individual customer, at
every touchpoint—anytime and
anywhere. A seamless customerfacing retail experience will typically
include the following four components (see chart, page 15).
• To reflect customer demand,
retailers need to customize their
About the research
To bring the needs of Millennial consumers and their
potential impact on retailing into sharper focus, Accenture
undertook a three-pronged research initiative that included
a major, multicountry online consumer survey, a global
retailer benchmarking study and face-to-face interviews
with 50 individual consumers.
Consumer survey. We conducted an online survey of 6,000
consumers, of which 1,707 were Millennials, across the
United States, the United Kingdom, Germany, France, Sweden,
Japan, China and Brazil.
Retailer survey. The second element of the research was
a benchmarking survey involving 60 global retailers
that focused on six capabilities and asked 80 questions.
The six capabilities are:
• P roviding a consistent customer experience regardless
of channel.
• O ffering connected shopping that allows customers
to move seamlessly across channels to fulfill a single
shopping mission.
16
Outlook 2013, Number 2
• Developing integrated merchandising skills, which requires
retailers to provide an integrated product assortment and
unified pricing across channels.
• P utting in place flexible fulfillment and returns
procedures that offer customers multiple convenient
options.
• Enabling personalized interactions through which
retailers effectively engage customers to offer the
dynamic, accessible and continuous shopping journeys,
whether in-store, online or via a mobile device,
consumers desire.
• Providing better, faster and more memorable customer
experiences.
Accenture matched the consumer and retailer benchmarking
surveys on a one-to-one basis to evaluate what is important
to customers compared to what retailers are actually
delivering.
Face-to-face interviews. To bring the survey findings to
life, we interviewed about 50 randomly selected consumers
at the Woodfield Mall in Schaumburg, Illinois.
www.accenture.com/Outlook
offerings across channels in
the ways Millennials want,
which typically boils down to
providing better, faster, more
memorable service.
• Retailers also need to integrate
their operational elements so
that they can have a single
“conversation” with customers,
not one that changes from smartphone to PC to physical store.
• I T platforms should be integrated
to unify their sources of data and
boost cross-channel transparency.
• Finally, retailers will need to
team up with technology, data,
analytics and process partners
to provide the service performance
Millennials want, since they will
not be able to deliver it all themselves. As a result, successful
players are collaborating to
strengthen their customer value
propositions. For instance, a
third-party logistics provider
can supply same-day delivery
services for online purchases,
enabling retailers to offer a
service customers want without
having to invest in an expanded
delivery fleet or new routing
capabilities.
To improve their capabilities as a
seamless organization, we suggest
that retailers consider the following
five steps.
• First, integrate the company’s
merchandising and marketing
departments with a unified
position, making the customer
experience just as important as
product and price considerations
within the company.
• Second, retailers should consider
ways to consolidate single channel
teams in order to serve customers
on an end-to-end basis across
the enterprise.
• T hird, retailers can organize
their store employees on two
specialized tracks, one tasked to
serve customers and the other
focused on fulfillment, since the
two disciplines differ dramatically
from each other.
• Fourth, companies should explore
ways to evolve their supply chains
to gain the capability of managing
their inventory holistically.
That means “forward” to the
stores, “backward” for returns
and “sideways,” which involves
sourcing from other stores.
• Finally, many retailers should
think about how to expand the
metrics they use to keep track of
the company’s customer handling
performance, as well as the
incentives that drive it. Normally,
retailers look at same-store
performance, but that dynamic
changes when companies use
stores to fulfill orders initiated
online. Questions arise, including
which channel should receive
credit for the sale? Who covers the
cost of fulfillment? And how do
you encourage stores to support
these shifts when each is responsible for its own profitability?
Our research shows that Millennials
are not only transforming their own
shopping behaviors but those of
their parents, who are increasingly
mimicking the demands of their
children for seamlessness as they
climb the digital learning curve. One
consequence of this evolution is that
the retail environment will probably
change faster than many companies
expect in the coming years, and
many retailers will find themselves
falling further and further behind.
That’s because delivering products
and services in a truly seamless
fashion will require companies to
make profound changes across their
entire organizations—changes that
many seem either unprepared or
unwilling to make.
To close this emerging consumer
generation gap, retail leaders need
to take action now to provide the
seamless end-to-end experience
Millennials demand.
About the authors
Christopher Donnelly is the industry
managing director of Accenture
Retail. He is based in Chicago.
[email protected]
Renato Scaff is an Atlanta-based
managing director in Accenture Retail.
[email protected]
For further reading
“Shoppers without borders,” Outlook
2012, No. 3: http://www.accenture.
com/us-en/outlook/Pages/outlookjournal-2012-shoppers-without-bordersretail.aspx
“Serving the nonstop customer,”
Outlook 2012, No. 3: http://www.
accenture.com/us-en/outlook/Pages/
outlook-journal-2012-serving-thenonstop-customer-marketing.aspx
“Harnessing the power of social media,”
Outlook 2011, No. 1: http://www.
accenture.com/us-en/outlook/Pages/
outlook-journal-2011-harnessingpower-social-media.aspx
For more related content,
please visit www.accenture.com.
17
Marketing
A new path to growth
How to stay a step ahead of
changing consumer behavior
By Paul F. Nunes, Samuel Yardley and Mark Spelman
In their search for high growth, companies today no longer can count on
demographic changes or emerging markets. Instead, they must understand
and capitalize on a third route that is driving rapid growth in a wide
variety of industries.
19
Marketing
Is robust business growth on the horizon? The
S&P Global 1200 would have you think so.
According to that index, companies
will have to grow collectively by
4.7 percent in 2013 and again in
2014 to justify their end-of-2012
share prices. That’s a tall order,
considering that GDP growth
in much of the developed world
was low or even negative for 2012.
To fulfill the market’s expectations,
business leaders must find new
sources of growth that are both
significant and attainable—because
for many companies, the search
for fast growth has hit a wall,
rosy interpretations of the S&P
notwithstanding.
Won’t emerging markets save
the day? Don’t hold your breath.
India’s growth rate in 2012 was
its lowest in a decade, and Brazil’s
has declined significantly over
the past three years. There remain
a few hotspots (see chart, page 23),
but not enough to provide all of
the growth that companies need.
What about significant new growth
driven by demographic shifts,
such as aging populations? Also
unlikely; many companies are still
wrestling with how to turn these
shifts to their advantage.
Where, then, will companies find
the next major opportunity for
above-market levels of growth?
Targeting behavior
Accenture research points to an
area so old it is once again new:
changing consumer behavior.
How is consumer behavior changing?
Consider just a few examples:
the professor in Stockholm who
checks her email before bed and,
when she finds an invitation to
20
Outlook 2013, Number 2
a conference in London, immediately
goes online to buy airline tickets
from a travel site; the young
tech worker who gets his first
job in Silicon Valley, sells his
beat-up old car and then signs
up for a car-sharing service for
those times when he needs personal
wheels; or the mother in SГЈo Paulo
who chooses a particular brand
of paper products for her family
because they were produced
with sustainable methods.
These examples, and others like
them, all point to increasingly
prevalent changes in consumer
behavior that Accenture identified
in a 2012 survey of 10,000 online
consumers in 10 countries.
Such changes are of more than
academic interest. We hypothesized
and then demonstrated that targeting
changes in consumer behavior—
such as the increasing focus on
environmentally safe products or
a greater emphasis on seeking
unique experiences—lay behind
many of the world’s fastest-growing
industries and successful companies.
That led us to analyze 20 of the
industries and sectors associated
with targeting behavior changes—
including, for example, video on
demand, fair trade goods, low-cost
airlines and digital music.
When we ran the numbers, we
saw that market size for just that
group of 20 industries is projected
to more than double, from $2
trillion in 2012 to $4.5 trillion by
2016, with an expected compound
annual growth rate of more than
20 percent. That’s three and a half
times faster than the projected
growth in emerging economies,
www.accenture.com/Outlook
and more than 10 times the
projected rate for advanced
economies, over the same period.
Are companies fully prepared to
capture that growth—or, indeed,
to add on to it? To answer that
question, we studied the world’s
3,000 largest public companies,
identifying those whose median
revenue growth most exceeded
their industry peers in the past
three, five and 10 years.
Many of the growth leaders
have been serving new customers
in emerging markets, in both
B2C and B2B markets. But roughly
a third of the leaders have
achieved their accelerated growth
by meeting the needs stemming
from changing consumer behavior.
By studying this specific set
of companies in greater detail,
we were able to identify three
common elements behind their
success.
From “where and when” to “how and why”
Increasingly, executives need to understand not just who
their customers are and where they are located, but also the
methods and motivations behind their consumption.
Thanks to technology, consumers are better informed about the
products that interest them and the companies that make those
products. They also have unprecedented access to products
and services. They often remain “in the channel” as they ponder
purchases online, even as they shop multiple vendors. This
represents a significant change in the “how” of consumer behavior.
Networked
Also changing is the “why” of buying and consumption.
Consumers make choices not only to improve their
material welfare; they increasingly do so to improve
their physical and mental well-being. In our survey
of 10,000 online consumers in 10 countries, we saw
that consumers increasingly fit into 10 dimensions:
connected, social, co-productive, individual, experiential,
resourceful, disconnected, communal, conscientious
and minimalist.
Connected
Ensures they are always “on,“ continuously in a channel
Social
Uses digital technologies to interact with friends, family, strangers, institutions
Co-productive
Plays a role in production through design or by providing data to companies
Individual
Values uniqueness and luxury, seeks to express their personality
Experiential
Desires new experiences, attends live events, shares experiences with friends
Resourceful
Works hard to get ahead, shrewd with money
Disconnected
Tries to switch off, break from tradition
Communal
Participates in society, with a strong group ethic
Conscientious
Buys local, makes rather than buys, considers the environment before purchase
Minimalist
Places access above ownership, happy to purchase second-hand or reuse
Independent
Cooperative
Source: Accenture analysis
21
Marketing
1. An analytical toolkit
Consumer-led growth leaders use advanced analytics to identify and bridge gaps
between their businesses and consumers.
Many companies are getting much
better at understanding customers
by using analytics and, more
important, by using data-derived
insights to design and improve the
customer experience. Such capabilities
are critical in realms such as entertainment, where experience is king.
Consider gaming company Activision
Blizzard, which has drawn on a
deep understanding of consumer
preferences. The company grew
steadily as a developer of video
games from its founding in 1979
through 2007. But its 2008 merger
with Vivendi—which included
Blizzard Entertainment, publisher
of such massive gamer hits as
World of Warcraft—set it on a path
to greater success.
In 2012, Activision partnered with a
couple of analytics firms to test and
improve its gameplay in real time.
One firm captures data on 190,000
games and 250 million consumers
daily, data that Activision can use
to effectively launch mobile games
from third-party developers. The
second has a leading platform for
in-game behavioral analytics and
will help Activision “balance and
optimize” games in real time, in the
words of one executive.
Activision has also used what
it gleaned from analytics to
successfully enter the mobile games
market. Although many gamers
remain loyal to their trusty consoles,
the company recognized that mobile
gaming has been gaining market
share. To meet this challenge,
the company is developing new
technologies to tailor mobile games
for its customers.
For the mobile game Skylanders
Cloud Patrol, Activision tracked
the way players were using
characters; when executives
realized people weren’t changing
from one character to another
very often, they adapted the game
to give each character specific
powers. Activision also used
analytics to experiment with
versions tailored to different
countries in order to understand
how and where to adjust the game.
The key to Activision’s success
has been its adherence to the
quality of the experience. Instead
of flooding the market with
mediocre titles, the company
concentrated on developing a
reputation for delivering a few
high-quality blockbusters.
By spending a great deal of time
with focus groups and testing ideas
on key audiences to tease out the
nuances of consumer behavior,
Activision’s business intelligence
group is able to study what its
audience likes and dislikes. This
approach highlights a key element
of an analytical toolkit: the ability
to hire, retain and train in-house
analytics talent.
2. An adaptive mindset
Consumer-led growth leaders see disruption as an opportunity. They instill a mindset attuned to
perpetual change that allows many of them to shape their industry’s long-term direction.
Creating a corporate mindset that
is aware of and open to ongoing
business-model and technological
change is extremely difficult. The
companies we observed that had successfully instilled an early warning,
adaptive mindset were especially
good at detecting threats at the edge
of the radar screen. They were also
masters at quickly coming up with
innovative responses to disruption.
22
Outlook 2013, Number 2
Car-rental company Hertz has
a history of identifying and
embracing change. A few years
ago, a thorough examination
of its industry spurred Hertz to
attempt to capture an increasingly
important type of consumer
at the edge of its mainstream
business—what we call the
minimalist, who, in this particular
case, is an urban consumer who
spurns car ownership in favor of
car sharing.
In 2000, when Zipcar entered the
market, car sharing was a barely
discernible feature on the car-rental
landscape. Since then, however,
the business model has established
itself as a phenomenon with
significant potential for high
growth. This came into sharp
www.accenture.com/Outlook
focus for Hertz when the CEO’s son
returned from college singing the
praises of Zipcar.
acquisitions: In 2009, it acquired
Paris-based Eileo, a firm with
expertise in developing car-sharing
technologies, and in 2010, it acquired
Flexicar, a leading car-sharing
company in Australia.
Hertz rolled out its own car-sharing
business in 2008. The outfit—now
called Hertz On Demand—began
modestly, with a business model
similar to Zipcar’s, offering hybrids,
electric cars, luxury cars and other
options for round-the-clock shortterm usage with hourly rental fees
that included gas, insurance and
roadside assistance. By 2012, Hertz
On Demand had grown to 130,000
members and had projected revenues
of more than $30 million. Hertz
has also signaled its dedication to
the minimalist consumer through
Another key to the adaptive mindset,
especially in response to potential
disruption, is lateral thinking—that
is, seeing opportunities outside your
core business.
Education giant Pearson saw
digital disruption as a sizable
opportunity to better serve students
and teachers, so the company
revamped its offerings to accommodate what we describe as
Catching the next waves of market growth
Rapid economic and consumer spending growth can still be found in relatively undervalued emerging markets.
For example, forecasts for what we call Horizon 2 markets, such as Indonesia, Mexico and Turkey, show compound
annual growth rates of between 3.7 and 5.8 percent.
Private-consumption growth: Compound annual growth rate versus absolute growth, 2010–2020
102 countries
11
Angola
10
Horizon 3
CAGR, private consumption, %
9
8
7
Zambia
Kazakhstan
Nigeria
Cambodia
Horizon 2
India
BRICs
6
Ukraine
Indonesia
Turkey
5
Russia
Mexico
4
Senegal
3
Australia
Germany
Western Europe
Ireland
Italy
0
1,000
Brazil
South Korea
Canada
2
1
China
Qatar
10,000
Spain
United States
United Kingdom
Japan
Other advanced
France
100,000
1,000,000
10,000,000
Absolute growth, private consumption, $ millions
Source: Oxford Economics; Accenture analysis
23
Marketing
For further reading
“Serving the nonstop customer,”
Outlook 2012, No. 3: http://www.
accenture.com/us-en/outlook/Pages/
outlook-journal-2012-serving-thenonstop-customer-marketing.aspx
“Corporate agility: Six ways to make
volatility your friend,” Outlook 2012,
No. 3: http://www.accenture.com/
us-en/outlook/Pages/outlook-journal2012-corporate-agility-six-ways-tomake-volatility-your-friend.aspx
“Energizing Global Growth: Understanding the Changing Consumer”:
http://www.accenture.com/us-en/
Pages/insight-energizing-globalgrowth-changing-consumer.aspx
For more related content,
please visit www.accenture.com.
connected consumers, who are
always online, connected via a
ubiquitous, 24/7, mostly digital
channel. Education services such
as software and IT support have
replaced textbooks as Pearson’s
primary breadwinner, while
acquisitions including EmbanetCompass, an online-learning
services provider to North American
colleges and universities, are
expanding the company’s presence
in that area.
Pearson also works with initiatives
such as Udacity and MIT’s edX
that offer “massive open online
courses” (or MOOCs). If students
want to receive accreditation for
their MOOC, they can go to one
of the more than 4,000 physical
testing centers Pearson operates
worldwide. The company has also
developed mobile apps to connect
teachers, students and parents on
a common platform for sharing
student information.
Pearson’s ability to think laterally
becomes especially clear in the
way it creates a unified educational
experience between offline services
and online educational products.
For example, Pearson provides technology infrastructure, software and
consulting services to K-12 schools
in the United States. Among the
technology offerings: information
systems that allow schools to track
student schedules and systems that
help teachers create lessons.
Pearson’s publishing arms have
also been among the first movers
shifting to digital. Penguin India
was the first Indian publisher
to launch an e-book program,
while the Financial Times Group’s
FTChinese MBA Gym App (a tool
with tailored training courses
and special articles from the
Financial Times) has become one
of the bestselling education apps
on iTunes in China.
3. An agile organization
Consumer-led growth leaders react flexibly to changing
consumer behavior, scaling offerings rapidly after identifying
a successful response.
In the successful companies we
observed, two hallmarks identify
the agile organization. They
respond to change rapidly,
through acquisitions and investments. And they learn quickly
from the changing environment,
immediately sharing what they
discover with stakeholders.
Online auctioneer eBay’s early
recognition of what we call
resourceful consumers—thrifty
types who use online platforms
to buy used products or to sell
directly to other consumers—
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Outlook 2013, Number 2
backed by an aggressive, rapidresponse acquisition strategy,
is a perfect example of the first
hallmark. In 2000, newly launched
e-commerce business PayPal, with
its popular peer-to-peer electronic
payment system, averaged about
50 times more payments per day
than eBay’s proprietary online
payment offering. In 2002, eBay
completed the acquisition of
PayPal. Following the acquisition,
PayPal grew rapidly within the
auction site; up until the global
economic recession in 2008,
eBay’s payment business grew
www.accenture.com/Outlook
more than 30 percent in revenues
each year. By the end of 2011,
PayPal accounted for 38 percent
of eBay’s total revenues.
in the Brazilian state of MaranhГЈo
were under contract a year before
the operation even started.
In 2007, eBay expanded its portfolio of collaborative businesses by
acquiring StubHub, the “fan-to-fan”
event-ticket reseller. Like PayPal,
StubHub’s growth soon began to
outpace that of eBay’s auction site.
Despite its later agreements with
larger sports teams and venues,
the composition of StubHub’s
growth—65 percent of its tickets
in 2011 still came from individual
and part-time resellers—indicates
the growing power of the collaborative economy.
The idea that consumers are
changing is not new. What is
different, however, is the way in
which they are changing and the
seemingly random directions
consumer behavior can take. This
diversity presents companies with
a substantial problem, as they
try to apply traditional business
models—premised on size and
scale—to a more complex and
fragmented reality.
Agile organizations also learn
quickly, and pass on what they
learn. To meet the needs of
increasingly conscientious
consumers, companies have to
equal—and even exceed—industry
standards for environmental
responsibility. Several Brazilian
paper companies, including Klabin
and Suzano Papel e Celulose, stand
out for their efforts.
In particular, Suzano was the
first pulp and paper business
(and the first Latin American
company of any kind) to quantify
its carbon footprint globally.
The company now ranks second
worldwide in eucalyptus pulp
production (eucalyptus, which is
highly adaptable and fast-growing,
is considered an ideal species for
planted forests) and eighth largest
worldwide for overall pulp
production. The company assisted
nearly 3,800 people through its
Community Agricultural Project,
in which residents received
instruction on environmentally
friendly methods of seed selection
and farming. As a result of these
efforts, 97 percent of its suppliers
Retailers, for example, must meet
the expectations of consumers
accustomed to buying goods
online at competitive prices and
having them delivered quickly.
And they must do so while creating
offerings that are distinct enough
to address individual preferences
while still meeting expected
standards of social and environmental responsibility.
About the authors
Paul F. Nunes is the managing
director of research for the Accenture
Institute for High Performance. He
is based in Boston.
[email protected]
Samuel Yardley is a London-based
strategy manager in Accenture
Management Consulting.
[email protected]
Mark Spelman leads Accenture’s
global thought leadership program and
the company’s strategic relationship
with the World Economic Forum. He
is based in London.
[email protected]
The authors would like to thank Ivy Lee
for her contribution this article.
For many, juggling these demands
may seem like trying to square
the circle, and business leaders
might feel daunted by the challenge.
The answer lies in responding
to change with analytical skill,
an adaptive mindset and an
agile organization—successfully
wedding the scale advantages of
the large with the tailored approach
of the small, the traditional
benefits of the old and the cutting
edge of the new.
By achieving the right balance
between sets of extremes, businesses
can turn consumer change to
their advantage.
25
Information Technology
A fresh start for
By Allan E. Alter, Paul R. Daugherty, Jeanne G. Harris and Frank B. Modruson
In the face of rapidly evolving changes in technology and mounting
competitive pressure, organizations must hit the reset button for how they
use IT. The solution isn’t to bring existing programs to a halt and start over.
But it’s almost as bold: restarting IT while in motion.
26
Outlook 2013, Number 2
enterprise IT
Information Technology
Given that the latest technology news can
occasionally flirt with hyperbole, a suggestion
that something IT-related is “epoch-making”
might well be greeted with a yawn. But it’s
no exaggeration to describe the transition
that enterprise IT is currently undergoing in
exactly those terms.
This transition is going to force
senior executives to consider anew
every aspect of enterprise IT—from
strategy and mission to architecture,
infrastructure, applications, security,
organization, governance, skills
and relationships with users.
And when they do, many will
conclude that their enterprise IT
needs a restart. And for good reason.
Today, all businesses are becoming
digital businesses; software and
technology are now at the core of
nearly every industry and function.
This calls for a fundamental, strategic
rethinking of IT that begins to
create a future capability that is
competitive and differentiating,
even while operating at significantly
lower cost.
Lamented legacy
Standing in the way of a successful
transition, however, is the oftlamented problem of legacy systems.
For CIOs, they are a major obstacle
to their ability to take full advantage
of opportunities presented by the
cloud and “as a service” capabilities.
They also demand a great deal of
time, as IT organizations focus on
building and maintaining customized
capabilities, most of which go
unused. An Accenture analysis
of more than 30 SAP systems, for
example, found that clients use only
23 percent of customized variations
and, for that matter, only 70 percent
of standard ERP capabilities.
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Outlook 2013, Number 2
Many business and IT executives
recognize the extent of the problem.
An Accenture Institute for High
Performance survey found that if
given the chance to rebuild one of
their company’s departments from
scratch, more executives would
choose the IT department than any
other. And, perhaps not surprisingly,
IT executives said they would do
so by an even larger margin than
their business peers (see chart,
opposite). In another Accenture
survey, 45 percent of UK executives
believe that eliminating legacy
systems will provide IT the
flexibility needed to meet future
user and customer needs.
If only it were that simple. In
practice, CIOs don’t have the luxury
of executing the equivalent of a
tear-down on a dilapidated house,
destroying the old and rebuilding
from the ground up. Instead, they
have to significantly remodel
while still living in the house. And
since the digital world can be a
dangerous place, they also have to
protect the house.
While there’s no operating manual
for a restart, there are some clear
guidelines that can help executives
through the process.
The mandate. For all the warnings
about the need to change to enable
digital business, few executives will
buy into the need for a restart unless
they’re convinced it will provide
www.accenture.com/Outlook
tangible benefits in the short and
medium terms. “You have to convince
yourself that the business is going
to be in a much better position,”
notes Chris Perretta, CIO of financial
services company State Street Corp.
“You’re not going to transform the
organization for a 10 percent
improvement in performance.”
no system of record. To maintain
industry leadership and comply
with regulations, the company’s IT
platform had to advance.
The catalyst for State Street’s own IT
overhaul was a root cause analysis
that identified flaws in the company’s
business operations. It found that
the ultimate cause of many problems
was IT-related: the financial services
company’s IT architecture, the way
the company built systems and
how it stored data. For example,
it was unable to adequately track
trades through each step in the
trading lifecycle because there
were multiple reconciliation systems,
some reconciliation work was still
being done manually and there was
Restarts can also set up IT to support
new growth and profitability. One
of the most obvious justifications for
restarting IT is to support a corporate
restart, such as spinning off part
of a business as an independent
company. That’s what happened
when Accenture became a new
public company in 2001.
A restart can also set the stage
to accomplish a number of
other goals.
Pursue a new growth strategy.
When an old IT infrastructure
and systems do not suit a change
in strategic direction, it’s time to
create new ones that can. BB&T,
a North Carolina financial services
company, started its IT transformation effort when it switched
from a growth-through-acquisition
strategy to one driven by organic
growth, and found itself competing
with other companies that
differentiated themselves through
IT. BB&T’s enterprise IT, designed
to integrate new acquisitions
and run back-office operations,
was completely overhauled to
focus on providing new services
to clients, reducing the company’s
cost of doing business and
data security.
Enter existing markets and
create new ones. Australia Post
is a case in point: It needed to
make up for postage revenue lost
to email and impose order on a
messy IT infrastructure. Brought
in from Australia’s BlueScope
Steel in 2006 to overhaul those
old legacy systems, Australia Post’s
Time for a restart
In our survey, both IT and business executives indicated that IT was the function
they most wanted to rebuild.
“With no constraints, which part of your organization
would you want to build from scratch?”
Information technology
35%
IT executives: 40%
Other executives: 30%
Operations (includes manufacturing,
logistics and store management)
22
Human resources
19
Marketing and communications
10
Finance
9
Sales
5
Source: Accenture Institute for High Performance Future of Enterprise IT survey, August 2011
29
Information Technology
CIO at the time, Wayne Saunders,
invested $500 million to modernize
and rationalize Australia Post’s IT
infrastructure and organization.
That primed the country’s national
postal service to grow its parcel,
logistics, passport and payments
businesses, and to launch an
e-services and telecommunications
business. By mid-2011, its Future
Ready program had enabled
Australia Post to grow revenues
faster than costs for the first time
in four years and increase profits
by 31 percent.
Change the business model.
The music, publishing, retailing,
video rental and travel reservation
industries aren’t the only ones
The key drivers
The Accenture Institute for High Performance’s Futures
of Enterprise IT study identified more than 60 economic,
social, geopolitical, demographic and technological forces
that could influence the future of enterprise IT. These
technological and economic forces in particular are driving
the need to fundamentally reconsider IT infrastructure,
organization and governance.
• Greater need for business agility and faster IT implemen-
• Platform shift to cloud computing and services.
• Changing IT consumption and delivery models.
Software, process, infrastructure and platform services
provide quick, scalable access to powerful, minimalmaintenance technologies any place high-speed Internet
connections are available. Open architectures incorporating
Web APIs (application programming interfaces) offer
an easy way to publish or receive streams of data.
Organizations will migrate to these technologies as the
IT industry provides better, less costly and more flexible
options to server-based systems.
• The rise of consumer technology. Every business is
now a digital business. Consumers, employees and
managers are using their own devices, social networks and
other consumer IT services to work, shop and purchase. The
gargantuan consumer clouds run by Google, Amazon
and other companies are far more powerful than those
private companies build for themselves.
• Changing user behaviors. Technologies like smartphones,
social networks and broadband, along with mass access to
information, are permeating and changing everyday living.
Expectations for workplace computing, and the way
they use IT and information, are being shaped by your
employees’ IT experiences in their personal lives.
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Outlook 2013, Number 2
tation. Technology is accelerating change in virtually every
industry. IT-enabled global competition, and competition
from new companies with business models built around new
technologies, requires companies to respond to threats fast,
and quickly spot and seize opportunities. The murky business
environment only intensifies the need for responsiveness.
Smartphone apps, self-service app stores and softwareas-a-service are providing an easier and faster-to-use
model than traditional software purchasing and installation.
IT-dependent business processes can be obtained as
a service through the Internet, rather than operated
as an internal process.
• Big data exceeding capabilities of SQL-based databases.
More and more of the data analysts need to produce
insights is unstructured and non-numeric. Relational
database tools were never intended for, and are ill-equipped
to deal with, today’s quantities of data and its lack
of structure.
• E xecutives willing to make their own IT decisions.
Today’s executives have grown up with IT, studied IT in
business programs, make their own technology choices
in their personal lives, and have their own visions for the
CFO or CMO role. They will take on more IT responsibility,
rather than shy away from it.
• Venture capital investment in consumer technology.
R&D and venture capital is going into cloud and consumer
technologies. Future IT innovation will be targeted at
consumers first and then adapted for businesses instead
of the other way around.
www.accenture.com/Outlook
that have been transformed by
the Internet. Take money transfer
services. In many countries,
mobile phones are becoming
a common tool for sending
money—and this was a clear and
present danger to Western Union’s
traditional wire transfer service.
As then-CIO John Dick told
CIO.com in Februar y 2012: “For
us to continue our relevance in
the world, we need to look at
alternate ways of moving money
between people.”
That look forced the company
to reevaluate and overhaul its IT.
Today, Western Union provides
consumer bill-payment services
for hundreds of US companies
and an international B2B billpayment service.
Improve the company’s cash
position. While the upfront investment in a restart can be very large,
the savings can be much greater.
By replacing old infrastructure and
systems, large companies have saved
hundreds of millions of dollars—
enough to underwrite the investments
needed to restart IT. Since going
public in 2001, Accenture’s $1 billion
investment in infrastructure and
application improvements has led to
$3.5 billion in savings, reduced IT
spending as a percentage of revenue
by 64 percent and brought down
the number of applications in use
from 2,100 to 495.
Accenture’s CIO organization
achieved these reductions by
consolidating, centralizing and
standardizing IT operations. From
2001 through 2012, Accenture cut
global applications by 59 percent
and local applications by 83 percent.
The company also lowered its IT
costs by outsourcing application
development, maintenance and
infrastructure services.
Accenture is not unique. By
virtualizing its data centers and
replacing local homegrown systems
with SAP and Oracle modules,
Dell reduced the maintenance slice
of the IT budget pie to 48 percent
and saved $2 billion in IT expenses
over five years. State Street projects
between $575 million and $625
million in savings from its business
operations and IT transformation
program, which includes transferring some business applications to
a private cloud. It has saved $198
million as of December 30, 2012.
Support an overhaul of a
company’s business processes.
Ford Motor Co.’s One IT initiative
supported the company’s One
Ford program to make the carmaker
a truly global organization
with one set of global processes,
systems and products. For example,
Ford unified regional purchasing
systems and databases into a single
system that connects employees
with suppliers worldwide.
Operational transformation also
drove State Street’s IT overhaul.
One goal, pushed by the company’s
increasingly global customers and
the stresses of the 2008 crash
on the financial sector, was to
put global solutions in place more
quickly. “We needed to run faster,”
says Perretta. “Speed is about reuse,
working the right projects and
being able to reuse people easily.
Those three things are built into
the new model.”
It’s clear, then, that companies
can meet the demands of a
“mandate” to restart IT, provided
they go about it in the right way.
How can CIOs minimize the
risks and maximize the rewards
of a restart? Building a solid
architectural foundation for
the enterprise and effective execu-
tion are important, but more is
needed. Through our research,
we discerned five keys to helping
a restart succeed.
Improve governance to
boost confidence in decision
making and oversight
With good IT governance and
oversight, the initial commitment
to a big, bold project is less likely
to wane when other priorities
come along. Stakeholders have
had their say. There is confidence
the decision was correct. Oversight
committees have the visibility
they need to track progress, costs,
security and value.
Accenture and State Street both
focused on governance once
the need for a restart emerged.
After Accenture became a public
company, it put its internal
IT organization in charge of IT
planning and management. But
it also created an IT steering
committee of Accenture’s most
senior business operations leaders
to confirm key decisions and
ensure alignment. The new
company set up its IT function
to run much like a managed
services business that provides
infrastructure and application
services at market-competitive
prices and service levels.
Consider looking for models
that already have earned the
confidence of executives, as
State Street has done. The company’s transformation program
followed the same successful
governance model it uses to
manage mergers and acquisitions.
“We like the model because in M&A,
you’re very clear, accountability
is very clear, the results are very
clear, the financial pro forma
31
Information Technology
For further reading
“The Question CIOs Must Really Ask,”
Fortune, October 2012: http://tech.
fortune.cnn.com/2012/10/01/thequestion-cios-must-really-ask/
“Forecasting the Future of Enterprise
IT,” Baseline, July 2012: http://www.
baselinemag.com/c/a/IT-Management/
Forecasting-the-Future-of-EnterpriseIT-577698/
“Reimagining Enterprise IT for an
Uncertain Future,” Accenture, February
2012: http://www.accenture.com/
us-en/Pages/insight-reimaginingenterprise-it-uncertain-future.aspx
For more related content,
please visit www.accenture.com.
is very clear and unambiguous,”
says Perretta.
Master the financials of IT
IT does not have to be run as
a profit center to be run like a
business. What it does need is an IT
executive team that knows what it’s
getting for its investments, inside
and out. What’s the company’s
total IT spending, and how does
it compare with other companies?
What’s the market price for the
products and services it uses? What
does it cost to provide a PC, take care
of a help desk ticket, provide email
or ERP, and keep servers running?
Can the total spending be broken
down on a percentage-of-revenue
basis, a spending-per-person basis?
Questions like these require a more
detailed cost and data analysis
than many IT organizations now
perform. But when the CIO shows
he or she really knows the numbers,
other executives are more confident
that IT spending is being managed
well and that IT is being run at or
below market prices.
And there’s another important
benefit: An IT department that
thoroughly understands its own
costs can confidently provide users
with a choice of service levels and
a range of charge-back fees. That
is more like the choices consumers
make in their personal lives.
Bechtel Corp. CIO Geir Ramleth
took another approach to financial
insight: He benchmarked his
company’s IT costs against Google,
YouTube, Amazon.com and 15
other Internet-native companies.
Ramleth found Bechtel’s per-unit
IT costs were far higher than those
at the other companies: at least
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Outlook 2013, Number 2
50 times more per megabit for
networking than YouTube and
nearly 40 times more per gigabyte
of storage than Amazon. Bechtel
had one system administrator for
100 servers, compared with one
for approximately 20,000 servers
for Google.
That insight justified his move
to an internal private cloud. Ramleth
was able to cut Bechtel’s network
costs by 98 percent, reduce the number of data centers to three, increase
capacity tenfold and reduce latency
(the time it takes for data to get to
where it’s supposed to go) by adopting the best practices of these companies. “You can be very small and still
do what we did,” says Ramleth.
Systematically replace old systems
in large, digestible chunks
Instead of converting just one
enterprise application, one form
of user support or one part of
the network at a time, replace
them with the new systems in the
largest chunks the company can
manage—even entire layers of
technology at a time. For example,
when Accenture moved to a new
global SAP platform, it retired 450
finance, human resource and sales
applications and replaced them with
a single, integrated global version.
Many IT organizations prefer
a seemingly safer and more
manageable approach, replacing
systems in small steps, a function
or part of a function at a time.
But when companies implement
a new system in piecemeal fashion,
they are operating at too small
a scale to invest in the repeatable
procedures and process automation
required to replace systems quickly
and consistently. The rollout is
more error-prone and takes longer.
www.accenture.com/Outlook
Accenture experienced this when it
first started to move to voice-over
IP. The experiences of the first two
or three offices that were moved
to VoIP were painful because they
were treated like one-time projects.
The problems ceased when the
program managers stepped back,
came up with a standard procedure,
and started implementing VoIP
with the same step-by-step process
in every office.
Incrementalism carries other risks.
Companies are slow to gain the
benefits from the conversion.
They must live with (and pay for)
both the new and old systems
simultaneously. The dissatisfaction
with a long, drawn-out migration
can cause the project to be canceled,
leaving the IT organization supporting an IT infrastructure that’s
half-based on today’s technology
and half-based on tomorrow’s.
Strengthen the IT competencies
needed for the future
CIOs need to revisit their organizations as well as their technologies.
There’s much to take into account:
the growth in consumer information technology, the increased
availability and maturing of cloud
and other business IT services,
and all those technology-endowed
customers and employees.
Today, says Phuong Tram, the CIO
of DuPont, “you have to share in
an infrastructure that people can
access, regardless of where they
are. Are you going to provide all
that infrastructure for the millions
of people you need to work with, or
will you ride public infrastructure
and consumerization?”
At DuPont, Tram is restructuring
his organization into five major
global competencies: governance
and strategy; business-facing and
process-supporting IT; IT operations,
integration and partner management;
continual improvement; and transformation management. He is also
turning to outside services to provide
and manage mature technologies and
business processes. To demonstrate
their value, he has made his own
IT organization an early adopter of
virtual desktops. “We have adopted
this within our organization, and
the lesson we learned is you cannot
convince others if you don’t do it for
yourself first,” says Tram.
bringing IT to a new, higher standard
of performance.
Justify the expense of replacing
systems on the overall benefits,
not the benefits to one site,
location or application
After all, information technology has
become universal, cheap, powerful
and simpler to use. Shouldn’t it be
managed differently from when it
was limited, expensive, less capable
and more complicated?
In a large organization, the business
case for replacing systems will vary
by office location. Networking costs
in the United States are relatively
low, for example, while those costs in
South Africa are high, and the business case there may not be as strong.
CIOs that separate out the business
case by location will receive funding
for the locations with the highest ROI,
but they may lose funding after the
high-ROI parts are completed.
When Accenture replaced its
telephone systems, the IT
executives made a business case
for doing the transformation at
all of the company’s 300-plus
locations. The IT management
team did not prioritize the locations
with the best business cases,
then go back and try to justify
converting the locations with
the worst ones. In essence, the
locations with the worst business
cases rode the coattails of the
good locations. Accenture eliminated its old telephone systems
everywhere—reducing costs while
Executives have a choice. They
can delay making needed changes,
putting their operations at risk of
obsolescence and even irrelevance.
Or they can stick with their analysis
and seize this opportunity to rethink
and restart IT. The good news is
that between the strengths of these
new technologies and services,
the enormous savings they can
provide, and the strong desire for
real change, there never has been
a better time to restart your IT.
About the authors
Allan E. Alter is a research fellow at the
Accenture Institute for High Performance
in Boston, where he specializes in
IT strategy and management.
[email protected]
Paul R. Daugherty is Accenture’s chief
technology officer and serves as the
senior managing director of the company’s Technology Strategy & Innovation
group. He is based in New York.
[email protected]
Jeanne G. Harris is the managing
director of information technology
research at the Accenture Institute
for High Performance in Chicago.
[email protected]
Frank B. Modruson is the chief
information officer of Accenture.
He is based in Chicago.
[email protected]
33
Asia
The human touch behind
Asia Inc.’s global push
By Arika M. Allen, Paul Gosling, Grant D. Powell and Claire Yang
A new generation of Asian companies is going global and actively managing
talent, leadership, empowerment and communications to overcome obstacles
and drive growth. These culturally savvy leaders are rendering stereotypes
obsolete, setting the standard for other Asian globalizers and posing a new
threat for established multinationals.
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Outlook 2013, Number 2
Asia
Meet today’s Asian multinational: Its top leadership
includes an American, a German and a South
African. Business is conducted in English. It is
active in 70 or so countries, where its offices
are run largely by non-home-country executives.
The company is pushing aggressively into
Russia and Brazil, and its goal is to increase
sales from overseas operations to more than
65 percent of revenues.
This particular multinational is
Takeda Pharmaceutical Co., one
of Japan’s oldest and largest drug
companies. It is also a forerunner
of a new generation of Asian companies that are rapidly expanding
outside the region.
In 2008, Takeda purchased USbased Millennium Pharmaceuticals
for $8.8 billion, followed three
years later by a $13.7 billion acquisition of Swiss giant Nycomed.
More recently, Takeda built a new
plant in Russia and acquired Multilab, a pharmaceuticals company
in Brazil.
But this is not about a buying spree.
Accompanying Takeda’s expansion
has been a drive to hire non-Japanese
staff and management with international experience, and a decision
to use English across its global
operations. The company’s leaders
are changing the organization’s
culture with an emphasis on
diversity and “borderless” teams. In
the process, they are making Takeda
a leader among the many Asian
companies working to master the
human factors in their push to go
global—considerations that many
of their predecessors ignored or did
not fully understand.
An emphasis on the people side
of the equation—also very much
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Outlook 2013, Number 2
in evidence at companies such as
Samsung and Tata Motors, among
others—is seen as essential to the
long-term global success of those
organizations. It enables them to
better compete for the talent that
can fuel innovation, quality and
high performance—key elements of
a differentiated competitive thrust
identified in new research commissioned by Accenture and produced
by the Economist Intelligence Unit.
By fostering devolved leadership,
these Asian companies can stay
much closer and be far more responsive to, their overseas markets.
This trend also poses big questions
for Western multinationals. As their
Asian rivals focus on the human
side of their internationalization
efforts, they’ll become more
attractive places to work and may
well lure top talent from today’s
leading global companies. So business leaders worldwide need to ask
themselves whether they are properly
matching their Asian rivals’ efforts.
Up-and-comers
They also need to be alert to the
momentum of the numerous Asian
companies that are eager to learn
from and emulate the Samsungs
and Takedas, the up-and-comers
that, before long, could become
forceful competitors or promising
partners—or both.
www.accenture.com/Outlook
Japanese companies began their
global march decades ago, and
South Korean giants such as
Hyundai and LG Electronics have
followed. But in the last decade,
many more of Asia’s companies
are making their presence felt
worldwide. Companies such as
China Mobile Communications
Corp., Huawei Technologies Co.,
Kia Motors Corp., State Bank of
India and Wilmar International.
have all joined the ranks of the
Fortune Global 500.
The fast-paced and assertive
overseas expansion of these Asian
globalizers is gaining attention—
not only because of the scale of
their investments but also the rate
at which those investments are
rising. In 2011, Asian enterprises
invested $383 billion outside their
home markets—more than twice
the $158 billion they invested a
decade ago.
More and more of those funds
are being invested far beyond
the region. Ten years ago, Asian
businesses made nearly 60 percent
of their investment within Asia
itself. In 2011, that ratio reversed,
with more than 60 percent of their
capital earmarked for outside the
region. Japanese companies make
up the largest block of investors
overall, though their rivals from
China are not far behind.
Cultural stumbles
However, there has been no automatic correlation between money
invested and results achieved.
As Asian companies expand into
new territory, they run up against
very different behaviors and belief
systems. For every successful
overseas move by a Samsung,
there have been many, many
retrenchments and losses by Asian
companies as they have stumbled
over local cultural norms and
language difficulties while clinging
to rigid and often hierarchical
practices that worked well for
them at home.
Perhaps the most notorious example
of cultural mismatch was the
attempt by a Japanese company to
teach some of the female employees
of a newly acquired US company
how to serve tea, wear their hair
and choose their wardrobes.
Although fewer Asian companies
today are likely to make such
a faux pas, their approaches are
nonetheless often out of sync with
what works in the regions where
they choose to invest.
Although Asian
corporations now
comprise 35 percent
of the world’s
biggest enterprises,
they make up just
1 in 10 of the most
valuable brands.
Their business leaders know it.
Asked to assess their internal
execution in light of their global
plans, Asian executives as a whole
say their greatest internal challenges
are dealing with cross-cultural
issues, mastering the human
aspects related to talent and
having the right local leadership.
Nearly half confess that they struggle
with cross-cultural barriers, and
more than half are hard-pressed
to attract and retain talent in
overseas markets, according to the
Accenture/EIU study (see charts,
pages 39 and 41).
These deficiencies are proving
to have consequences for many
companies. One sure indicator:
Only about a third of companies
from China and India say they have
seen their revenue and profits from
international operations develop in
line with their expectations. The
figure is even lower among Japanese
companies, at just 12 percent.
Another telltale sign: Many
Asian companies have found it
tough to create internationally
recognized brands. Although
37
Asia
Asian corporations now comprise
35 percent of the world’s biggest
enterprises, they make up just
1 in 10 of the most valuable
brands, according to Interbrand’s
2012 list of the world’s 100
Best Global Brands—a gain of
only three companies over the
preceding decade.
More and more
Asian companies are
reducing their reliance
on low-cost operations
and striving for
competitive advantage
based on innovation,
employee skills and
intellectual property.
With these markers to go by, is it
any wonder that there is such keen
interest in what the successful Asian
globalizers are doing?
For most would-be Asian globalizers,
the biggest challenges lie ahead.
They confront a far more complex
and volatile global landscape than
did the first wave of Asian companies
that built global businesses. They
must go nose-to-nose with strong
local companies and an increasing
number of multinationals.
Foreign affairs
The game gets bigger and tougher
every year. Between 1990 and 2010,
the number of companies operating
across borders almost tripled,
from 35,000 to almost 104,000,
with the proportion of those from
emerging markets soaring from
12 percent to 30 percent.
The prevalence of family-owned
businesses and state-owned
enterprises in Asia also presents
unique challenges. In companies
where a family still holds a significant stake—half of publicly
listed companies across 10 key
markets in Asia—ownership and
management are often tightly
intertwined, which makes it
harder for them to attract and
groom outside talent. And it’s
tough to create compelling career
paths and build diverse leadership
teams in state-owned enterprises,
where top leadership roles can
be politically determined.
38
Outlook 2013, Number 2
At the same time, many companies
from China, India, Indonesia and
other Asian nations are discovering
that as they step beyond their
national boundaries, their traditional
cost advantages shrink. That’s
why more and more of them are
reducing their reliance on low-cost
operations and striving for competitive advantage based on innovation,
employee skills and intellectual
property (see chart, page 41).
But that shift demands much more
cross-cultural savvy, borderless
thinking and openness to new ways
of working and managing. Simply
put, the global push requires these
companies to navigate in business
realms that are foreign—figuratively
as well as literally.
Obstacles notwithstanding, fully
90 percent of Asian companies
remain committed to global growth,
according to our research. More
than 35 percent are bullish: They
say they are planning aggressive
growth overseas.
What are their chances of success?
That depends on how effectively
they can bridge the capability
gaps identified by the research:
having a clear purpose and strategy
for growth; finding points of
differentiation in crowded international markets; building robust
and scalable operations; and putting
in place the people factors necessary
for sustained growth.
Here we focus on the human side
of going global because it is proving
critical for successful Asian
globalizers—those companies that
have thrived in their past international expansion and are confident
in their abilities to execute as
they continue down that path. Their
(Continued on page 40)
www.accenture.com/Outlook
A decade of massive international growth by Asian companies
For the past 10 years, Asian companies have invested more than $2.9 trillion in regional and global expansion.
$ billions
Eastern Europe/Russia
$58
$7
$13
$17
Western Europe
$140
$91
$51
$12
North America
Asia
Middle East/Africa
$17
Australasia
$49
$9
Investment within Asia
2003
2011
$23
$45
$9
Latin America
Investment outside of Asia
2003
2011
Source: Accenture analysis based on data from Thomson Reuters and fDi Markets, a service from The Financial Times Limited 2013. All rights reserved.
63%
of all Asian outbound
In 2011,
investment was outside the Asian region.
Just
28% of Asian companies met international revenue
and profit expectations over the past three years.
43%
In 2011,
of all Asian investments
were via merger and acquisition deals.
90%
However,
of Asian companies are
committed to continuing their overseas expansion.
Source: Accenture analysis
39
Asia
(Continued from page 38)
competitive edge is apparent in
the Accenture study’s findings. It
shows that compared with typical
Asian companies, these Asian leaders
have a sharper focus on economic
outcomes and invest more in
developing executives with global
mindsets. They’re better at recognizing the need to address cultural
issues, and they typically grant
more autonomy to their overseas
operations than do other Asian
globalizers.
The characteristics that best differentiate the successful Asian globalizers
from their regional counterparts can
be distilled into three human factors:
They are good at securing and
retaining talent in overseas markets;
they work hard to build global
mindsets among their business
leaders and teams; and they generally do a good job of managing
cross-cultural interactions.
Each merits a closer look.
Hybrid approaches to talent
management
Knowing that they cannot rely
on home-country workers to
drive overseas performance,
successful Asian globalizers are
investing more in initiatives to
attract and develop talent. Some
are also adopting hybrid talent
management approaches that
combine home-country methods
and global practices.
Take Samsung. To promote agility
and accelerate its global growth,
the South Korean electronics and
consumer-goods giant has developed
a business system that blends global
best practices with an essentially
Japanese business system.
40
Outlook 2013, Number 2
In particular, when Samsung
recruits, it no longer appoints
managers primarily from an
internal HR line; instead, it looks
for talent outside Korea, for all
management levels. These international hires spend two years in
Korea before managing overseas
operations, often in their own
home countries. As Takeda has
done in Japan, Samsung has
hired outsiders to fill key senior
management roles in South Korea—
an unusual move in a culture
that has been relatively insular.
To promote ownership of and
accountability for the new talent
strategy, Samsung’s chairman,
Lee Kun-Hee, has established
metrics around attracting and
retaining talent across the
organization. While this transition has taken time to develop,
Samsung has benefited from
fresh perspectives and is now
better equipped to manage its
global operations.
In China, consumer-electronics
manufacturer TCL Corp. relies
heavily on its Eagle Talent Training
Scheme to help ensure that it
has one of the lowest employee
turnover rates in its industr y.
Each TCL employee takes one
or two training courses a year.
The curriculum designed for
top management—one of four
categories of training—helps
trainees develop international
operation capabilities, strategic
thinking, leadership, and
industr y and business group
management skills.
And in India, ICICI Bank has
assigned 600 employees to scout
for potential leadership talent
(Continued on page 42)
www.accenture.com/Outlook
Growing pains
To be successful internationally, Asian companies must ask themselves the following questions.
1. How will we compete?
Low-cost
operations
Low-cost
innovation
Logo
Our
intellectual
property
Strength
of brand
equity
Skills of
our people
High-value
innovation
Most Asian companies are shifting their strategy
over the next three years from low-cost competition.
Success in highly competitive global markets will depend
on providing differentiated products and services.
2. How will we serve customers and navigate overseas markets?
61%
53%
of Asian executives say their top
external challenge is to understand their overseas
markets, customers and their preferences.
of Asian businesses struggle with
government regulations as well as local policies and
procedures in overseas markets.
3. How will we execute our strategy?
4
1
3
1
31%
say they have the right
operational capabilities to support
international operations.
6
5
2
7
3
2
29%
have the right processes in
place to ensure effective operations across
multiple geographic locations.
27%
have appropriate IT
infrastructure to support operations
across multiple geographic locations.
4. How will we build talent, bridge culture gaps and develop global leaders?
51%
struggle to
attract and retain talent in
overseas markets.
46% struggle
with cross-cultural
barriers.
47% provide mentoring 41% provide cultural
and coaching programs
focused on global leadership.
sensitivity training.
Source: Accenture analysis
41
Asia
of the companies we surveyed are
undertaking initiatives to attract
foreign talent. Challenges like
these are of real significance
for other businesses that might
be considering joint ventures or
other forms of partnership with
these Asian contenders.
(Continued from page 40)
within the company. Each year,
these internal recruiters send 5,000
candidates’ names to a review
panel, which assigns a grade to
each name. Those graded “A” or
“B” go through a four-day training
program that includes structured
exercises, guest speakers (including
ICICI’s chief executive) and
screening inspirational films such
as 12 Angry Men. These future
leaders are also granted company
stock options.
Steering away from culture clash
Successful Asian globalizers
make special efforts to improve
communication and build shared
values across their far-flung
operations.
However, the research suggests
that initiatives like Samsung’s
and TCL’s are exceptions, and it
underscores that many Asian
companies need to do more to
attract and retain talent in international markets. Only about half
Like Takeda, Fast Retailing Co.
in Japan is gradually adopting
English as its global language.
That said, the company, which
owns the popular UNIQLO brand
Changing competitive advantage
Asian companies expect that within three years, the drivers of their competitive advantage
in international markets will have changed significantly.
Percentage of all respondents; each respondent chose top three
Today
In three years
55
54%
45
44
37
29
20%
Low-cost
operations
39
41
55
47
32
18
Low-cost
innovation
Source: Accenture analysis
42
47
Outlook 2013, Number 2
Intellectual
Strength of
property
brand equity
(patents, trademarks)
Skills of
people
High-value
innovation
High-quality
products/services
www.accenture.com/Outlook
of fashion apparel, is not forsaking
its home-country values; it sees
itself as “born and bred in Japan”
and aims to preserve its Japanese
core values by using a variety of
approaches for continually educating
its employees around the world.
Some years ago, the company tried
to expand overseas, but the utilitarian
Japanese brand received a lukewarm
reception. So Fast Retailing went
back to the drawing board. It crafted
a global image that preserves what
its founder calls its “Japan-ness”
while conveying a sense of global
connection—with, for example, store
layouts and decor aimed at styleconscious shoppers in Manhattan
and London, a free fashion magazine for the New York stores written
to appeal to the urban shoppers’
cultural interests, tie-ins with local
celebrities and artists, and more. One
element of this successful approach:
The company’s integrated advertising
and marketing campaigns encourage
consumers to interact with the brand
in digital environments.
The successful globalizers are just
as deliberate when it comes to
mergers and acquisitions. When
India’s Tata Motors bought Daewoo
Commercial Vehicle Co.’s truck
manufacturing operations, it took
great care to integrate the South
Korean company’s business culture
with its own.
To address Daewoo’s misgivings—
the company’s owners were
looking to sell the truck division
to a European or American
company—Tata launched an
information campaign, ensuring
that all the relevant literature
describing Tata and its practices
and philosophies was translated
into Korean. Then the Tata teams
explained their company’s culture
and ethos, along with its employment
policies, to Daewoo’s senior management to try to persuade them
to accept their bid.
Tata’s overtures were successful,
and Daewoo became the Indian
company’s first cross-border
acquisition.
But Tata knew that the deal
would not be successful if they
failed to properly integrate
Daewoo’s operations, and that
meant they had to win over
Daewoo’s employees as well. So
the Indians began reaching out
to the workforce.
At the heart of
strong leadership is
a global mindset—
evident in how some
Asian globalizers
actively encourage
firsthand exposure
to foreign markets.
They kept the former Daewoo
management team intact. The first
few months of Tata’s ownership
were spent observing and learning—
in both directions. Some members
of the Indian team studied Korean;
some Koreans began to learn
English. The Indian team gained an
understanding of Korean sensibilities
and ways, and the Koreans, in turn,
got to know and appreciate the
Tata group’s philosophy.
Fortis Healthcare is making
similar efforts to create a common
“language” that reflects its corporate
culture. The Indian healthcare
company, which operates across
nine countries in the Asia-Pacific
region, is striving to develop
unique, unified ways of working
across locations. “Language plays
a part,” says executive director
Balinder Singh Dhillon. “Not the
spoken language, but the commonality of terms and understanding
and values. This includes the softer
side of things, such as how you
address a patient.”
Many Asian companies have not
yet mastered these kinds of issues.
More than 40 percent admit to
difficulties in establishing shared
43
Asia
For further reading
“The last 10 miles,” Outlook 2012,
No. 3: http://www.accenture.com/
us-en/outlook/Pages/outlook-journal2012-last-10-miles-china.aspx
“Catching the ASEAN wave,” Outlook
2012, No. 1: http://www.accenture.com/
us-en/outlook/Pages/outlook-journal2012-catching-asean-wave.aspx
For more related content,
please visit www.accenture.com.
corporate and community values.
Nearly as many say they struggle
to instill respect for different
cultures and backgrounds.
Taking “global mindset” from
premise to practice
Successful internationalization
strategies require strong leadership,
from headquarters down to
local operations. At the heart
of strong leadership is a global
mindset—evident in how some
successful Asian globalizers
actively encourage firsthand
exposure to foreign markets.
For instance, Sunny Verghese, chief
executive of Olam International,
the Singapore-based supplier of
agricultural products and food
ingredients, sees it as a rite of
passage for executives to spend
time in difficult locations across
the global agribusiness group’s
operations. He describes this as
“managing the risks firsthand, not
learning about them in a classroom.”
Others make it a priority to give
local leadership real decision-making
authority. Korean conglomerate
LG Electronics, for example, has
built strong market share in India
by focusing on developing local
leadership. The company has
empowered native employees by
transferring authority and responsibility to them. Expatriate Korean
managers have also served as
mentors to help local management
teams build their skills.
How to catch up to Asia’s globalizers
If they hope to catch up to Asia’s top globalizers, other
organizations will have to ensure that they align their global
talent strategy with their global growth strategy. The leading
globalizers already excel at this. Questions like these will
help other companies follow in their footsteps.
• How can we create common ways of communicating
across the organization, regardless of where we’re
operating?
• What can we do to identify and bridge culture gaps, and
to build common values across our diverse markets?
Talent
• How can we enhance our employee value proposition so we
can source the best skills and talent locally and globally?
• What kinds of compelling career paths can we offer
to differentiate ourselves in the battle for local and
global talent?
• What training and development programs can we create
Leadership
• What are the leadership characteristics we need if we’re to
deliver on our international growth strategy? How can we
develop those characteristics?
• How can we have our top leaders adopt diverse ways
of thinking? How do we help them develop and sustain
a global mindset?
to increase the quality of our talent worldwide?
• How do we support and empower local leaders so they can
• How can we best deploy our talent in local markets to
properly sense and respond to local business dynamics?
strengthen our competitive positioning?
• How can we foster “borderless leadership”— enabling
Culture
• What shared cultural attributes must we develop in
our people?
44
Outlook 2013, Number 2
leadership authority everywhere it’s needed across the
globe?
www.accenture.com/Outlook
Some successful Asian globalizers
contend that it is not enough to
grant more authority to trusted
local leaders; it is also important to
maintain as flat a corporate structure
as possible to speed decision making
and improve agility.
For example, at HTC, the Taiwanese
mobile communications manufacturer, information f lows quickly
between the company’s top
executives and its empowered
regional chiefs. Phil Roberson,
former regional director in the
United Kingdom and Ireland, had
direct contact with HTC’s chief
financial officer, and outside of
Taiwan, the most junior person
is typically only five layers away
from the chief executive.
Our study’s findings reveal just
how rare such approaches are.
Only 47 percent of the Asian
companies surveyed use mentoring
and coaching to develop their
leaders. Less than 20 percent use
international assignments to build
a global mindset in their leaders.
The study also discovered that
many offshore offices lack respect
for the authority of managers at
headquarters—and that the latter
are often unaware of how they’re
regarded in the field.
If these remain the norms for many
Asian companies, it will make it
that much easier for potential global
partners to screen them out in
favor of those that are emulating
the Takedas and Tata Motors.
Individually, few of the practices
described here are breaking new
ground; most are entirely familiar
to executives at global multinationals. Collectively, however,
they represent something much
more meaningful: a surge in global
competitiveness among Asian
companies, barely visible today,
that will gather momentum as
more and more companies—from
South Korea to Vietnam, from
India to Indonesia—actively eye
best practices, with special scrutiny
of what today’s most successful
Asian globalizers have done.
So what will all of this mean for
the makeup of the global economy
in 20 years? Not even the most
prescient economists can say. But
Asian companies are clearly on
the move. And business leaders
everywhere, as a matter of urgency,
need to track the speed with which
these “people practices” proliferate
among companies they may not
yet have heard of. Many of those
companies are busily taking notes
on how the Olams and Samsungs
are doing things. For they are the
competitors—and quite possibly the
partners— of tomorrow.
About the authors
Arika M. Allen is a Singapore-based
senior manager in Accenture Strategy.
[email protected]
Paul Gosling is the senior managing
director for Accenture Management
Consulting in the Asia-Pacific region.
He is based in Singapore.
[email protected]
Grant D. Powell is the managing
director of the Accenture Innovation
Center in Singapore.
[email protected]
Claire Yang is a managing director
and the lead for the Accenture Talent
& Organization group in Greater China.
She is based in Beijing.
[email protected]
45
Innovation
Big Bang Disruption
The innovator’s
disaster
By Paul F. Nunes and Larry Downes
As business costs are driven ever lower, some companies are creating
disruptive products that are simultaneously better and cheaper than existing
products, right out of the gate. The upshot? Success for those who play
by the new rules of strategy and competition—and disaster for incumbents
who can’t adapt fast enough.
46
Outlook 2013, Number 2
47
Innovation
Nearly everything you think you know about
strategy and innovation is wrong.
The most recent round of improveВ­
ments in information technologies
has changed the game once again,
driving down costs and prices over
time. The challenge now for innovaВ­
tors is to invent products so beloved
by customers that they will pay
more for them despite falling prices.
Given the time it takes to innovate,
that can be a tall order. As a result,
markets are being rocked by a new
kind of offering—one that renders
the traditional price-performance
trade-off irrelevant. New products
and services that exploit today’s
power of IT now enter mainstream
markets not only better but also
cheaper. In today’s fully connected,
always-on world, these new offerings
are also better inteВ­g rated with
the way customers live and work
(in strategy terms, they provide
greater “customer intimacy”). And
word of their superiority in all
relevant dimensions now travels
the globe in a flash, like the latest
YouTube sensation.
The result: Entire product lines
and whole markets are now being
created or destroyed overnight.
Say hello to “big-bang disrupters.”
Once launched, these disrupters
are hard to fight. They don’t just
create dilemmas for innovators.
They trigger disasters.
Innovation on its head
Consider the smartphone, which
has displaced a growing list of
former standalone products,
including digital cameras, calcuВ­
lators, organizers, alarm clocks,
email readers and, perhaps soon,
handheld game devices, electronic
book readers, video cameras and
laptop computers.
48
Outlook 2013, Number 2
When Google launched its free
(perpetually) beta app Google
Maps Navigation, the company
was, as always, looking simply
to drive more eyeballs to more
advertisements by integrating
more already-digital information.
But from the outset, the app outperformed expensive, standalone
GPS devices on every strategic
dimension. It’s cheaper (that is,
free); it’s constantly being updated
and enhanced in real time; and it
offers a more customer-intimate
solution by connecting with other
smartphone apps, including search
results, maps, mail and contacts.
Little surprise, then, that the major
players in the GPS device market lost
as much as 85 percent of their market
cap in the 18 months after the Google
Maps Navigation introduction. Bang!
Industries at risk
The reality of big-bang disruption
is increasingly obvious to anyone
haunting the coffee shops and
venture capital conference rooms
in innovation hubs from Silicon
Valley to Singapore. What is simply
cool for these young entrepreneurs
can be devastating for incumbents
in industries that don’t, and perhaps
can’t, see big-bang disruptions
coming until it’s too late.
The bitter lesson learned: Today’s
innovations come out of left field,
combining technologies seemingly
unrelated to a company’s offerings,
to achieve a dramatically better
value proposition.
Big-bang disrupters may not even
see the incumbents as competition.
Disrupters don’t share the incum­
bents’ approach to solving customer
www.accenture.com/Outlook
needs, and they’re not interested
in offering a slightly better price or
performance with hopes of gaining
a short-term advantage. Usually,
they’re just tossing something shiny
at consumers, hoping to attract them
to a completely different business.
While this new style of devastation
is starting to be recognized in such
information-intensive industries
as consumer electronics, software
and retailing, every industry is at
risk. That’s because information
is increasingly the last remaining
source of competitive advantage
in a wide range of industries,
including automobiles, financial
services, education, food and other
commodity goods.
Disruption is now attacking even
hard-asset businesses. Consider the
impact of new smartphone-based
applications such as Lyft, SideCar
and Uber on mature taxi and
limousine services. These new
businesses allow customers to order
and pay for rides with a mobile
device, track dispatched rides
using location services and rate
the driver after each trip.
Nothing about the new services is
proprietary or particularly hard to
duplicate. But the common response
of incumbents so far has been to
focus their efforts on convincing
regulators to ban the new entrants
rather than figure out how to
compete with them. That response
is both predictable and stereotypical.
It is also counterproductive.
Customers have been quickly
galvanized through social media
to fight back—so far, successfully.
Regulated industries are especially
vulnerable to information-driven
big-bang disrupters. When the
law implicitly or explicitly limits
internal competition and bars new
entrants, businesses have little,
if any, incentive to innovate. Taxi
service is just one example. CountВ­
less other industry sectors have
also fallen far behind the digital
revolution. And once the disrupter
finds a way in, the collapse is that
much more sudden.
In Accenture’s ongoing study of
the phenomenon, we have already
identified big-bang disruption in
more than 30 industry segments
that cross all economic sectors.
Regulated industries
are especially vulnerable
to information-driven
big-bang disrupters.
Lawbreakers
A generation of executives has
been schooled in the iron law that
says companies must pursue one
“strategic discipline” at a time—they
can aim to be the low-cost producer,
the innovation leader or the most
customer-intimate, but not all three
at once. Big-bang disrupters, who
are often entrepreneurs with little
training and even less business
experience to unlearn, present a
stark contrast. They are, to coin
a phrase, thoroughly undisciplined.
For decades, strategists were taught
to focus with religious intensity
on only one dimension of strategy,
or they risked, as strategy guru
Michael Porter famously said, getting
“stuck in the middle.”
Today, innovators are no longer
bound by this orthodoxy. Thanks
to advances in IT and development
platforms, the costs of innovation
have declined dramatically. InnovaВ­
tors can now experiment, cheaply
and rapidly, directly in the market
using off-the-shelf component
technologies. And because each
of those components will soon
be cheaper, they can keep their
per-unit innovation costs lower
than the predictable decline in
production and delivery costs.
VoilГ : better and cheaper.
49
Innovation
Consumers have
become accustomed
to astonishing
products, and are
always poised for the
next better-on-alldimensions innovation.
Couple in-the-market development
with modular and platform-based
interconnectivity, and you have an
offering that is almost certain to be
highly customer-intimate as well.
Likewise, followers of innovation
pioneer Clayton Christensen have
been trained to look for disruptive
technologies in the form of lowerquality substitutes that enter
mainstream markets first by
picking off a company’s worst
customers and then, as technology
improves, by moving up to
become competitive.
Under Christensen’s approach,
executives who saw the early
signs of disruption had time to
respond. They could avoid what
Christensen called “the innovator’s
dilemma” by starting internal
skunk-works projects to test the
disrupter and get ready to shift
when price and performance
made the product acceptable to
mainstream customers.
But now that technology platforms
make mass distribution instantaВ­
neous and empower consumers to
benefit from near-perfect market
information from the most trusted
source of all—one another—the pace
of the solutions recommended by
Christensen proves catastrophic.
Winners take all
Consider as well the impact on
marketing. Following the longvenerated innovation dissemination
model of sociologist and theorist
Everett Rogers, Geoffrey Moore
wrote in the 1990s that successful
new-product introductions followed
five discrete stages, moving from
early adopters to mainstream users,
but only after crossing a marketing
“chasm” in which the sell message
changes from the new and exciting
to the familiar and incremental.
50
Outlook 2013, Number 2
Big-bang disrupters, however, enter
the market in only two stages—first
to trial users (who are often de facto
co-developers and co-funders) and
then to everyone else. Because they
need not weigh the strategic tradeoffs of an incumbent’s new offering,
big-bang disruptions can be marketed
to every segment simultaneously,
right from the start. When the iPad
arrived, it wasn’t just for people
who couldn’t afford a laptop. Every
millionaire wanted one too.
Winner-take-all markets are
often the result where even the
second-place business in the sector
fails to see high profit margins.
Take the example of Sharp Corp.,
the once-dominant maker of
LCD panels. The electronics company
saw a severe decline in its share
price in 2012, due in part to
its underperforming television
business, despite the fact that its
products compare favorably with
those of the manufacturer that
consumers rate highest on most
online evaluation sites.
But the path is not always smooth
for successful big-bang disrupters,
and they often leave the market as
rapidly as they entered it. Instead
of a gradual decline as markets
mature, the crash comes quickly.
Consumers have become accustomed
to astonishing products, and are
always poised for the next betteron-all-dimensions innovation. As
industries fade into the sunset,
a lone incumbent, serving a market
for nostalgic customers, may yet
find a profitable niche. Still, such
a market is rarely little more than
a shadow of the original.
More bucks for your bang
To survive—and even thrive—amid
big-bang disruption, companies
must learn the new rules of
strategy and competition. The key
www.accenture.com/Outlook
is to understand the new lifecycle
of innovation, which loosely follows
the metaphor of the big-bang theory
of the universe. The new cycle
consists of four parts: the slow
drawing together of matter and
energy (the Singularity), the
explosion and expansion (the Big
Bang), the collapse of what’s known
(the Big Crunch) and the calm
before the next storm (Entropy).
The Singularity:
Find a truth teller
To combat the failure of traditional
competitive intelligence, senior
executives must find their
“truth tellers.”
Big-bang disruption happens in
large part because experimentation
with a wide range of new, often
off-the-shelf component technologies
has become both low-cost and
low-risk. Many, many failures are
likely before the right combination
is found and proven to be costeffective. Often, the winning
innovation is simply the one that
combines the right technologies at
the right time with a new way of
doing business. Think, for example,
of Amazon.com’s success with
the Kindle, which came only after
years of failed e-reader products
that had both the wrong hardware
and the wrong business model.
For incumbents, the failed early
experiments send false signals,
lulling executives into the misВ­
guided belief that the disrupters
are not ready for prime time.
Rather, direct market tests are
often, perhaps unconsciously,
like artillery barrages. They are
The end of conventional wisdom
The fallout from big-bang disruption includes radically new ways of
thinking about strategy, marketing and innovation.
Conventional wisdom
Big-bang wisdom
Focus on only one
strategic “discipline”
or “generic strategy”—
low cost, production
innovation or customer
intimacy.
Strategic
discipline
First target a small
group of early adopters
and later enter the
mainstream market.
New-product
marketing
Seek innovation in
lower-cost, feature-poor
technologies that meet
the needs of underserved
customer segments.
Innovation
method
Compete in all three
disciplines at once.
Market to all segments
of users immediately.
Be ready to scale up—
and exit—swiftly.
Seek innovation through
rapid-fire, low-cost
experimentation on
popular platforms.
Source: Accenture analysis
51
Innovation
“walking their fire” onto the real
target, step by step, homing in on
the right combination of technologies
and business model that will, once
launched, suddenly disrupt mature
markets and dismantle long-stable
supply chains. It is then that they
level their full barrage.
Enter the truth tellers. These are
industry experts with profound
insights into new technologies and
customer behaviors, who can
predict earlier than anyone else
when small tremors signal imminent
earthquakes. Often, they are people
who spend their careers working
in the industry, and share a unique
passion for its mission, its products
and its customers.
One example is the North American
executive of a Japanese carmaker
who drove the company’s decision
to launch a new brand of luxury
vehicles, based on his insight into
fundamental shifts in income and
spending in the US market. His
truth telling played an essential
role in the carmaker’s ongoing
operations at the time.
Truth tellers—named for the char­
acters on soap operas who move
the plot forward by revealing big
secrets—are often eccentric and
Rapid take-up
Big-bang disruptions don’t follow the usual pattern of customer adoption famously described by management guru
Everett Rogers. According to his model (shown in brown), new products sequentially gain popularity with five market segments.
The big-bang model (shown in red) is taller and much more compressed: New products are perfected with a few trial users
and then embraced quickly by the vast majority of the market.
Traditional technology adoption versus big-bang disruption
Big-bang market segments
Rogers’ market segments
Trial
users
Vast
majority
Innovators
(2.5%)
Early adopters Early majority
(13.5%)
(34%)
Source: Accenture analysis
52
Outlook 2013, Number 2
Late majority
(34%)
Laggards
(16%)
www.accenture.com/Outlook
difficult to manage. They speak
a strange language, one that isn’t
focused on incremental change
and the next quarter’s results.
As a result, they may be found
outside your organization—they
may even be customers. Learning
to find them is hard. Learning to
listen to them is even harder.
The Big Bang: Exploit
near-perfect market information
Big-bang disruption, once created,
enters the mass market at ultrahigh speed. Instead of a slow,
predictable process involving
several discrete, sequential market
segments—like the five-stage
technology adoption curve model
made famous by Everett Rogers—
big-bang disrupters need worry
only about two main categories
of users: what we call trial users,
and everybody else. In this stage,
the goal is selling to everyone
else—and fast.
The sudden success of big-bang
disrupters is driven by easy
access to market opinion, facts and
comparison data, which creates
something ever closer to consensus
market opinion. The same platform
that developers use to create and
deliver their disruptions is now also
used by consumers to communicate
with one another to determine
their shared judgment.
With ubiquitous and mobile
networks, retailing all manner of
goods and services has entered
a new world. Rather than sellers
broadcasting select information
to potential customers, consumers
now pull information from other
consumers on price, quality and
customer service, whenever and
wherever they are. Advertising
is both customized and timely,
and often comes in the form of
trusted referrals.
That means when the right combiВ­
nation of component technologies
and business innovations comes
together, everyone knows about
it instantly. Takeoff is immediate,
and vertical. The model of the
innovator’s dilemma no longer
applies; now, for incumbents,
it’s the line of sudden death (see
chart, opposite).
The success of big-bang
disrupters is driven by
easy access to opinion,
facts and comparison
data, which creates
something ever closer
to consensus.
The availability of near-perfect
market information also means
consumers make fewer mistakes.
They don’t buy a mediocre product
simply because manufacturers
invest in more advertising. They
wait until the right version—
smartphones, 3D televisions,
electric cars, solar power—emerges.
Almost-there versions don’t sell
poorly—they don’t sell at all.
Maintaining an intimate connection
to trial users—the co-developers
and, thanks to crowdsourcing
services such as Kickstarter,
co-funders—is therefore critical.
The new development model creates
early users with a vested interest
in new products, building intense
loyalty to the concept, if not to
a particular implementation.
Take, for example, the “smarthome”
initiative of consumer electronics
company Belkin International.
Known as WeMo, the smartphone
and tablet application has been
designed to enable users to create
specific commands for on/off
switches of basic home functions
and electronics, like lights. The
company solicits and publishes user
ideas for commands on its website,
and when commands become
popular enough—such as “If the
Weather Channel says the sun has
set, then have WeMo switch on
53
Innovation
For further reading
“Big Bang Disruption” by Larry
Downes and Paul F. Nunes, Harvard
Business Review (March 2013): http://
hbr.org/2013/03/big-bang-disruption/
Accenture Technology Vision 2013:
The Latest IT Trends and Innovations:
http://www.accenture.com/us-en/
technology/technology-labs/Pages/
insight-technology-vision-2013.aspx
The Laws of Disruption: Harnessing
the New Forces that Govern Life and
Business in the Digital Age by Larry
Downes (Basic Books, 2009)
For more related content,
please visit www.accenture.com.
the lights”—Belkin integrates
them into the app’s default list of
commands for all WeMo users.
The Big Crunch: Collar your risk
Not everyone is swept away by the
onslaught of a big-bang disrupter.
Some companies do survive, in
many cases emerging in the new
version of the industry in a position
of greater leverage and profitability.
But how?
The first step requires toughminded management, sufficiently
steeped in big-bang strategy, that
can quickly overcome the emotional
response to traumatic change and
take decisive action. Assets must
be shed, products must be retired,
business models allowed to sunset.
Only then can incumbents unlock
the hidden value of core, often
intangible, assets.
Incumbents are trapped by their
balance sheets. Traditional
accounting still leads management
to concentrate on the value of
hard assets rather than expertise,
brands, patents and human resources.
But in a fight against big-bang
disruption, intangibles are often the
most valuable assets incumbents
have—perhaps the only ones that
don’t quickly become liabilities.
Knowing what they are and
understanding their true worth
can make all the difference.
A big-bang disruption sets off
a rapid decline in the value
of physical assets. To compete
with undisciplined competitors,
incumbents must prepare for
the immediate evacuation of
current markets and be ready to
liquidate once-strategic assets. It’s
important not only to shed mature
technologies that will rapidly become
54
Outlook 2013, Number 2
obsolete but to do so before they
become worthless.
In the semiconductor industry,
for example, fabricators are now
hedging investments in new
capacity by contracting to sell plants
at a future time and price, often
before those plants are even built.
Return on residual assets can be
time-sensitive, to say the least.
Even for the innovators—or perhaps
especially for them—collaring risk
early on is essential to surviving the
shift to the next big-bang disruption.
A new kind of diversification can
also provide a valuable hedge
against disruption. As industry
change becomes less cyclical and
more volatile, having a diverse
set of businesses is vital. Industry
leaders may have a hard time
committing themselves fully to
transformation, creating an opening
for perennial second-banana
incumbents to shed their assets
first and take their expertise,
brand and intellectual property
into other industries where change
is happening at a slower pace. When
the film-based photo industry
collapsed, it was Kodak, not
Fujifilm Corp., that went bankrupt.
Entropy: Ride off
into the sunset
In entropy, the big-bang process
comes full circle. The old industry
is dead, and a new one has risen
from the ashes. Some incumbents
are gone, new ones are created
and supply chains are transformed
into ecosystems. The new industry
now waits for pressure to build and
technology to advance through
a new generation of failed market
experiments, signaling the start
of the next shift.
www.accenture.com/Outlook
Companies must look closely
at the phenomenon of industry
sunset. How do assets get liquidated?
How do old technologies and the
facilities needed to manufacture
and distribute them get recycled
or retired? What financial tools are
available to smooth the transition,
even for industries that are “too
big to fail”?
For industries in sunset, the entire
supply chain is affected. Often,
it is distributors, agents, retailers,
financiers and others indirectly
involved in the actual production
of obsolete products who feel the
full impact of big-bang disruption
first and most acutely.
While smartphone makers now
sell billions of products, that volume
is dwarfed by those who sell
the peripheral products—cases,
headphones, chargers—and service
contracts, network connections and
apps, not to mention the component
parts. All of these providers need
to consider the potential big-bang
disrupters of their fountainhead,
and the need to balance the past
with the possible future.
In the new diversification, the
successful launch of a big-bang
disruption only buys you a license
to try again. And in doing so, your
biggest competition becomes
your own success. Serial big-bang
disrupters effectively put themselves
out of business first, emerging
as new enterprises that share the
same name but often little else.
Successful brand associations and
truth-teller networks may be their
most valuable assets.
Vital to the new incumbents’ ability
to launch more big-bang disruptions:
leveraging disruptive technology
and abstracting the business model
(along with its marketing, human
resources and IT systems) so that the
business overall is reimagined as a
platform for a wide range of other
businesses—which companies such
as Amazon have done successfully.
In the end, the collapse of the
old market is as dramatic as
the uptake of the new market.
One incumbent often remains,
servicing the needs of older
customers and sentimentalists
who buy or keep the old products
out of a sense of nostalgia. But
only one.
About the authors
Paul F. Nunes is the managing
director of research for the Accenture
Institute for High Performance. He is
based in Boston.
[email protected]
Larry Downes, a fellow with the
Accenture Institute for High Performance,
is based in Silicon Valley.
[email protected]
As with any such change of this
magnitude, we are only beginning
to appreciate the myriad impliВ­
cations of the rise of big-bang
disrupters. There are numerous
details of strategy and risk
management in each of the four
phases that we have only begun
to touch on here. Executives
must ascertain the movement of
disrupters in their own industries,
and begin to put in place the
capabilities necessary for success
in a world that doesn’t play by
the old rules of business.
Embracing the new rules that
underpin a big-bang strategy is
not for the faint of heart. It will
take commitment, vision and
a strong constitution. Because
while big-bang disrupters are at
times predictable, and their effects
at times felt early, their ability to
upend in an instant is profound.
Business managers should heed the
tacit warning given by a character
in Ernest Hemingway’s novel,
The Sun Also Rises, about the
ways businesses fail. When
asked how he went bankrupt, he
replies, “Two ways. Gradually
and then suddenly.”
55
Risk Management
The art of managing
innovation risk
By Adi Alon, Wouter Koetzier and Steve Culp
Improvisation and experimentation can lead to big, breakthrough innovation.
And innovation, fused with an agile, sophisticated approach to risk management,
can create a powerful, value-driving partnership.
56
Outlook 2013, Number 2
Risk Management
Innovation can be a company’s most powerful tool
and a key driver of value. Yet many executives,
fearful of the risks inherent in pursuing edgy
new ideas that may not succeed, hesitate to
unleash its full potential. They prefer, indeed,
to renovate rather than to innovate.
For example, fully 64 percent
of the 519 companies in
Accenture’s 2012 innovation
survey—a cross-industr y sample
of US, UK and French players—
are still focusing largely on line
extensions. Only 20 percent
view their innovation efforts
as potential game changers.
And just 18 percent say they
are using innovation to drive
competitive advantage.
Some, of course, would argue
that responsible risk management
necessitates a cautious approach
to innovation. Only startups, they
say, can afford to court the risk
of failure. Global companies are
complex entities, held together by
a web of controls. Loosening those
controls to give innovation teams
free rein could incur unacceptable
risks and costs, not only for the
company but for its various stakeholders as well.
That’s why so many big companies
opt to reduce uncertainty by
leveraging a traditional, stage-gate
innovation process.
Stage gates are designed to
identify the best ideas by putting
them through multiple reviews,
or gates. In principle, there’s
absolutely nothing wrong with
the concept—quite the contrary.
Stage gates provide a discipline
and a structure for identifying
problems early in a project’s life,
and allow the project’s sponsors
58
Outlook 2013, Number 2
to keep constant track of the evolving
business case.
The problem, however, is the
evaluation criteria typically used
at each gate. Few decision makers
want to take responsibility for
a failed experiment, so extreme
caution usually prevails when new
ideas are assessed. Opportunities
tend to be defined narrowly.
Moreover, the tools commonly
used to support the process
exacerbate the problem. Based
on retrospective analytics—Net
Present Value (NPV) models, for
instance, are built on market
projections that are calculated
using past trends—they tend to
skew innovation decisions toward
optimizing existing product lines
rather than pursuing new ones.
As a result, promising ideas
are often smothered. And while
many of the innovation initiatives
that do gain approval are low
risk, they offer only low returns—
incremental improvements
that usually do little more than
maintain market share.
The right model
For most companies, the big, breakthrough innovations that deliver
new benefits to customers and thus
create new markets—the sort of
innovation exhibited by Dell when
it pioneered the direct distribution
model for PCs, or by Apple with its
iconic iPad—remain elusive indeed.
www.accenture.com/Outlook
So what do the innovation masters
do differently?
Recent Accenture research shows
that highly innovative companies
are essentially no more likely
to embrace risk than their less
innovative peers (see sidebar,
page 62). But when we investigated
further, we found that they
approach the management of
innovation risk differently—and
that their business models are
critical factors in their success.
Consider, for example, the business
model employed by the venture
capital industry, which finances
most startups. These players know
that most early-stage experiments
will founder—but they also know
that the fruits of just one or two
such experiments could earn back
the investment of their entire
portfolio (and then some).
So venture capitalists take an
active approach to managing the
risks of their investment portfolios,
systematically measuring those
risks to generate returns. They
engage dynamically with their
portfolio companies. Rather than
killing a project that’s running into
difficulties, they try alternative
solutions. But they also move swiftly
and decisively to close failures,
while doubling down on ideas
with promise—and encouraging
ongoing experimentation.
Monsanto: Capturing value from biotech innovation
With the planet’s population growing relentlessly and
available farmland in sharp decline, biotech solutions that
can increase crop yields have become a serious business.
Yet 30 years ago, when St. Louis-based Monsanto Co. first
recognized biotech’s potential significance for its burgeoning
seed business, such genetic modifications were largely
unproven, and investing in them was considered risky indeed.
That’s why the US agribusiness giant decided to hedge its
bets. Monsanto couldn’t know which of the many biotech
ventures then sprouting would actually bear fruit. But by
building up a portfolio of relatively modest investments in
a few biotech experiments—among them, California-based
Genentech and (then) Geneva-based Biogen—it could acquire
knowledge of basic technologies.
The experience gained from participating in such early (and
largely successful) experiments encouraged Monsanto to
develop its own biotech capabilities. In 1984, the company
opened a life science research center in Chesterfield, Missouri.
And three years later, its scientists conducted the first-ever
US field trials of plants with engineered traits.
By the early 1990s, Monsanto was starting to reap the
rewards of its portfolio through research collaborations
and the acquisition of technology licenses. And by the
end of the decade, it was realizing still more value by
acquiring biotech delivery vehicles, genetic enabling
technologies and processing capabilities.
Cases in point: the 1998 purchases of DeKalb Genetics Corp.,
the Illinois-based hybrid corn specialist, and Minnesotabased agribusiness Cargill’s global seed business—an
acquisition that gave Monsanto access to sales and
distribution networks in 51 countries. At the same time,
Monsanto formed a joint venture with Cargill to create
and market new biotech products for the international
grain processing and animal feed markets.
Today, Monsanto is an outstanding example of a company that
has merged innovation and risk management successfully—
a leading practitioner of the sort of proactive approach to
the latter that can fuel true breakthroughs (see story).
Thanks to R&D investments in excess of $1 billion
a year, the company boasts one of the most comprehensive
product pipelines in the agricultural biotech industry.
And its biotech-driven seed business accounts for
almost three-quarters of its annual revenues, which
topped $13.5 billion in FY 2012.
59
Risk Management
Big companies are obviously different. Larger, slower and subject to the
constraints inherent in managing
their core businesses successfully,
they can’t act exactly like startup
investors. But they can afford to
modify their stage-gate processes
to drive more effective innovation.
And they do have much to learn
from the venture capital industry’s
bold yet disciplined approach to
innovation risk management—an
approach that has created such
groundbreakers as Amazon.com
and Facebook.
and models, including small-scale
experimentation and portfolio
management, can actually help
encourage it. They know that by
fusing such a risk management
approach with innovation, they
can create a powerful, valuedriving partnership.
Leading players recognize that
far from stymieing innovation,
sophisticated, state-of-the-art risk
management tools, techniques
A corporate culture that only
celebrates success can discourage
innovation by making people
nervous about taking risks—yet
They focus their innovation risk
management efforts on three key
business areas.
Governance
Salesforce.com: Harnessing agility to restore innovation prowess
When Salesforce.com was launched back in 1999, the San
Francisco-based startup quickly established itself as a leading
innovator of cloud-based CRM applications. Indeed, within
a year or two, it was launching four major software releases
annually and earning many accolades for innovation excellence.
Five years later, however, the pace of innovation had slowed
dramatically, to just one major release a year.
Company management realized that as the R&D team had
grown—it was 200 strong by 2004—it had become less
productive. The team’s phase-based, functionally organized
process, which was largely dependent on a few key decision
makers, had worked well with a small team but wasn’t
working for a significantly larger one. In fact, many people
in R&D hadn’t even participated in a major release, missing
important learning opportunities. And as the number of
releases declined, so did morale.
Which is why Salesforce.com resolved to transform its
innovation process by adopting a more agile approach,
leveraging self-organized, cross-functional teams and
testing new applications, iteratively, with customers.
Risk management, the company believed, would not be
compromised under the revamped approach.
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Outlook 2013, Number 2
The agile development transformation, which enjoyed the
full support of top executives, was an unqualified success.
Within three months of rollout in 2006, teams empowered
by a simple, agile process with a common language
were leveraging customer insights to develop potentially
releasable products every 30 days. What’s more, they had
dramatically reduced the number of “bugs” that would
later need to be addressed—a potentially costly business
in terms of both time and engineering resources.
Significantly, innovation team members enjoyed daily
transparency into metrics around product performance.
They also met in regular group sessions to review the
release progress—and learn from their mistakes, a key
enabler of good governance for companies seeking
to drive innovation by managing risks more effectively
(see story).
With 2012 revenue in excess of $2 billion and more
than 100,000 customers, Salesforce.com is now widely
considered the global leader in enterprise cloud computing—
a position powered by a pace of innovation that persuaded
Forbes to name it “most innovative company in the
world” in both 2011 and 2012.
www.accenture.com/Outlook
no rational organization would
reward failure. Or would they?
Some companies have recognized
that they can allow innovation
teams to make strategically
intelligent mistakes within a
clearly understood governance
framework. This, in turn, enables
a culture that not only tolerates
risk but also embraces failure
as an integral part of the innovation process.
For instance, a large advertising
agency awards a quarterly Heroic
Failure trophy to recognize clever,
unproven ideas that may not work
out in practice but nevertheless
demonstrate creative risk taking.
And an online payroll provider
offers $400 to the winner of its
Best New Mistake award, which
goes to an employee who made
a mistake but learned from it—
and, in doing so, helped other
employees avoid similar mistakes.
The idea behind both awards is to
support creativity by encouraging
openness about errors and rewarding
those who genuinely learn from
their failures.
Some companies also provide
physical spaces—game, nap or
meditation rooms—or specific time
slots during which employees
can feel free to be creative. The
advertising agency, for example,
blocks off a “no meeting zone”
every Thursday morning.
Big companies, by contrast, tend
to fence off the innovation process
by setting up separate innovation
units that operate, in effect, like
venture capital funds. Cases in
point: the $2 billion Novartis
Venture Funds, a wholly owned
subsidiary of the healthcare
products company that reports to
a dedicated advisory board comprised
of mostly external members; and
Intel Capital, a $2.1 billion fund
that reports directly to the tech
giant’s CEO. While these arrangements have had clear successes,
they may be leaving some upside
on the table.
The risks of such arrangements
are well managed, thanks in
part to their governance. But
we believe that companies could
drive even greater benefits by
incorporating the management
of innovation risk into the organization as a whole.
That would help fuel innovation
from the bottom up, while ensuring
that everyone in the company
understands what’s being funded,
how, when and why. It could also
bridge the gap (common in big
organizations) between a risk-averse
finance unit and those operating
units—whether marketing, operations
or product development—on the
innovation front line.
Support creativity by
encouraging openness
about errors and
rewarding those
who genuinely learn
from their failures.
Indeed, risk management groups
could work as standard setters,
providing a common language the
business could use to translate
strategic challenges into specific,
measurable risks, and providing
such risk governance expertise
as oversight committees and
assessment procedures.
Portfolio
Just as a venture capitalist invests
in a broad portfolio of companies
before knowing which of these
investments will actually pan out,
a company can build a portfolio
of early innovation experiments
that act, in effect, like options.
Missouri-based Monsanto, for
example, has been building
61
Risk Management
For further reading
“The Risk Masters,” Outlook 2011,
No. 3: http://www.accenture.com/us-en/
outlook/Pages/outlook-journal-2011risk-masters-risk-management.aspx
For more related content,
please visit www.accenture.com.
a portfolio of biotechnology
investments since the 1980s. As
a result, biotech now anchors its
highly successful seed business
(see sidebar, page 59).
Corning, meanwhile, launched
a similar strategy even earlier—
back in 1959—by investing in
a technology for safer vehicle
windshields. The New York-based
glassmaker’s groundbreaking
invention was priced out of the
auto market a decade or so later.
But essentially the same technology
is used to manufacture LCD
panels—which gave Corning
a competitive advantage when
LCD subsequently became the
dominant display technology in
most consumer devices.
Such companies don’t make their
innovation investment decisions
by looking backward. But neither
do they throw caution to the
winds. Instead, they use risk
management methodologies and
tools to measure uncertainty—
both positive and negative—and
to provide realistic estimates
of outcomes that can facilitate
decision making.
By continually assessing value
against multiple variables and
scenarios, predictive analytics
can help guide these complex
decisions. Risk scenario (or
simulation) analysis, for example,
is a structured, forward-looking
process designed, unlike traditional
SWOT analysis (a structured
planning method used to evaluate
strengths, weaknesses, opportunities
and threats), to discover how
multiple factors combine to create
both vulnerability and opportunity.
About the research
How risk-prone are the innovators? No more so than anyone else, according
to Accenture research.
Indeed, when we examined the 60 US public companies among the 100 included
in Forbes’ list of the world’s most innovative companies, we found that
their beta value—a measure of a company’s share value volatility relative
to market volatility—is only slightly higher than the market average.
A beta of 1 indicates that a company’s share price will move with market
fluctuations, and the beta of the most innovative players averaged only
1.1, clearly tracking the overall market. Neither did we find any correlation
between a company’s beta and its position on the Forbes list.
The Forbes ranking looks beyond such usual measures of corporate innovation
as executive and employee perceptions to how investors perceive risk,
measuring how much they have bid up a company’s stock price on expectations of new products, services and markets—or the “innovation premium”
they ascribe to their investments. But, on average, there is no correlation
between the beta levels of leading innovators and the level of the innovation
premium index. In short, a higher innovation ranking does not translate
into higher risk.
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Outlook 2013, Number 2
www.accenture.com/Outlook
Take, for instance, the large,
global software company that
used a structured simulation to
improve planning for unanticipated
and overlapping responses among
its partners and customers to
a product launch. The analysis
helped identify potential gaps in
the company’s ability to respond,
and gave it greater insight into
the roles, responsibilities, decisionmaking criteria and interactions
of different stakeholders.
Process
With product lifecycles across
industries shortening, successful
innovation often hinges on speed.
And that, in turn, requires a
risk management process that
can shorten learning cycles,
recognize failures early and
make timely course corrections—
a process that facilitates a
companywide dialogue around
which risks are acceptable and
how much risk is appropriate,
based on potential returns.
At Corning, for example, the
company’s R&D, engineering,
manufacturing and commercial
expertise are all harnessed in
support of the innovation process,
from earliest ideation right through
to commercialization. What’s more,
senior management participates
throughout, facilitating swift
decision making and significantly
reducing the time it takes to
launch projects.
With risks well managed,
companies can then use rapid
experimentation and the techniques
of agile development—an iterative
process closely linked to customers
and markets—to boost their
chances of coming up with a truly
profitable innovation portfolio.
That’s what California-based
Salesforce.com did when management decided to jettison the
traditional stage-gate innovation
process in favor of agile development. In fact, since the enterprise
software maven began working
iteratively with the market through
frequent testing, its innovation
prowess has started to return to the
high-octane levels of the company’s
early years (see sidebar, page 60.)
Steve Culp leads Accenture’s
Risk Management group. He is based
in London.
[email protected]
Most companies today have come
to recognize that sophisticated risk
management is a key enabler of
long-term growth and profitability.
What’s more, some companies have
put in place advanced capabilities
to manage their innovation risks
successfully.
Few, however, have developed the
agile, iterative approach that can
drive breakthrough innovation rather
than drowning it—or have created
the risk-tolerant, organization-wide
governance structures that allow
such capabilities to flourish. But
growing numbers realize that with
such systems in place, they could
be confident that their innovation
risks were transparent and well
managed. And they, too, could
start creating dynamic portfolios of
innovative ideas and experiments—
and commit the funds to bring the
best of them to market.
About the authors
Adi Alon is a Boston-based managing
director in Accenture’s Innovation
Performance group.
[email protected]
Wouter Koetzier leads Accenture’s
Innovation & Product Development
group. He is based in Amsterdam.
[email protected]
63
Business Process Outsourcing
A better way to resolve
business conflicts
By Anoop Sagoo, Jeremy Oates and Mary Lacity
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Outlook 2013, Number 2
Having a realistic perspective that life is not perfect is a good thing—whether
you’re a service provider or a client. The ability to settle the smaller issues
promptly and productively lays the groundwork for dealing with more serious,
potentially deal-breaking problems that may arise down the road.
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Business Process Outsourcing
Most companies today have business relationships with multiple partners and collaborators.
The number of strategic alliances across most
industries, for example, has grown steadily
over the past decade.
And a recent study has shown
that 60 percent of companies
worldwide now deploy outsourcing
as a standard practice; an additional
19 percent say outsourcing is
definitely in their future.
As executives adjust to the fact that
relationship building is a significant
part of their job description, they
are running into the challenge that
all relationships, human or corporate,
encounter at some point: stuff
happens—obligations can be misinterpreted; people don’t always get
along; expectations can conflict.
Then what?
In some cases, organizations
involved in long-term business
relationships such as outsourcing
have learned how to resolve conflicts
effectively—overcoming immediate
challenges and ultimately strengthening the overall relationship. In
other cases, however, problems have
spiraled out of control, resulting in
lawsuits and damages in the hundreds
of millions of dollars.
Accenture research points to significant differences in how clients and
providers in outsourcing relationships approach conflict resolution.
On the one hand, there are what we
call “aggressive” approaches, which
focus on maximizing the short-term
commercial interests of one side of
the relationship. On the other hand,
“balanced” and “collaborative”
approaches—approaches to resolution
that are no less conscious of the
significant business implications
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Outlook 2013, Number 2
and costs involved—are able to
forge a path that keeps the relationship viable and helps it thrive
in the long term.
Issues and conflicts
First, some perspective. It would be
highly inaccurate to portray outsourcing or other types of long-term
business relationships as somehow
inherently vexed or inevitably problematic. Indeed, most of the providers
and customers we spoke to in our
research told us that they seldom if
ever had significant conflicts.
That’s because not every little
misstep is a deal killer. One important distinction to make is between
“issues” and “conflicts.” Every
business relationship is going to
encounter minor issues: a service
lapse, a project delay, a difficult
interpersonal relationship, even
something as mundane as a team
member speaking disrespectfully or
wearing too much perfume. Those
are irritations, not conflicts.
When looking at a long-term relationship, both sides need to begin by
acknowledging that such irritations
are not a reason for escalation to a
governance resolution committee.
Understanding that life is not perfect
is a good thing—whether you’re a
leader of a service provider or a
client. Being able to resolve those
smaller issues productively and in a
timely manner lays the groundwork
for dealing with the more serious
problems that may arise down
the road—problems that may be
a source of true conflict.
www.accenture.com/Outlook
Sources of conflict
Based on our research and
conversations with executives,
more serious conflicts generally
arise for one or more of the
following reasons.
Contract wounds
A lengthy contracting phase—
say, more than a year—can end
up being contentious and even
exhausting to those involved,
leaving wounds on both sides that
then affect the attitudes of those
who have to pick up the pieces
and actually deliver the new
outsourced service. Protracted,
unpleasant negotiations can, as one
executive puts it, leave “the sort
of smell that never goes away.”
Unrealistic expectations
Previous research into outsourcing,
focused on IT services, pointed to
a situation dubbed the “winner’s
curse” in the bidding and selection
process. That is, a provider may
“win” a contract after a difficult
bidding war or auction. But then
that provider—now forced to deliver
services at little margin or even at
a loss—may be severely challenged
to maintain sufficient levels of
delivery quality to build a long-term
relationship with the client. Providers
also sometimes feel pushed by
clients to render out-of-scope
services for free, pressured by the
argument that “this should be part
of the provider’s added value.”
With one IT outsourcing relationship
we studied, the client’s extensive
experience procuring products and
services led it to adopt a purely
contract-controlled, power-wielding
approach. This ultimately failed and
led to the breakdown of relations.
The provider needed more guidance
in understanding the client’s
operations, and the parties should
have worked together to clarify
the client’s requirements and
idiosyncrasies. Because this did
not happen, significant conflict
arose between the account managers.
Service levels were low, and the
provider lost money.
For clients, pricing issues—for
example, sticker shock over
a large invoice—were a more common
source of conflict. Clients have
reported being invoiced for services
they considered in-scope or for
calculations about improved
performance (which would then
trigger gainsharing payments)
they considered inflated.
Insufficient information
The situation in the aforementioned
IT outsourcing example was
exacerbated because the client was
replacing an existing provider. The
incumbent knew precisely what
the service provisions would entail,
as did the client, but the new
provider had to make its bid using
only partial information from the
client and competitor. As a result,
the winning low bid was based on
incomplete, incorrect and outdated
information, which then had
ramifications for the level of service
the new provider could deliver.
Even in cases that do not involve
unseating an incumbent, a provider
can suffer from insufficient transparency into the client’s overall
IT situation. Providers sometimes
must bid on the basis of incomplete
information because the IT or
business process environment is
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Business Process Outsourcing
highly integrated in a way that spans
multiple functions, departments and
geographies, making it difficult to
objectively evaluate the actual service
costs and technical requirements of
parts of that environment. Pricing
based on unfounded assumptions
about expected service volumes can
result in low margins or losses for
the provider, prompting a conflict.
Problems with inherited
processes
Conflicts can also arise in business
process outsourcing arrangements
because the BPO provider is held
to service-level agreements for an
entire process—say, procure-to-pay
in a finance outsourcing deal—but
may not actually have control over
everything. Parts of the process
may be run by the client, others by
a third party. Indeed, though it is
hardly a best practice, the provider
may be operating a process that was
actually inherited from the client,
whether or not it was the optimal
way to do things.
One executive from a finance
BPO provider recalls the fateful
moment when he received an
escalation call from the client’s
COO. Problems in accounts
payable had resulted in suppliers
not getting paid, with penalties
and lost discounts happening
left and right. “We immediately
doubled the workforce on point
to address the situation,” recalls
the executive, “and got the
situation under control. Yet our
analysis showed that one in
three invoices had problems on
submission that caused them to
be rejected for processing.”
Benchmarking
Conflicts can also emerge when
either side of the outsourcing
relationship misuses external
benchmarking results. Clients
may contend that, based on the
benchmark, prices are inflated.
The provider may dispute the benchmark, claiming the comparison is
unfair. For example, in one case,
a client claimed that based on a
current benchmark, its provider’s
price per function-point (a measure
of a unit of software) was high.
The provider argued that the
benchmark might be appropriate
for an environment based on
newer technologies, but that it
had to maintain the client’s old
information systems. The provider
could not meet the best-in-breed
price without seriously eroding
its margin.
Another provider responded to
a pricing conflict prompted by a
benchmark by pointing out that
a provider’s margin is averaged
over an entire basket of services.
Although the basket is fairly priced
overall, within the basket, some
services will be overpriced and
some will be underpriced. According
to one legal advisor we interviewed:
“Objective benchmarks don’t
help when one or both parties
are hurting. The parties need a
mediator to help negotiate what
changes might be needed.”
Resolving conflicts: Three approaches
When conflicts occur in an
outsourcing relationship, how
the parties approach resolution is
crucial. We found three common
approaches to resolving significant
conflicts: aggressive, balanced
and collaborative.
Aggressive
Aggressive conflict-resolution
approaches are characterized by
a party’s spirited defense of its
own commercial interests, without
consideration of the effect on the
other party’s commercial interests.
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Outlook 2013, Number 2
It’s more like haggling over the
price of a used car than talking
about the potential value to be
produced by an outsourcing
arrangement. One party digs in its
heels, and the other party normally
reacts with a similarly aggressive
stance. At best, this approach
produces results that weaken the
relationship; at worst, it leaves the
partnership mortally wounded.
In one situation, for example, the
client and provider escalated the
fight over gainshare calculations
to a formal dispute. The provider
calculated a multimillion-dollar
gainshare, claiming it should be paid
for new products and pointing to
new material codes as evidence. The
client refused to pay, claiming that
it was purchasing the same material
and that the vendor was simply using
different product codes on the newer
models. Was it new wine or just old
wine in new skins? Differences of
opinion on the matter eventually
resulted in a conflict that escalated
to a formal dispute.
This aggressive approach resolved
the conflict, but the partnership
was weakened, according to the
client: “It went all the way to dispute
www.accenture.com/Outlook
process, and it left an incredibly
bitter taste with our executive
team.” Eventually, the client
switched providers and negotiated
a better gainsharing mechanism
with its new partner.
Executives we interviewed were
quick to point out that conflict
resolution can often result in
a stronger outsourcing relationship—
just as, in human relationships,
the ability to face adversity together
can bring people closer. However,
this positive interpretation of
conflict was never an outcome
when the two parties took the
aggressive approach to resolution.
As one provider executive puts
it, “In most cases, there is shared
responsibility between client and
provider when things go wrong, but
what may happen is a great deal of
posturing and positioning to put
one side or another in the best light.
That’s when, instead of sitting down
face-to-face to resolve matters to
both parties’ benefit, you begin to
get the official letters written by
legal teams. Then almost inevitably,
you’re on a path where someone
is going to win and someone is
going to lose. And from one point
of view, everyone then loses.”
Balanced
If the aggressive approach is
characterized by the need to win
every battle, the balanced approach
takes an attitude that, over the
life of the outsourcing relationship,
“you win some, you lose some.”
That is, advantages temporarily won
by one side or the other tend to even
out over time. Clients and providers
are tough but fair negotiators.
When conflicts arise, they are
resolved quickly and often result in
strengthening the partnership.
In one healthy BPO relationship we
studied, we found ongoing cycles
of give-and-take. For example, the
provider did not charge a client
for five extra staff people it added
to meet an unanticipated surge in
service volume. A few weeks later,
the client did not demand service
credits when the provider missed
a performance metric. Both parties
feel that the overall commercial
relationship is fair and mutually
beneficial. In a way, this approach
is reminiscent of how friends may
alternate in picking up the check
when they go to lunch over the
course of a year.
Though a balanced approach is
certainly better than the scorchedearth approach of aggressive
negotiating, its weakness is that
it can result in a situation where
the quality of the overall service—
and of the relationship—does not
necessarily get better.
Collaborative
Collaborative approaches to conflict
resolution are characterized by
close partnerships in which both
sides seek to understand each other’s
concerns. Account executives from
both client and provider look for a
win-win solution and then, together,
present a united front to sell
the solution to their respective
organizations. In this approach,
conflicts can be resolved in a
way that actually strengthens the
partnership in the long run.
While the collaborative approach
is the most desirable approach, it
requires deep commitments from
both parties. In fact, in some highperforming BPO relationships,
the partners do not even call
circumstances that could adversely
affect one of the parties’ commercial
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Business Process Outsourcing
interests a conflict—they consider
them problems to be solved.
The client in one finance outsourcing
arrangement we studied claims
there has never been a significant
conflict. He says: “We’ve always sat
down and found a common ground
or financial outcome that is in our
mutual interest. Obviously, there
are times when I’ve said, �Enough
is enough, this is as far as I go.’
I explained why I think it is fair,
why I won’t go any further. I never
had the provider coming back and
saying �no way’ on that.”
Do these partners argue? Of
course—particularly when a situation has significant commercial
implications. In one instance, after
back-and-forth debates, one client
and its provider agreed that they
had to find a commonsense solution
to a particular problem rather than
relying on the letter of the contract.
The parties split a settlement.
The lesson here is that a contract
model does not necessarily produce
a “fact” that is understood and
agreed to by all sides but instead
produces a starting point for a
conversation. Ideally, the client
lead and the provider account
executive will attempt to work
out an equitable approach before
conflicts get escalated to a formal
grievance hearing in front of a
governance board.
Rules of engagement
Where collaborative approaches to
conflict resolution are in place for
outsourcing partners, we see a number
of common rules of engagement.
We’re in this together
Attitudes affect intentions, and
intentions affect behavior. Collaborative approaches to conflict resolution
therefore begin with an attitude that
can be called a “partnership view”—
one in which a client regards the
provider as a strategic partner rather
than as an opportunistic vendor.
This mindset results in certain
behaviors—such as resolving conflicts
fairly and protecting both parties’
commercial interests—that produce
better long-term results for both the
client and the provider.
Here’s how one provider executive
describes what he calls “the
true partnership” his company
has with one BPO client: “They
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Outlook 2013, Number 2
understand what our cost drivers
are, and they realize it’s a zero-sum
game. They know that if they
want more value someplace else,
we have to work together on what
our goals and priorities need to
be and how we best allocate
spending to achieve those goals.”
At one point in the relationship,
when a conflict arose over how
savings were to be calculated, having
that partnership view in place was
important in achieving resolution.
According to the provider executive,
“We basically said, �Okay, we
understand you better.’ And they
said, �We understand that you need
to claim value, so let’s work together
to define a little more clearly what
value means.’ ”
All problems are “our” problems
The foundation for collaborative
conflict resolution is built by the
www.accenture.com/Outlook
way partners resolve service issues.
In effective outsourcing relationships, the partners view any problem
as a shared problem. Rather than
starting with commercial demands,
the two sides perform a root-cause
analysis, then identify the best
solution that keeps both sides’
commercial interests at the forefront.
One provider elaborates: “The
client is very open when they are
not getting an outcome that they
want. That allows us to look at the
problem not just in terms of what’s
in scope or what’s not. Instead,
we work together to stay focused
on the outcome we’re both looking
for. What do we want, and how do
we work together to achieve that?”
In our research, we saw evidence
of many business relationships
that had mastered collaborative
conflict resolution. At one global
finance outsourcing program,
the client and provider reported
that although the transition
to outsourcing generally went
well, the internal help desk
became overwhelmed by the
volume of calls and the percentage
of escalated calls. Rather than
immediately blame the provider,
the client offered to take back
the help desk duties temporarily
to give the provider time to
address the situation.
One client executive explains
the benefit of the collaborative
approach this way: “Other clients
might have said [to the provider],
�This is your problem, don’t bother
me.’ My attitude instead was,
�We are in this together.’ I find
that the [provider’s] folks come
to the table and are open and
honest about what they are doing.”
That attitude paid off. The provider
diagnosed the problem, and the
partners developed an interim
fix as well as a long-term plan to
improve service.
As much as possible, operate
based on facts not emotions
When things go wrong, emotions
often run high. Business might be
suffering. People might feel—perhaps
rightly—that their jobs, reputations
and careers are on the line.
An important first step is to get
all the facts out so that subsequent
discussions move beyond emotions
to reasonable interpretations of
those facts and then to what needs
to be done to resolve the situation.
“Good governance structures are
essential,” says one executive,
“having set procedures and policies
for making decisions when a wheel
goes off the track.” But you also
need to have the two most senior
executives from both sides be willing
to sit down together in private to
work things out. Adds the executive,
“Sometimes, conflict resolution
between two multibillion-dollar
enterprises with lots at stake can
really come down to two people
sitting down over coffee and working
it out. You need good governance,
don’t get me wrong; over time, you
don’t want every major decision
being made by two people over
an espresso. But there really are
times when major conflicts can
be avoided when you have largespirited people who have the vision
and courage to keep the big picture
in mind at all times.”
A relationship manager has a
full-time or near-full-time role
As noted, the pricing and contractual
phase of the relationship can
create an adversarial environment.
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Business Process Outsourcing
For further reading
“Masters of the mix,” Outlook 2013,
No. 1: http://www.accenture.com/
us-en/outlook/Pages/outlookjournal-2013-masters-of-the-mixoutsourcing.aspx
“Partners in high performance,” Outlook
2012, No. 2: http://www.accenture.com/
us-en/outlook/Pages/outlook-journal2012-partners-in-high-performanceoutsourcing-bpo.aspx
For more related content,
please visit www.accenture.com.
Providers are sometimes uncertain
that they can even recover their
costs, much less make margins. In
these cases, the provider will need
to concentrate disproportionately
on recovering costs, under pressure
from senior managers, a situation
that results in trade-offs not
ultimately beneficial to the client.
Concern over cost containment can
lead to inflexibility in interpreting
the letter and spirit of the contract,
which, in turn, can lead to an
adversarial relationship.
The solution for one troubled IT
outsourcing arrangement we studied
was the appointment by the client
of a full-time relationship manager.
Part of that manager’s job was
aligning the provider’s organizational
structure with the client’s. The client
simply had taken the structure of
the incumbent supplier and moved it
over to the new supplier—a situation
that did not succeed at all.
Consequently, the client formalized
its management reporting processes,
outlining senior management
meetings at which supplier
performance would be monitored
and reviewed. That would then
determine when payments and
bonuses got paid.
The partners are transparent
Collaborative approaches to resolving
issues or conflicts require high
levels of trust and honesty. From
a practical perspective, that means
being transparent about a range of
issues from general goals to specific
pricing concerns.
Transparency was one of the top
three things interviewees cited
when asked about the secrets to
great collaboration. In the words
of a delivery manager at a provider
for a global technology conglomerate,
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Outlook 2013, Number 2
“We know exactly what the client is
looking for because they are open
with us about the key performance
indicators they’re being measured
on. That way, we can then say,
�Let’s figure out a way we can work
together on hitting those metrics.’ ”
The partners care about
and protect each other’s
commercial interests
In collaborative approaches to
conflict resolution, each side
cares about the other’s commercial
interests. This is not mere altruism;
it is actually in the client’s best
interest to care about and protect
the provider’s commercial interests,
and vice versa, because service
performance is tied to financial
performance.
The need to be concerned with
each other’s financial viability was
confirmed by earlier research we
conducted into IT outsourcing. In that
research, for example, we investigated
what happened to outsourcing
performance when providers failed
to meet their margins. In 15 cases
of missed provider margins, 80
percent reported poor outsourcing
performance. In 70 cases when the
provider met its target margins,
only 27 percent reported poor
outsourcing performance.
Since the aim was to create a new
commercial deal that benefited
both parties, partners were willing
to renegotiate when one party was
financially disadvantaged. In one
IT outsourcing arrangement we
studied, the provider had made a
number of naГЇve assumptions about
the work involved and the resources
that would be necessary. The provider
had no choice but to alert the client
and request an early contract
renegotiation. The client responded
www.accenture.com/Outlook
favorably. Although the renegotiation
phase was stressful for both
parties, the ultimate outcome was,
in fact, a positive experience for
the long-term relationship.
On one account, the initial contract
was priced using different rate
cards for different types of work.
After the transition, the client came
to the provider and explained that
its business case was not being
met because it had underestimated
the complexity of the pricing
mechanism and the range of skills
needed. The client asked to renegotiate the pricing mechanism.
The provider agreed to a flat rate
card in exchange for a longer
contract and an increased scope
of work. Both parties negotiated
a better deal, and the relationship
is now a high-performing one.
About the authors
Anoop Sagoo is the Accenture
Business Process Outsourcing area
lead for the Asia-Pacific region.
He is based in Singapore.
[email protected]
Jeremy Oates is the Accenture
Technology area lead for Europe,
Africa and Latin America. He is
based in London.
[email protected]
Mary Lacity is Curators’ Professor
of information systems at the
University of Missouri-St. Louis.
[email protected]
As we have noted, true conflicts—
circumstances that put the
commercial interests of one of
the parties at high risk—are not
common in outsourcing relationships.
Indeed, many of the partnerships in
our case study research have never
experienced a significant conflict.
Nonetheless, just one serious
conflict can, if not successfully
resolved, cost a party hundreds of
millions of dollars.
As the outsourcing market evolves
into more sophisticated pricing
models and broader scopes of
services, some miscalculations
and unfounded assumptions
are to be expected, even if only
occasionally. Preparing for potential
problems by learning about the
collaborative approach to conflict
resolution is a little like buying
flood insurance—the risk of your
home flooding may be only one
in 1,000, but it is comforting to
know you’re covered.
73
Talent & Organization
A healthy
talent advantage
By David Smith, Breck Marshall and J.P. Stephan
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Outlook 2013, Number 2
The challenges are daunting. But by weaving healthcare coverage decisions
into their talent strategies, and by managing the implications of the
Affordable Care Act as a strategic change program, US companies can
capitalize on opportunities to create a unique value proposition for current
and prospective employees.
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Talent & Organization
There are a lot of things that keep executives
awake at night, but employee healthcare benefits
traditionally has not been in the top 10. In the
United States, however, that situation has changed.
Today, senior-level leaders, and
not just their HR departments,
find themselves wrestling with
the implications of the Affordable
Care Act—the national healthcare
plan approved by the US Congress
during President Obama’s first term.
The legislation has confronted
employers with a welter of complexities and seemingly endless
questions on matters ranging
from portability to penalties for
noncompliance. Depending on
your answers to these questions,
your company may or may not
want to continue offering its own
healthcare coverage. You may or
may not wish to provide employees
with access to a health insurance
exchange. You may or may not
need to pay a penalty.
And you may or may not feel the
need to take a long vacation after
deliberating on these matters.
As challenging as these healthcare
changes are in the short term, they
also offer an opportunity to create
a unique value proposition for a
company’s current and prospective
employees. By weaving healthcare
coverage decisions into their talent
strategies, and by managing the new
healthcare situation as a strategic
change program, companies can
capitalize on opportunities to create a
talent advantage.
Complacent and confused
Beyond all of the new rules and
regulations, an important concern
for executives planning a proactive
response to new healthcare options
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Outlook 2013, Number 2
is that a certain complacency about
the coming changes can be seen
among employees. The Affordable
Care Act will introduce approximately
51 million people to the individual
healthcare marketplace, shifting
industry dominance away from
employer plans and from a wholesale
to a retail model. Yet the implications
for both cost and personal responsibility are only dimly understood,
by employee and employer alike.
According to a recent Accenture
healthcare study, almost two-thirds
(62 percent) of all consumers in the
healthcare marketplace list “affordability” as their top concern when
it comes to choosing a healthcare
plan. Yet only 20 percent are willing
to change their primary care doctor
for regular office visits, and only
39 percent are willing to use a nurse
practitioner instead of a doctor for
routine health checkups. These are
some of the most obvious steps consumers can take to make their plans
more affordable, but relatively few
actually wish to change their habits
and routines (see chart, opposite).
Other research paints an even
grimmer picture—one of almost
total bewilderment among average
citizens. In 2012, pollsters from
Stanford University quizzed
thousands of Americans about
the basics of the new healthcare
legislation, including identifying
statements according to whether
they were or were not part of the
actual law. Zero percent—that’s
right, no one—answered all of
the questions correctly. Only
14 percent of respondents were
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able to answer even a simple
majority of questions correctly with
a high degree of certainty.
reactive in terms of the guidance
provided by HR.
By contrast, companies seeking
an advantage in recruitment
and retention will take the time
to understand their workforce,
not monolithically but in a way
more attuned to different segments
of the employee population
with different circumstances
and healthcare needs. In this way,
HR representatives can offer more
proactive and helpful guidance.
What does this complacency
and confusion mean? In part, it
underscores the need by companies
to approach the new healthcare
situation as a major organizational
change program, not simply as
a benefits-related event confined
to the HR sphere or something
that can be addressed by making
a few classes or online knowledge
resources available.
Such companies will also prepare
their frontline managers and
other supervisors to be agents
of change. This means coaching
them about the impact of healthcare reform on the organization
and its people so that they, in
turn, can set expectations with
employees, be positive rather than
The talent advantage
This is where the opportunity arises
to transform the healthcare challenge
into a talent advantage. HR administrators and staff will continue to
advise employees about healthcare
benefits. But a typical company is
likely to remain fairly passive and
disparaging about the situation,
help people understand and take
ownership of the impact, and
in general help employees feel
like an active part of the change
rather than its passive victim.
Formulate a strategy
When thinking about the
implications of healthcare legislation
for your talent strategy, you
should ask a series of important
questions that support more
effective decisions.
1. What are your industry’s
unique talent needs?
It is important to consider the particular talent attraction and retention
strategies unique to your industry
and business. In the services and
Mixed signals
According to the 2012 Accenture Healthcare Consumer
Survey, 62 percent of consumers are most concerned about
the affordability of their healthcare. . .
. . . but low percentages are willing to make basic
changes in their use of healthcare resources to reduce
their cost of coverage.
Percent ranking these factors most important in their choice
of a healthcare program
Percent who indicated willingness to make the
following changes to save money on healthcare
Access
14
Quality
Change the hospital where
I would go for inpatient care
45%
Use a primary care doctor
instead of a specialist
42
21
62%
3
None of
the above
Affordability
Use a nurse practioner instead
of a doctor for routine visits
Change the primary care doctor
that I see for regular office visits
39
20
Source: 2012 Accenture Healthcare Consumer Study
77
Talent & Organization
retail sectors, for example, turnover
is generally high (from 20 percent to
35 percent or even more) and workers
are often young. (In the grocery
business, one-third of workers are
between the ages of 16 and 24.)
The talent strategies of high-tech,
Silicon Valley-type companies are
strongly influenced by the presence
of Millennials in the workforce—
most of whom presume they won’t
work their entire lives for the
Understanding the different healthcare needs and attitudes of employees
In 2012, Accenture conducted an online survey of 3,200
consumers to understand their expectations and preferences
related to healthcare insurance. Advanced analytics were
Disengaged:
Value-gamers:
Bargain buyers:
Loyalists:
Overwhelmed:
Why do I need to do
anything different?
I’m covered.
Let’s see how I can get
the most value for me
and my family.
I want my coverage to
be basic and cheap.
I want to take care of
myself, and my insurer
helps me do that—it’s
a win-win.
I have a lot on my plate.
I need my healthcare
insurance to be easy.
I want low-cost coverage,
and I am willing to accept
reduced benefits and/or
restricted networks to
get there.
I want great healthcare
coverage, and I don’t
mind paying for it. I’m
not interested in changing
my habits to save a few
pennies.
I need to work with my
health insurer often.
Because of this, I value
convenience and ease of
doing business with my
insurer above all else. I just
want insurance that is easy
to use and understand.
I do take risks with my
health like smoking and
not getting checkups.
But if my employer is
paying, and my insurance
company looks out for
me, why bother changing?
While I do value low
costs, I don’t want to
sacrifice quality—really,
I want the best value for
my money. That’s why
I’m willing to take many
actions that can help me
reduce my costs without
compromising care.
When dealing with my
insurer, I don’t care much
for online tools, self-service
options, rewards or other
features that insurers
have introduced.
My healthcare insurer is
different than the others,
and they develop new and
innovative capabilities
that keep them ahead of
the pack. I’m planning
on sticking with my insurer,
and am happy to recommend my plan to friends
and family.
I don’t care about
price nearly as much
as simplicity; however,
I do appreciate it if my
insurer can help me
understand how much
my healthcare costs will
be in advance.
I want an insurer I can
trust to take care of me,
but don’t know if I can
trust their advice.
In my daily life, I’m
heavily into digital,
including mobile apps,
texting and social media.
Basic coverage and a live
person to talk to when
I need assistance is all I
really need from my insurer.
When I need to
interact with my health
insurer, I prefer to use
self-service options
and digital channels.
I’m not looking to change
my habits to save additional
money, and I don’t need
my insurer taking an active
role in my health.
I feel like I have a
pretty good grasp on
the intricacies of the
health insurance market,
but I really value health
support and guidance.
I call, click and visit my
insurers often to deal
with my pressing issues;
however, I particularly
value the convenience of
a live interaction.
I really feel it’s a hassle
to switch insurers, and I
value those companies that
reward me for my loyalty.
All in all, I don’t interact
with my insurer very often.
I want quality healthcare
coverage and my insurer
to take an active role in
my health. I prefer my employer to make insurance
decisions for me.
I am in the prime of life
and tend to not worry
about my health until I’m
sick.
I don’t expect healthcare
insurance to be easy, and
I rarely take the initiative
to shop around or switch
insurers.
Source: Accenture analysis
78
used to identify five distinct consumer segments. This
segmentation can be used by insurers, but also by employers
to better understand the needs of their employees.
Outlook 2013, Number 2
www.accenture.com/Outlook
company. For these kinds of
companies, attracting a continuous
supply of qualified workers often
takes precedence over retaining
them for an extended period.
So understanding whether or not
healthcare is a relevant benefit
to attracting workers to these
industries is vitally important.
Health insurance exchanges
may be an attractive option, not
just for the companies but for
their employees as well, who can
find their coverage more portable
as they move from one employer
to another.
By contrast, companies in industries
such as aerospace and defense
might well continue to believe
that their company’s performance
hinges on retaining experienced,
long-term employees. That is, not
only the attraction of employees but
also their retention may be important
aspects of these companies’ talent
strategies. Providing companysponsored health insurance is more
likely to remain part of the value
proposition such a company offers
its employees to attract and retain
them, even in the wake of the
Affordable Care Act.
Politics vary in the United States
from state to state. That means that
exactly how the law is interpreted
and applied in one state’s health
insurance exchange will not necessarily be the same in another state.
Some states may charge users of their
exchange a fee to cover operational
expenses, either directly or via
a per-enrollee fee on insurers
selling in the exchange. And
some states will offer no exchange
at all but will let the federal
government operate it. These
differences have obvious talent
planning implications for companies
operating in multiple states.
3. Who needs and wants what?
Many companies are still coming
to terms with the changing
nature of loyalty in today’s workplace—of employee to employer
and vice versa. The new healthcare benefits situation casts a
particularly intense light on those
changing loyalties.
2. What are people’s needs across
different locations?
Given the growing presence of
Millennials in the average workforce, the portability offered by
health insurance exchanges might
actually be a selling point, as that
generation is less likely than their
predecessors to look for lifetime
employment, at least in some
industries. The rise of insurance
exchanges will dramatically increase
the number of individual-insured
consumers and the options that are
available to them. As a result, these
workers may be less likely to make
health benefits a deciding factor
in their employment decisions.
Getting more specific about who
needs what when it comes to
healthcare options also applies
to thinking about employees in
different locations. Simply put:
A company that considers the
different options and provides
direction about healthcare service
choices other than employersponsored health programs may
Companies with multiple business
units, each of which may have
slightly different workforce configurations, will need to ask similar
industry-specific questions. In such
a case, workforce preferences when
it comes to health coverage are
unlikely to be uniform across the
different business units.
be able to attract and retain
younger workers more effectively
than one that ignores this need.
In general, a key to success will
be to understand workforce needs
in light of the changing healthcare environment.
Master segmentation and
engagement
A critical step in understanding
employee needs in the context of
an industry or particular business
is to get more detailed and granular
in terms of the different healthcare
and health insurance needs of
different workforce segments.
The 2012 Accenture Healthcare
Consumer Survey identified five
different segments of the consumer
population based on their needs,
attitudes and behaviors in the
healthcare area. For example,
“bargain buyers” simply want
coverage to be basic and cheap,
even if it means reduced benefits.
By contrast, “loyalists” want the
highest-quality healthcare coverage,
and they may be willing to pay
more for it (see sidebar, opposite).
Understanding these segments is
obviously important to insurers,
who can use that insight to invest
in targeted consumer acquisition
and retention strategies and tailor
forms and channels of service to
the segments. Employers can also,
however, tailor benefits, incentives,
information tools and guidance
to employees depending on those
different segments—potentially
improving employee engagement
and retention.
Who will provide the guidance
employees need to make the
healthcare coverage decision
right for them? Is that the job
79
Talent & Organization
For further reading
“Reconciling the Great Healthcare
Consumer Paradox: Are consumers
willing to change to get what they
want?” Accenture 2012: http://www.
accenture.com/sitecollectiondocuments/
Accenture-Reconciling-the-GreatHealthcare-Consumer-Paradox.pdf
For more related content,
please visit www.accenture.com.
of the insurers or the job of the
exchanges? Both will indeed play
such a role.
Yet much of the guidance offered
by health insurance exchanges
will be passive—often delivered via
a self-service website where people
can compare plans and determine
whether they are eligible for
subsidies. Live assistance will
also be available through state- or
federally-sponsored call centers.
But it’s unlikely that even the best
customer service representative
from an exchange will have the
talent interests of any particular
employer in mind.
Another concern is how effectively
insurers are engaging with
consumers when it comes to their
healthcare options. Employees are
often unwilling to acquire new
habits that could both improve
their health and save them money.
Yet few employers believe that
the insurers themselves are doing
enough to more deeply engage
those employees.
If companies truly want to create
more engaged employees and
thereby secure a talent advantage
during this time of change, they
should take a more active role in
providing information tailored to
different segments of the workforce.
With so many options available,
it will not be a wise choice for an
employer to say, “Here’s a voucher
and here’s a link to the health
insurance exchange. Good luck.”
By taking into account industry
specifics, location and segmentation
information, companies can
improve employee engagement
whatever their ultimate approach
to healthcare coverage. Even
if a company decides not to
offer company-sponsored health
80
Outlook 2013, Number 2
insurance, it can still strengthen
its relationship with employees
by making information about
accessing and using the exchanges
available to its workforce. In this
way, the company will continue
to serve as a benefits resource for
its employees.
Manage the change
Beyond the tactical issues of
assessment and counsel, the larger
challenge for companies will be
managing the complex portfolio
of change factors and the overall
journey across the new health
benefits landscape. Because of
the wide-ranging impacts of the
Affordable Care Act on most
companies’ existing operations, it
will be more important than ever
to manage the overlaps or touchpoints between different initiatives
and to manage the necessary
interactions between relevant
parts of the organization.
Managing the new benefits
situation will require, for example,
extensive interaction between the
HR, finance and legal functions.
It will also require the coordinated
assessment, as discussed, of
different employee needs across
locations and business units.
Effective change management
programs also address the need to
manage employee expectations.
“Change fatigue” can set in for a
workforce buffeted by the demands
made on them by successive
changes thrown at them over an
extended period of time.
The workforce needs to be able
to assimilate the scope and depth
of change at a very personal
level. Decisions about health are
hard enough for individuals; the
www.accenture.com/Outlook
stakes are even higher for employees
with partners, children or other
dependents.
Beyond these higher levels of
strategic planning and management,
several specific supporting activities
will be critical to managing the
effects of the changing health benefits
situation on individual employees
and the organization as a whole.
Communications and transparency.
Communicating with employees is,
in part, simply a legal requirement
of the Affordable Care Act. However,
companies seeking a talent advantage
will, as discussed, provide robust
and comprehensive communications
as well as information tailored to
the needs of individuals.
Effective communication is
about more than just providing
information, however. It’s also about
establishing trust. That means that
transparency will be vital.
One approach more companies
are relying on uses social media
platforms such as Facebook and
Yammer to facilitate the sharing of
questions and concerns and, more
important, to quell false rumors
and deliver accurate, consistent and
timely information to employees
almost instantaneously.
Training and change sponsorship.
Effective training for HR staff
as well as those working in call
centers will be essential to answer
the increased volume of questions
coming from employees. Business
managers will need to have a general
level of knowledge about the changing
healthcare environment, though not
the same level required by the HR
staff. Far more important: Business
leaders need the training that can
help them become more effective
change managers and sponsors.
Companies should look for
proven curriculums in the area of
change management—including
courses in developing and
managing change plans; engaging
stakeholders and building
commitment to change; creating
effective two-way communication
programs; delivering cultural
change; and transitioning to new
ways of working.
There will be more than a few
stumbles along the way. But in
the midst of the uncertainties,
companies have an opportunity
to achieve a talent advantage by
understanding their employees’
healthcare preferences more
accurately and then by providing
the kind of counsel that leads to
better engagement, productivity
and retention.
Employers also need to consider what
kind of organizational model they
will use to deliver change expertise
across the enterprise. For example,
one model that is rapidly becoming
a best practice is to establish
a dedicated change management
resource group within the company.
This group can provide high-level
strategic experience as well as
specific expertise in such related
areas as program management.
Essential to achieving those benefits,
however, will be anticipating and
managing the effects of change on
people, leadership and the entire
organization—enabling a company
and its people to adapt to and
even embrace the possibilities of
the years ahead.
Technology and process change.
Because of the need to facilitate
interaction with a variety of state
health insurance exchanges,
companies will need to manage
the related changes to benefits
processes and then the technical
implications for systems, applications and networks. IT will need to
adapt in a variety of areas, including
enrollment, pricing, billing and
customer service. These impacts
on healthcare IT are certainly
affecting payers, but all companies
should be focused on how, for
example, their enterprise systems
are interoperating with health
insurance exchanges.
There are many challenges ahead
for employers and employees
alike as the implications of the
Affordable Care Act become clearer
and as lessons are translated into
best practices from an HR and
talent perspective.
About the authors
David Smith is the senior managing
director responsible for the Accenture
Talent & Organization group. He is
based in Hartford, CT.
[email protected]
Breck Marshall is the managing
director responsible for Talent &
Organization within Accenture’s Health
& Public Service industry group. He is
based in Washington, D.C.
[email protected]
J.P. Stephan is the managing
director responsible for the Accenture
Health Customer Relationship
Management (CRM) group. He is
based in Pittsburgh, PA.
[email protected]
The authors would like to thank
Tami Hale, a senior manager in
the Accenture Health management
consulting group, for her contributions
to this article.
81
Germany
How Germany’s
top companies thrive
in rough times
By Michael Brueckner, Peter Pfannes and Frank Riemensperger
The most successful German companies continuously transform themselves
to increase and maintain overall competitiveness. And they owe this
outstanding agility to a balanced combination of financial strength, IT-enabled
insight and values-driven leadership.
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Outlook 2013, Number 2
83
Germany
Maintaining high performance in today’s volatile
markets isn’t easy—even for leading players
in one of the world’s most powerful economies.
When Accenture recently identified
the top performers among Germany’s 500 biggest companies—
the third such study in as many
years (see sidebar, page 88)—just
12 of the 25 leading companies
had held on to their coveted status
for three consecutive years. How
did these growth champions manage
to ride out the global recession
so successfully?
Having previously looked at what
characterizes top German companies,
we knew that the best performers
are exceptionally fast movers. They
enter new markets more swiftly
than their competitors, respond
faster to business trends and rarely
miss an opportunity to innovate—
often by collaborating with customers
and even competitors.
When we further analyzed in
detail how the winning companies
have managed to maintain their
dominance—outstripping their
peers in both growth and profitability—that agility turned out to
be critical.
Continuous transformation
Indeed, Germany’s growth champions are masters of continuous
transformation. At any given
moment, they are ready to change
course, responding to shifts in
the economic outlook, market
developments and their own
fortunes with extraordinary speed.
By managing multiple product
and technology lifecycles at the
*
84
Outlook 2013, Number 2
same time, they compensate for
weaknesses in one area by focusing
on another—with innovative
products tailored for new, as well
as traditional, markets.
Witness, for example, how the
Wolfsburg-based Volkswagen
Group has reduced its dependency
on the lifecycle of single models
by steadily expanding its product
range across all eight of its global brands—V W, Audi, Bentley,
Bugatti, Porsche, Lamborghini,
SEAT and ŠKODA—and managing
them in parallel, with different
launch times in different markets.
This mastery of several so-called
S-curves simultaneously enables
VW to serve new customer groups
faster, and has helped sustain its
remarkable compound annual
revenue growth—9.2 percent on an
average net profit margin of 4.0
percent between 2005 and 2011,
compared with 6.5 percent and
2.1 percent, respectively, for its
industry peers.*
Consider, too, how Voith, a
Heidenheim-based industrial services
and mechanical engineering
company, has maintained yearon-year revenue increases thanks
to a diversified portfolio approach
that allows it to manage differing
business cycles in its five core
markets. The company compensates
for declines in some markets by
seizing growth opportunities
in others, especially in such fastgrowing emerging markets as
China, India and Brazil.
hree key aspects of business, so-called hidden S-curves—market relevance, distinctiveness of capabilities
T
and talent development—mature and start to decline much faster than the overall financial performance of
a company. High performers actively manage against these curves.
www.accenture.com/Outlook
Plainly, flexibility of this order
hinges on exceptionally agile
and versatile corporate structures.
We found that to help create and
sustain those structures, the
growth champions balance three
key enablers.
1. Financial firepower
The growth champions are significantly more profitable than other
big German companies. And they
reinvest more of those profits
than their peers, especially in
R&D—a practice that helps explain
why they are also such leading
innovators. Between 2007 and
2011, for example, the growth
champions invested an average
of 4.0 percent of their revenues
in R&D, versus an average of 3.7
percent for their peers.
In addition, they’ve managed
to boost their profitability, even
in years of crisis. As a group,
their operating margin rose by
2 percent between 2009 and 2011,
for example, compared with an
increase of just 0.6 percent for
their peers. Meanwhile, their
capital retention ratio rose by
1 percent between 2007 and 2011,
while that of their peers fell by
2 percent.
That, of course, helps explain
how the top players managed not
only to invest in the substance
of their business—increasing
their assets by 52 percent between
2007 and 2011, versus only 6
percent for their peers—but also
to actually extend their lead in
terms of profitability. Their net
profit margin declined by just
13 percent in this critical period,
The Linde Group: Continuous transformation for competitive advantage
In 2006, when Linde paid €12 billion—more than six times
that year’s operating profit—for UK-based BOC Group,
some wondered if the German industrial gas and engineering
company had overreached. They need not have worried.
By complementing Linde’s strengths in Europe with BOC’s
extensive presence in the fast-growing Asian market for
chemically synthesized gases used in steelmaking, oil
refining, medical and other applications, the deal created
the world’s largest supplier of such products—a global
giant with annual sales of almost €12 billion.
The merger, moreover, promised to deliver significant
financial advantages. Because the combined company
could also cut selling and administrative expenses, as well
as command better prices from its suppliers, it expected
to be generating annual savings of €250 million within
three years.
By then, of course, global markets would be in the grip
of a severe downturn—the worst since the 1930s. Thanks,
however, to rigorous cost cutting in the years running
up to the crisis, Linde boasted the financial firepower to
maintain and even boost its profitability (see story).
Indeed, the company’s operating profit rose 22.6 percent
between 2009 and 2010. Sales, too, were up, by 14.8
percent. And since 2009, Linde’s stock price has soared by
more than 160 percent—fueled, in part, by an acquisition
strategy that has continued to deliver opportunities for
profitable growth.
Case in point: the 2012 purchase of US-based Lincare
Holdings, a leading global provider of respiratory therapy
equipment for homes (and which shares common
roots with Linde, having started out as the German
company’s Americas business more than 100 years
ago). The acquisition could double Linde’s sales in
North America—prompting CEO Wolfgang Reitzle to
predict that the company will achieve its profit goal of
€4 billion (versus €3.2 billion in 2011) by 2013, a year
earlier than originally projected.
85
Germany
compared with fully twice that
proportion for their peers.
they have access to better business
intelligence.
Low levels of debt and high levels
of liquidity are equally significant
(see chart, opposite). On average,
the growth champions had an
equity-to-debt ratio of 1:1.7 while
their peers’ ratio averaged 1:2.9.
(The difference in liquidity was
especially clear at the peak of the
financial crisis.)
Because of early adoption of
state-of-the-art IT—and especially
business intelligence and analytics
software—top players can measure
the most relevant performance
indicators online, in real time.
Furthermore, their employees
have ready access to granular
information about customers
and suppliers because they have
invested in technologies that
facilitate collaboration and the
swift exchange of information.
Thanks, for example, to a
consistent strategy of using free
cash f low for continuous debt
reduction and a highly successful
working capital management
program, HeidelbergCement has
not only weathered the storms
of the recent past but is also
securely positioned going forward.
The company’s short-term liquidity
is sufficient to cover loan repayments for the next two years.
And with only 10 percent of
its EBITDA in euros, it is well
cushioned from diminishing demand
in the Eurozone.
Leveraging all that financial
firepower, the growth champions
have been swift to seize opportunities, whenever they arise. Case
in point: the Munich-based Linde
Group, which in 2006 paid some
€12 billion for the United Kingdom’s
BOC Group and became the
world’s largest supplier of gases
used in industrial processes, with
a market share of about 20 percent
(see sidebar, page 85).
2. Near-perfect information
The growth champions analyze
the risks and opportunities
of entering new markets much
more consistently and systematically than their peers. And
they are able to do so because
86
Outlook 2013, Number 2
For the growth champions, indeed,
IT is a strategic asset. And they
invest in it continuously. Consider,
for example, how one German
healthcare company has invested in
centralized databases, open source
business intelligence solutions
and other leading IT capabilities
to improve the quality, security
and accessibility of its data.
3. Values-driven leadership
Germany’s top players manage their
companies for the long term. A
couple of quarters of poor financial
performance are not typically
grounds for dismissing the CEO.
Our research shows that the chief
executives of growth champions
enjoyed an average tenure of 7.6
years over the last two business
cycles, compared with 6.7 years
for their peers. And when we looked
at the longest CEO tenures, the
gap widened significantly—to an
average of 18.5 years for the growth
champions, versus 10.5 years for
the others.
Top German companies also
benefit from a particularly close
collaboration with their workforce.
Indeed, they seem to have been
www.accenture.com/Outlook
Balance
German growth champions balance operating excellence with innovation intensity on a consistently higher level.
Operating margin (EBIT/Revenue), 2007–2011, %
R&D intensity (R&D/Revenue), 2007–2011, %
8%
7
5%
7.5
6
7.0
6.7
6.7
4.0
4
4.3
4.0
5
4
3.3
3.1
3
2008
3.8
3.7
3.6
Growth champions
2.7
2.1
2007
3.6
3.5
3
3.2
2
3.8
4.1
4.7
Non-growth champions
2
2009
2010
2011
2007
2008
2009
2010
2011
Capital turnover and capital retention rate
German growth champions use their capital cautiously—with significantly lower capital turnover
than their peers—and do a better job retaining capital.
Capital turnover, 2007–2011
Capital retention rate, 2007–2011
150%
100%
120
80
90
60
60
104
30
139
132
40
96
20
64
65
57
55
Growth champions
Non-growth champions
0
0
2007
2011
2007
2011
2007
2011
2007
2011
Note: Capital turnover = Revenue/Total assets
Leverage and liquidity
German growth champions show a consistently
lower leverage ratio, even in times of crisis . . .
. . . and have a higher liquidity ratio.
Liquidity ratio (Current assets/Short-term liabilities),
2007–2011
Leverage ratio (Debt/Equity), 2007–2011
1.71
3.3
1.68
2.8
2.9
2.9
1.9
2.4
0.9
1.58
1.8
1.59
1.58
0.08
0.3
1.7
2007
2008
2009
1.6
1.7
1.50
2010
2011
2007
1.62
0.18
1.53
0.10
1.52
1.47
2008
2009
2010
Growth champions
Non-growth champions
2011
Source: Accenture research based on Top 500 Germany, 2013
87
Germany
For further reading
“IT and the strategic growth
agenda,” Outlook 2012, No. 1:
http://www.accenture.com/us-en/
outlook/Pages/outlook-journal-2012information-technology-strategicgrowth-initiative.aspx
“Strategy at the edge,” Outlook 2011,
No. 2: http://www.accenture.com/
us-en/outlook/Pages/outlook-journal2011-strategy-at-the-edge.aspx
“Jumping the S-Curve: How to
sustain long-term performance,”
Outlook 2011, No. 1: http://www.
accenture.com/us-en/outlook/Pages/
outlook-journal-2011-sustain-longterm-performance.aspx
“Mind the gap: Insights from Accenture’s
third global IT performance research
study,” Accenture 2010
“Growth Studies Top 500/100 —
Sustaining high performance through
continuous transformation,” Accenture
2013: http://www.accenture.de/growth
For more related content,
please visit www.accenture.com.
especially adept at leveraging
the benefits of a long tradition of
corporate governance that seeks
to minimize industrial strife by
incorporating employees in decision
making through board representation
and so-called works councils.
Management’s strong emphasis
on shared values—the growth
champions’ business reports and
Internet homepages resonate
with such collaborative notions
as “integrity” and “motivation
and performance”—has clearly
strengthened their employees’
sense of belonging to the company
and their commitment to its longterm success.
Relatively high levels of staff
satisfaction have also served the
growth champions well in volatile
markets, allowing them to implement workforce adjustments more
easily than their peers.
The Semiconductor Manufacturing
Technology (SMT) division of the
Oberkochen-based optical systems
About the research
In collaboration with Die Welt, one of Germany’s leading newspapers, Accenture
has been analyzing the country’s 500 largest companies—those posting
annual sales of at least €1 billion—since 2010. Our goal: to identify those
that have managed to outperform the average growth of their peers, both
within their industry and overall.
The first two such studies sought to identify the distinguishing characteristics of
these growth champions and pinpoint where they are focusing their energies
for future growth. The third, which is the basis of this article, set out to
discover just how such companies secure and maintain their dominance.
We wanted our analysis to include cycles of both economic recession and
recovery—to ensure that we were identifying the very best performers, those
that prosper despite market volatility. And we were especially interested
to learn the secrets of success for the 12 companies among this year’s
Top 25 that consistently have managed to maintain their place at the top—
through all three periods, which included the Great Recession.
The base year for all three studies was 2005. But because we were
particularly interested in capturing the effects of the most recent cycle
in this year’s study, we focused on the period from 2007 to 2011, adjusting
in rare instances to 2008.
We measured the peer group’s performance across dozens of variables, employing
a process of elimination to isolate the most significant ones. These ranged
from financial measures such as ROS, ROE and foreign direct investment to
how successfully new technologies are implemented, for which we leveraged
the criteria employed in the Accenture High Performance IT Study. We also
examined less tangible considerations like corporate values and strategic
objectives and their impact on how the company is managed.
88
Outlook 2013, Number 2
www.accenture.com/Outlook
maker Carl Zeiss, for example,
has been able to introduce flexible
working arrangements throughout
the group with the cooperation
of labor representatives. SMT’s
employees, like those of other
growth champions, have been
willing to be flexible around such
issues as pay and conditions because
they know that their long-term
job prospects are relatively secure.
Even in 2009, at the trough of
the recession, leading companies
had an employee turnover of just
4.1 percent of their employees,
while the rest of the peer group
had a turnover of 7.8 percent.
Germany’s top companies have
recognized that managing with an
emphasis on values helps build a
strong, cohesive culture—a culture
that creates continuity and enables
the agility that so dramatically
distinguishes them from their
peers. Coupled with financial firepower and access to near-perfect
information, that continuity has
given them the strength to succeed
in unprecedentedly volatile market
conditions—and promises to sustain
them into an uncertain future.
About the authors
Michael Brueckner leads Accenture
Management Consulting in Austria,
Switzerland and Germany. He is based
in Frankfurt.
[email protected]
Peter Pfannes is a Berlin-based
senior manager with Accenture’s
Health & Public Service industry group.
[email protected]
Frank Riemensperger, Accenture’s
country managing director for
Germany, is the company’s geographic
lead for Austria, Switzerland and
Germany. He is based in Frankfurt.
[email protected]
The authors would like to thank
Matthias Wahrendorff, a Munich-based
senior manager at Accenture Research,
for his contribution to the study.
89
Company Index
The following companies and organizations are referenced in this issue.
Accenture . . . . . . . . . . . . . . . . . . . 31, 32, 33
Monsanto Co. . . . . . . . . . . . . . . . . 59, 61–62
Activision Blizzard . . . . . . . . . . . . . . . . . . 22
Multilab . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Amazon . . . . . . . . . . . . . . . 30, 32, 51, 55, 60
Novartis Venture Funds . . . . . . . . . . . . . . 61
Apple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Nycomed . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Australia Post . . . . . . . . . . . . . . . . . . . 29–30
Olam International . . . . . . . . . . . . . . . 44, 45
BB&T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Partido AcciГіn Nacional (Mexico) . . . . . . . 5
Bank of China . . . . . . . . . . . . . . . . . . . . . . 36
PayPal . . . . . . . . . . . . . . . . . . . . . . . . . 24–25
Bechtel Corp. . . . . . . . . . . . . . . . . . . . . . . . 32
Pearson . . . . . . . . . . . . . . . . . . . . . . . . 23–24
Belkin International . . . . . . . . . . . . . . 53–54
PEMEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Biogen . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Penguin India . . . . . . . . . . . . . . . . . . . . . . 24
Blizzard Entertainment . . . . . . . . . . . . . . . 22
Salesforce.com . . . . . . . . . . . . . . . . . . 60, 63
BlueScope Steel . . . . . . . . . . . . . . . . . . . . . 29
Samsung . . . . . . . . . . . . . . 36, 37, 40, 42, 45
BOC Group . . . . . . . . . . . . . . . . . . . . . . 85, 86
Carl Zeiss . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Semiconductor
Manufacturing Technology . . . . . . . . 88–89
Cargill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Sharp Corp. . . . . . . . . . . . . . . . . . . . . . . . . 50
China Mobile Communications Corp. . . . . 37
Stanford University . . . . . . . . . . . . . . . . . 76
Corning . . . . . . . . . . . . . . . . . . . . . . . . 62, 63
State Bank of India . . . . . . . . . . . . . . . . . . 37
Daewoo Commercial Vehicle Co. . . . . . . . 43
State Street Corp. . . . . . . . . . . . . . . 29, 31–32
DeKalb Genetics Corp. . . . . . . . . . . . . . . . 59
StubHub . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Dell . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 58
Suzano Papel e Celulose . . . . . . . . . . . . . . 25
DuPont . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Takeda Pharmaceutical Co. . . . 36, 40, 42, 45
eBay . . . . . . . . . . . . . . . . . . . . . . . . . . . 24–25
Tata Motors . . . . . . . . . . . . . . . . . . 36, 43, 45
Eileo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
TCL Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 40
Embanet-Compass . . . . . . . . . . . . . . . . . . . 24
UNEP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Facebook . . . . . . . . . . . . . . . . . . . . . . . . . . 60
United Nations . . . . . . . . . . . . . . . . . . . . . . 8
Fast Retailing Co. . . . . . . . . . . . . . . . . 42–43
Vivendi . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Times Group . . . . . . . . . . . . . . . 24
Voith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Flexicar . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Volkswagen Group . . . . . . . . . . . . . . . . . . 84
Ford Motor Co. . . . . . . . . . . . . . . . . . . . . . 31
Weather Channel, The . . . . . . . . . . . . . . . 53
Fortis Healthcare . . . . . . . . . . . . . . . . . . . 43
Western Union . . . . . . . . . . . . . . . . . . . . . 31
Fujifilm Corp. . . . . . . . . . . . . . . . . . . . . . . 54
Wilmar International . . . . . . . . . . . . . . . . 37
Genentech . . . . . . . . . . . . . . . . . . . . . . . . . 59
Woodfield Mall (US) . . . . . . . . . . . . . . . . . 16
Google . . . . . . . . . . . . . . . . . . . . . . 30, 32, 48
YouTube . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
HeidelbergCement . . . . . . . . . . . . . . . . . . . 86
Zipcar . . . . . . . . . . . . . . . . . . . . . . . . . 22–23
Hertz . . . . . . . . . . . . . . . . . . . . . . . . . . 22–23
HTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Huawei Technologies Co. . . . . . . . . . . . . . 37
Hyundai . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ICICI Bank . . . . . . . . . . . . . . . . . . . . . . 40, 42
Intel Capital . . . . . . . . . . . . . . . . . . . . . . . . 61
Kia Motors Corp. . . . . . . . . . . . . . . . . . . . . 37
Klabin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Kodak . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
LG Electronics . . . . . . . . . . . . . . . . . . . 37, 44
Lincare Holdings . . . . . . . . . . . . . . . . . . . . 85
Linde Group, The . . . . . . . . . . . . . . . . . 85, 86
Millennium Pharmaceuticals . . . . . . . . . . 36
MIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
90
Outlook 2013, Number 2
Outlook
Vol. XXV
2013, No. 2
Copyright В© 2013 Accenture
All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

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