We develop actionable strategic initiatives to exploit business opportunities in well-defined markets.
A leading consumer-products company with a broad product portfolio and sales outlets in more than 150 countries faced stagnating sales, as fast-moving competitors were eclipsing it with fresh product offerings and services. At the same time, increasing cost pressure from retail partners was eroding revenues. Although the client had introduced growth-oriented strategic initiatives and products to reverse these trends, the impact on top-line growth had been negligible. To develop better solutions, the new CEO turned to McKinsey for support.
During initial discussions, the McKinsey team discovered that the client’s strategic objectives were sound. However, the scope of these plans was too broad, having been defined at the level of global category groups and regional organizations rather than being translated into more detailed initiatives supported by budgetary allocations. What’s more, the client was unable to fully track initiatives at the local market level to ensure that the right people in the organization were accountable for executing initiatives and measuring their progress. The client’s need came into focus: create a scalable approach to developing strategic initiatives that could be readily implemented at the business and market levels.
Before designing the new approach, the McKinsey team set out to better understand the client’s organization and the underlying drivers of its performance. To provide a more powerful strategic lens through which to view the client’s complex portfolio, the team applied Granularity of Growth principles to develop a matrix framework that maps the client’s businesses against the markets in which they compete. These combinations of businesses and markets—for example, home-cleaning products in Switzerland—became the units, or “cells,” for which strategic initiatives would be designed. The team worked closely with the client to identify all such strategic cells and to detail each one’s financial performance and strategic role (that is, invest for growth versus maintain for profit) in the overall portfolio. Through a series of collaborative iterations, they identified more than 200 strategic cells. They then decided to focus their efforts on designing strategic plans for the key cells that best represented the overall business strategy and the areas where growth was expected to be the greatest.
In addition to providing a clear and concise picture of the client’s vast portfolio, the matrix framework revealed a need to closely examine the allocation of resources to each of the strategic cells identified. The McKinsey team discovered that the client continued to invest significant resources in large mature markets instead of reallocating resources toward growth in emerging markets as its strategy intended. This incongruous allocation of resources was attributed to two factors: (1) inertia in the client’s planning, as it continued to set budgets based on previous years’ expenditures; (2) the information provided to the management team was not detailed enough to make swift, strategic decisions. Separately, the McKinsey team also uncovered an organizational bias that rewarded the achievement of short-term, bottom-line impact while discouraging strategic investment in longer-term growth opportunities.
To test the effectiveness of the matrix approach in strategic planning, the client selected a handful of cells to develop more detailed plans. The McKinsey team helped the client select the cell “owners” (that is, representatives from the business unit, marketing teams, and country organization) who would be accountable for the plan and worked with them to design pilot plans. Each plan set out detailed information about the cell, including sales and margin projections, pricing, channel and category dynamics, key competitors, new product requirements, and marketing and sales activities. It defined financial goals and the actions and resources required to achieve them. McKinsey team members actively reviewed the pilot plans and engaged McKinsey experts to provide insight on particular challenges in some cells. At the same time, the team challenged the client’s decisions and priorities by stress-testing the key financial figures underlying the plans.
The end result was a five-year plan for each strategic cell, which required the approval of the country manager, the category manager, and, ultimately, the top-management team. The client distributed the remaining prioritized cells to the appropriate cell owners, who developed their own plans using the pilot plans as a reference. The management team used all plans to strategically reallocate resources across priority markets and businesses.
In applying this new fine-grained strategic approach to target fast-growing markets, the client has reallocated 20 percent of its resources toward profitable growth—for example, shifting significant resources from large, mature markets to priority strategic cells in countries such as China, India, and Russia. The client has also eased its stringent adherence to margin targets by placing a greater emphasis on making well-considered investments in future growth.
In addition to being used for setting strategy, the plans developed for each strategic cell have become the basis for defining targets and measuring performance throughout the organization. It is a common format known to and used by all stakeholders across the organization.
As the client uses this strategic approach to chart a new course through global markets over the coming years, it expects to achieve a 0.6 percent increase in sales revenues and 1.8 percent increase in profitability—a substantive and likely game-changing acceleration of growth for this enormous, 100-year old company.