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The importance of tailoring your operating model for the market – part one

In a heterogeneous world, companies must increasingly come to terms with the fact that there is not a “one size fits all” model. A dual operating model is required to maneuver and conquer the more granular opportunities of the coming decades.
Patrick Guggenberger

Advises leading global companies in the consumer industry and other sectors on how to optimize organizational design and operating models to improve performance and culture, and boost organizational agility

Patrick Simon

Advises consumer-packaged-goods, apparel, and fashion companies around the world, with a focus on organizational transformation and harmonizing a company’s operating model with its strategy and the market’s requirements

Management wisdom teaches us that structure must follow strategy. As a result, companies over decades have first designed their strategy and subsequently taken the operating model and organizational choices that best support it.

Yet, in a world becoming more granular, heterogeneous, uncertain and dynamic across markets and regions, the strategic choices companies make have also become more fluid and more contextual to each specific market. For example, while consumer goods companies previously leveraged the power of global brands without significantly tailoring their commercial strategy and associated operating model, the increasing heterogeneity of markets demands more flexible operating models that cater to different contexts.

This two-part blog series for consumer goods companies will outline the recommended considerations to tailor operating models according to mature and emerging markets, respectively.

In fact, many have not yet fully embraced the need to adjust their operating model to the mature vs. emerging world. For example:

  • While most companies expect more than half of their growth potential to come from emerging markets, only a single digit share of their talent is located there.
  • While the Asian, and specifically Chinese, consumer has very clear demands with respect to many products, only a few consumer goods companies innovate in and for China – a missed opportunity.
  • While emerging markets exhibit a growing middle class that requires a tailored and an original go-to-market approach, most commercial strategies are still developed in the West.

The heterogeneous market landscape, shaped by a dichotomy of growth in emerging markets and stagnation (but still significant size and margin) in mature markets, needs a more tailored approach. This is often achieved by applying dual operating models, i.e., organizational choices that differ for different parts of the business and cater to the market context at hand. Frequently, these choices differ across the many imperatives of an operating model, such as structure, talent and decision making.

In this post, we’re focusing on three things consumer goods companies should consider with respect to mature markets:

  • Drive efficiency: Wherever possible, try to realize synergies across existing businesses, brands and markets, especially by bundling activities that do not necessarily drive differentiation or competitive advantage in the markets. HR, IT and finance are examples that, while tremendously important functions, typically benefit from leverage of skill and scale.

    Shared services in low-wage countries, in this context, are not always the right answer. First, successful examples show that many activities can be digitized directly, thereby setting free capacity to focus on other things, and without going through the often-cumbersome process of bundling shared services across countries in centers that first need to be built.

  • Marketing success by joining forces: In today’s world, marketing is increasingly becoming a tech game that is facing scarce talent. Conquering the granular influencer and social media-driven consumer world is not always an easy undertaking. Wherever possible, pool resources to create consumer-centric solutions and approaches, which can then be leveraged by multiple brands and businesses.

    In most cases, brands or businesses within larger companies that try to do this alone lack critical mass and aren’t always successful. Pooling resources at the cluster level (e.g., combining multiple markets in Southeast Asia into one cluster) can help address this situation.

  • Increase speed: Mature markets are ripe with smaller brands that nibble off the larger market cake. These increasingly present a danger with product launch durations, often in the low single-digit number of months vs. the year or more it takes established companies to do the same. By introducing more agile teams, larger companies can increase their competitiveness and speed to market, thereby addressing this competitive threat. In an ideal world, these agile teams are endowed with a higher degree of entrepreneurial freedom, while still leveraging the scale benefits of the organization at hand.

In our second post, we discuss the considerations associated with tailoring operating models to meet the needs of emerging markets in the coming decades.

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