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

The risks of not creating a more tailored approach in our increasingly granular, heterogeneous, uncertain and dynamic world span missed opportunities and talent loss to market irrelevance.
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

Serves clients on a broad array of topics ranging from strategy to organizational design and transformation across industries, including consumer goods, retail, and fashion; leads our organization design work and helps companies through multiyear organizational transformations, focusing on bringing operating models in line with the realities of the markets, strategic shifts, and other success factors

Today’s heterogenous market landscape, defined by growing emerging markets and stagnant but significant mature markets, requires from consumer goods companies a more tailored approach to strategy and operating model than in past decades. The risks of not doing so in our increasingly granular, heterogeneous, uncertain and dynamic world span missed opportunities and talent loss to market irrelevance.

As noted in the first post of this two-part series, this is often achieved through dual operating models, defined as organizational choices that differ for different parts of the business and cater to the market context at hand.

While the first post explored three considerations in adjusting operating models to mature markets – driving efficiency, joining forces for marketing success and increasing speed – three other choices present themselves for consumer goods companies in emerging markets:

  • Use market clusters as growth platforms: Market clustering in the mature world is typically seen as an efficiency measure where companies try to save costs. However, market clusters often are growth platforms in Asia, where companies across a number of smaller markets (e.g., Southeast Asia) bundle forces to create more compelling commercial approaches while some markets are still subcritical in mass.
  • Originate in the market: So far, the direction of flow for brands and commercial strategies for Western consumer goods companies typically is to think through something in the HQ, and then deploy it into the markets, often creating a bit of a mismatch between consumer needs (in the emerging markets) and the product at hand. Be bold and allow more and more things to originate in emerging markets. If possible, try out an innovation center in an emerging market that creates products with the emerging consumer in mind.
  • Overinvest in talent: Talent in emerging markets often is a scarce resource, thereby requiring overinvestment in talent strategy. Especially in China, the churn of talent for Western companies is often high as many new opportunities present themselves for management talent every day. As with innovations, start with a “Chinese employee first” talent strategy in mind, since Chinese employees often value a different set of aspects then Western employees.

    When placing talent into the most critical and value-generating roles, Western companies must increasingly base these choices not on the size of the existing business in developed markets, but the growth opportunity of the business in emerging markets. Too often, companies still place their best talent on the currently largest business or markets.

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, or even multiple operating models, may be required to maneuver and conquer the more granular opportunities of the coming decades.

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