The committed innovator: A conversation with board director Ireena Vittal
20/03/2021 13:03
A view of growth and innovation
First it's key the realization that growth is an issue of mindset, not the state of market. Secondly margins come from the investing structure. You can have an amazing mindset about growth, but if the industry structure is off-kilter, you have to be very patient. The third thing was that consumers do not think about categories or brands, they think about their lives. Companies that consistently grow focus on continuously improving the intersection of their products and services with consumers’ lives without asking the consumers what they want—because consumers don’t really know. If you understand the lives of consumers, you are able to keep reimagining how to serve them.
What are some of the biggest differences between growth mindsets in developing and developed nations?
The differences are more about the stage of the country’s evolution than fundamental consumer differences. Beyond that, market depth in most emerging economies is very shallow. You need to be in these markets for tomorrow, not necessarily for today. Great growth companies get granular about growth early in the game.
Are ecosystems more important to successful growth in developing markets than some multinationals appreciate?
I don’t think they are more important but making sure they scale up to your quality and cost structure requires more work. A strong grower in emerging markets has commercial teams in vendor and business development that are two, three, four times the size of such teams in developed countries. That’s because in developed countries you have ecosystem players that are simpatico in terms of culture, compliance, quality standards, and cost structures, while in emerging markets you have to curate them.
How does a leader make sure the organization is tuned properly to emerging market dynamics?
It’s important to keep in mind certain characteristics of emerging markets. One is the importance of what I call the war on waste. Cost is a competitive advantage because there is so little pricing power. You have to build a business model that assumes a price-cost squeeze of 1 to 2 percent annually. One of my clients said that the margin is given by the head office and the price is given by the local competitor, so you have only the cost to play with. He taught me the equation, C is equal to price minus margin. That’s the game. You don’t play the game of cost plus margin equals price.
The other issue is risk. You must look at risk-adjusted returns in emerging markets because every year something goes wrong. You need to build a plan B into your margin structure and business model.
Clarity on the source of growth is also critical. You have to be very sharp about where the next $100 million is coming from and make choices, because you could easily fragment yourself chasing many small rabbits in China and India. Another issue is that horizontal collaboration is crucial, because your supply-chain and sourcing leaders are working with a fragmented vendor base, finance is dealing with high risk—the functions have a tougher job than in developed markets. Therefore, being thoughtful about shared metrics across functions is critical.