Though over-hyping of strategy issues is unhelpful, some radical changes do need dealing with. In Taking Advantage of Tumultuous Times: Claiming the Future, Eamonn Kelly, a Monitor partner, highlights a few big shifts. Most of the discussion is general and it’s not clear exactly what management should do, but one issue – the vast numbers of emerging consumers – can be evaluated and built into strategic plans. There is a simple reason this trend can trigger ‘siesmic shifts’ in demand – if most of consumers’ spending goes on essentials, a small increase in total income produces a massive rise in disposable income – this is the true mechanism behind many ‘tipping points’, not the word-of-mouth growth Gladwell’s popular book makes so much of. This discontinuity can collide with another, coming in the opposite direction – radical reductions in product cost, and rising performance (think flat-screen TVs). The tricky issue, though, is how to capture that potential. Three features need understanding, which I can offer from personal experience in exploiting such changes.
First, the constraint may not be demand, but supply. ‘Market forecasts’ are useless here, because markets will grow as fast as providers enable incipient demand to be expressed. People would, for example, flock to decent restaurants in emerging markets, if only they existed. This creates a huge imperative to expand fast – if you don’t, others will capture the opportunity first. You may not even need to offer anything special, just something acceptable (but beware the Starbucks error!) – you can always uprate it later, giving consumers a continuing reason to spend with you.
Secondly, there will be intense competition to capture such new opportunities, so ‘managing’ competitors is vital. Many rivals will be rubbish, but they can still mess up the market for you – discounting to grab market share, for example, or building excess capacity that will never pay for itself. In the process they destroy profitability, and destroy your investment case. So you need to kill weaker rivals (see how), and deter others . I used to think strategy should be kept secret, but it can be best to be very public about your plans, explain just how powerful you are, leaving the implied message “Yes this is a great opportunity, and yes we are doing very well, but look at just what we have built to give us this power – so don’t even think you can take us on, or you will just get killed.”
Lastly, recognise that you are not just competing with others in your market, but with other entire industries. Your restaurants may be empty if consumers decide to spend instead on durables, or on low-cost air travel when airlines offer services in your local markets. Tracking how consumers actually are deploying their rising income as this range of spending opportunities widens helps clarify the scale of your opportunity and how to promote your business against alternatives.
Retail sectors like this make good examples because they are easy to recognise, but the same principles apply in all kinds of other fast-growing markets. Following these principles makes it possible to ‘design the future’ the way you want it to be.