The model of emerging market innovation that most people have in mind is a multinational corporation pioneers a novel product or service in their sophisticated home market, drops some features and cuts the price, and then exports the stripped-down innovation into emerging markets.

Increasingly, however, innovation flows the other way. Companies develop a product that appeals to emerging market consumers who combine discerning tastes with low disposable income, then managers quickly recognize that these products would appeal to some segments within mature markets as well.

At a recent London Business School panel on multinationals in emerging markets, I had the chance to discuss this reverse innovation with Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte.

• Distinguish between emerging consumers and emerging markets. Paul noted that Nestlé distinguishes

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Last week, I moderated a panel on multinationals in emerging markets for the London Business School’s Global Leadership Summit. Four prominent business leaders–Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte shared their insights on several topics, including which multinationals (other than their own) they most admired for their success in emerging markets.

People often use the term “emerging markets” as a catch all phrase implying that all countries within this category are broadly similar to one another. In reality, of course, the differences between India and China or Brazil and Russia dwarf their similarities. The heterogeneity of emerging markets raises questions for companies seeking to invest in these countries: How should we prioritize investments across emerging markets? How do we differentiate a more attractive market from a less attractive one? What criteria should we use in evaluating and comparing different markets?

Below I summarize some of the insights on how four different executives from four very different industries evaluate emerging markets.

• Nestlé. GDP growth is important for a food company, of course. In Africa, for instance, GDP has grown at about 5% per year over the past decade. Second, a country or region needs to meet a threshold level of

Continue reading "Beyond GDP growth: What makes an emerging market attractive?"

Yesterday the London Business School held its annual Global Leadership Summit, I moderated a panel on how multinationals can seize opportunities in emerging markets. My panelists were Paul Bulcke, CEO Nestlé; Anshu Jain, who runs Deutsche Bank’s investment banking business; Vittorio Colao, the CEO of Vodafone; and John Connolly, the global chairman of Deloitte. (The podcast of the full panel is here).

Emerging markets are important for each of these companies. Vodafone books 22% of its revenues in emerging markets including India, Egypt, and Turkey. Deutsche Bank earns about €3 billion in these markets. Currently emerging markets account for approximately 32% Nestlé total sales (and more than half the firm’s factories), but Nestlé intends to increase revenues from emerging markets to 45%.  Deloitte has about 15% of headcount in the BRIC countries.

One of the questions we discussed was other than their own company, which multinationals do the panelists most admire for their performance in emerging markets. Their answers are interesting.

• Tesco. John noted that by the end of this year, Tesco will have more retail space in Asia than the UK. 

Continue reading "Which multinationals do CEOs admire in emerging markets?"

The nature of work has shifted in the century since Henry Ford introduced the Model T. Today, activities adding the most value–entering new markets, for example, or shifting business models–cannot be reduced to standardized operating procedures. Economic activity has migrated beyond the boundaries of the firm and now takes place in an ecosystem of organizations that are interlinked but independent.

While work has changed, the tools to get things done have not. Executives invoke hierarchical power in a networked world, and try to standardize non-routine activities. Leaders rely on power and process not because they work, but because they are familiar.

An alternative approach frames an organization not as a hierarchy of power or bundle of processes, but as a set of overlapping networks of commitments that extend up and down the chain of command, across units within the organization, and beyond the boundary of the firm. Effective execution, in this view, occurs when people make the right commitments and fulfill them with vigor. Organizations can enhance the quality of execution by requiring public commitments, which confer five key benefits.

• Increase peer pressure to perform. Many executives rely on their positional power to drive execution. In

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Execution is about getting things done. When driving execution in their organizations, hard-nosed managers dismiss talk and demand action. Phrases like “cheap talk,” “all talk, no action,” and “rhetoric versus reality” illustrate the common distinction drawn between talking.

This bias for action reveals a deep-seated belief that action changes the real world, while talking is mere commentary. Sports announcers (and fans in pubs) debate England’s disappointing performance against Algeria, but their conversations have no impact on the result. Action, in contrast, takes place when players like Wayne Rooney or Steven Gerrard step on the field and take charge of the game.

This apparently sensible distinction between talk and action ignores a crucial insight: In many situations, talking is doing. When people make a sincere promise to do something in the future, they are not merely commenting on the real world. Instead, their commitment can change the situation in a meaningful way, particularly if it induces other people to change their behavior based on the promise.

The head of engineering in a software company, for example, might make a promise to his counterpart in Continue reading "Commitments, reliance, and effective execution"

Many executives, consultants, and academics focus their effort on crafting the perfect strategy. assuming formulation is the hard part, while implementation is straightforward. They maximize the brilliance of their strategy, while treating execution as a thresh-hold variable that must be met.

This approach is wrong-headed. Instead of maximizing strategic elegance and accepting satisfactory execution, executives should formulate a good-enough strategy and maximize their ability to execute. Many industries exhibit limited variation in strategy, while winners separate themselves from also-rans through execution.

Many managers equate execution with process discipline. Six sigma or ISO certification, in their minds, measures of an organization’s ability to execute. But as I have argued in previous posts, the standardization that allows continuous improvement in processes also impedes the execution on novel initiatives. Motorola pioneered six sigma quality program, but look where that company is today.

The most important corporate initiatives are often non-routine. These include projects to integrate company mergers, fill market gaps that fall between current business units, roll out large-scale IT systems and develop innovative solutions to new customer needs. Promises, or employees’ personal pledges to stakeholders within and outside an organization, offer an alternative way to execute on non-routine activities with vigor.

A firm, in this approach, is less a bundle of standardized processes than a network of interconnected commitments to get things done. These promises extend up and down the chain of command, across units, and beyond the boundaries of the firm. Along with my co-author Charles Spinosa, I have studied what makes for effective promises in dozens of organizations. We have found that the best promises share five characteristics; they are public, active, voluntary, explicit, and include a clear rationale for why they matter.

• Public. The most effective promises are made in public, thereby increasing the cost of f

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Execution is critical to success, yet the majority of companies struggle to translate strategy into action. Recent studies, including a survey of over one thousand organizations globally, reveal that 60% of organizations fail to execute their strategy effectively. One of the most widespread obstacles to execution is the gap between the nature of work in turbulent markets and the techniques managers use to get things done.

A century ago, much economic activity could be standardized. It took place inside the bounds of a strict hierarchy. Ford Motor Company produced the Model T along an assembly line, with activities from production of components through distribution of cars within the confines of the Ford hierarchy. Such work could be managed through power-employees followed the bosses orders or left-and well specified standard operating procedures.

In recent decades the nature of work in developed countries has changed along two dimensions. First, much of Continue reading "Commitments: The essence of execution"

Anomalies are gaps between reality and the mental maps we use to guide our actions. My last few posts identified anomalies that often point to opportunities. People can further increase their odds of spotting an opportunity if they understand obstacles that dull our attention to incongruous data. I discuss four important impediments below.

The seduction of routine. “Routine,” according to the English philosopher Alfred North Whitehead, “is the god of every social system.” Standardizing an ad hoc process-from cooking hamburgers at McDonalds to assembling cars at Toyota-increases efficiency, reduces waste, and paves the way for continuous improvement. During the past sixty years, a series of process management tools, including total quality management and lean manufacturing, have spread rapidly. These tools all aim to identify defects, such as burnt Big Macs or defective radios in a Camry. Six sigma, and similar techniques, make perfect sense for improving high volume activities such as fast food preparation and manufacturing, where deviations annoy customers. Striving for zero defects in all activities, however, discourages experimentation and hampers learning. More subtly, it dulls sensitivity to anomalies, which are coded as as defects to be eliminated rather than clues to be explored. Process Continue reading "The seduction of routine (and other obstacles to spotting opportunities)"