Looking ahead with 20/20 foresight

(Second of two parts)

By J. Carlitos G. Cruz

First Published in Business World (5/20/2013)

Hindsight, as people say, is 20/20 vision. But in a global economy that is still sluggish and uncertain, looking back is not enough.

Companies today need to have an incisive and comprehensive view of the primary risks and opportunities characterizing the business landscape in the coming years. To help business leaders, the recently released Ernst & Young global report Business Pulse: Exploring dual perspectives on the top 10 risks and opportunities for 2013 and beyond offers valuable insights clustered into specific issues. Last week, we discussed the areas of cost competitiveness and stakeholder confidence. Now we will look at two other areas: customer reach and operational agility.

Customer reach
Facing reduced markets, companies have to push themselves to seek new customers, whether by finding unexploited gaps and niches in existing markets, or expanding into emerging markets. Most customers have become “chameleon consumers” who defy traditional market segmentation, particularly the emerging middle-class in rapid-growth markets. Companies now have an opportunity to target individuals directly rather than as a group.

Risk: Emerging technologies
The trend for emerging technologies to rapidly become mainstream and for companies to embrace rapid technological changes (e.g. smartphones for business use, social media, and others) indicate that emerging technologies are both risk and opportunity. The primary risk is in the area of IT security and data protection. Due to rapid adoption or development of technologies, the risk of adopting a system that is not scalable or which may be subject to technological obsolescence is a real risk.

Opportunity: Innovation in products, services and operations
Historically, technological changes are rapid during and just after major economic crises, as the cost for innovation is driven down and incentives for innovation go up.

Innovation is often most effective when it results in simplification, for example, in the banking industry where complex financial products often confuse both consumers and regulators. The important thing is to manage innovation from the top. The innovation process needs to be fluid and flexible, with the underlying understanding that it can be unpredictable and spontaneous. Innovation usually flows from mature markets to rapid-growth markets, but under current conditions, this gap is slowly closing. Soon, it may be emerging markets that will lead the race for technology and process improvements.

Opportunity: Emerging market demand growth
With mature markets stagnating, many companies are looking to emerging markets for expansion opportunities. The International Monetary Fund expects a growth of 5% – 6% for rapid-growth economies, which is much higher than mature markets. Case in point, our own economy grew by 6.6% in 2012, and is forecast at 6% – 7% in 2013, significantly adding to our attractiveness as an investment destination.
But entering rapid-growth markets requires a deep understanding of local regulatory, operational and cultural issues. Companies need to have a thorough understanding of each new market’s consumers, their needs and spending behavior. Companies also need to manage political and regulatory risks much more closely, to avoid treading onto shaky ground.

Opportunity: New marketing channels
The report focuses on two key game changers when it comes to marketing, specifically cloud computing and social media.

Cloud computing offers deep data insights into consumer behavior, creating the possibility of segmenting and targeting consumers based on their data, such as previous purchasing patterns and recorded behavior. This is already being done by companies such as Google, Amazon and Facebook. Similarly, social media offers significant new ways to engage millions of potential consumers practically for free. Yet, many companies are still unclear on how to leverage social media’s commercial potential. Rather than seeing social media as just a marketing tool, they should see it for what it is –- a two-way communication opportunity with consumers.

Operational agility
In a volatile world economy, companies have to become leaner, more flexible and more productive. They need to be able to react quickly to changes, improve existing systems and overcome operational challenges, such as talent shortage and communicating strategic moves through a global organization.

Risk: Managing talent and skill shortages
Companies are still engaged in the war for talent. This can be more significant in some rapid-growth markets where educational attainment and technical qualifications lag behind the needs of businesses; this indicates that people don’t have the right skills or experiences companies need. Some companies realize that to meet their needs, they will need to rapidly build up the experience of existing staff through training and exposure. Some companies have also instituted talent management and succession planning models to help mitigate this risk.

Opportunity: Investing in process, tools, and training
The first step to maintaining a flexible operating model is to recognize where internal investment will help, since many companies feel that productivity is an area for improvement. This can include identifying how to improve integration and functionality between the different elements of one’s business, as well as seeking ways to improve product offerings and services. For example, some private hospital groups in India are lowering treatment costs through remote diagnosis and surgical specialization, using technology to develop telemedicine and eHealth systems. Investing in technology, tools and training is also a way for companies to bridge the talent gap.

Opportunity: Improving executions of strategy across business functions
In addition to upgrading processes, companies should also consider enhancing implementation of strategic changes across the organization, taking into consideration organizational challenges, such as local market cultures, values and existing systems. It is essential that all available resources are focused on execution, including ensuring that lines of communication are always open and processes are consistent across markets. Very often, execution and coordination can spell the difference between good and bad strategy.

Opportunity: Investing in IT
Of course, executing strategy successfully will rely heavily on the tools for implementation. Many firms now invest in IT to develop both their analytical and administrative processes and to create a globally consistent set of IT systems and processes. Companies also need to monitor and evaluate technological advancements if they wish to stay on top of the game, shrewdly identifying what advancements are most likely to impact their business. As discussed earlier, changing trends in cloud computing have opened up opportunities to integrate how information is stored and utilized. For companies who adopted the technology early, their investment has paid off in terms of reduced costs – they no longer have to spend on having their data housed in a tangible location – and greater flexibility.

Opportunity: Global optimization and relocation of key functions
For companies operating in multiple markets, there is an emerging opportunity to combine a range of functions, such as IT, marketing, finance and R&D into more geographically cost-effective locations. In fact, many global companies are now also exploring how they can combine various back-office processes into specialist multi-functional shared service centers. In fact, some firms have already integrated their regional finance capabilities and outsourced their human resource function. Some are also considering moving their global headquarters to rapid-growth markets.

The advantages of this strategy extend to more than back-office operations. For example, our Asia-Pacific Talent Hub in SGV operates as a regional center of excellence that provides professional services for several Ernst & Young offices around the world, with commensurate benefits to the global organization in terms of competitive costs, consistent service quality and easier deployment.

Now that we have a better overview of the risks and opportunities to be found in the areas of cost competitiveness, stakeholder confidence, customer reach and operational agility, it becomes necessary for us to conduct rigorous self-assessments to see how our respective organizations measure up to these factors. By combining the foresight provided by the report with insights into our operations, we may be better able to anticipate the economic challenges to come.

J. Carlitos G. Cruz is the Deputy Managing Partner and Assurance Head of SGV & Co.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.