The Private Equity’s View on Companies

‘Whether it’s broken or not, fix it – make it better. Not just products, but the whole company if necessary.’  – Bill Saporito

One of the key, often understated, elements of value creation by some Private Equity (PE) firms for their portfolio companies is the ability, as an external investor (or that of any external advisor), to provide an ‘outside in’ perspective, at least in the first few months following the acquisition. This enables a business review through an objective and dispassionate prism i.e. in a very analytical, facts based, manner not hampered by the many cognitive biases of the leadership team that’s already in place (e.g. rationalisation of past decisions and related emotional attachment, endowment effect, mental accounting, status quo or inside view, to name just a few).

All companies are in business to create value for their stakeholders. Some businesses successfully set the correct value creation course, and sustain it over time, while others fail. So take a few minutes today to put yourself in the shoes of an outside investor and his ‘outside in’ perspective on a business: What would they identify that needs to change about the activities the company is currently performing, or how would they create additional value above and beyond the way it is currently managed?

  1. Change the budgeting mind-set of last year’s default assumption, and re-set the discussion to challenge vigorously every dollar in the annual budget, thereby building a culture of cost management. Zero-Based-Budgeting (ZBB) is a tool often used to look for the most efficient return on spending, from the bottom up. It provides greater visibility on cost drivers and categorises each activity between “must have” (e.g. a legal or regulatory requirement), “required to have to support differentiating capabilities” and “nice to have”. The objective is to eliminate as many “nice to have” expenses as possible, to help identify unproductive activities that can then reallocated to growth-related activities e.g. marketing, sales, and M&A.
  2. Instill a sense of urgency on cash generation capabilities. This starts with a tight management of accounts receivables and payable, as well as an optimisation of inventories, linked to the above mentioned scrutinisation of lower-value discretionary expenses, and optimisation of high-value spending. This creates a different corporate mindset: stop managers trying to prove why something is the way it is, and start thinking actively about ways to make it better the way they would if money was coming out of their own pocket. This includes a shift to “arguing things in” rather than “arguing things out” and the realisation that no spending is too small to be reviewed as one hundred small changes that save $100,000 apiece still add up to $10 million.
  3. Maintain a laser-like focus on long-term value creation.  Developing and implementing a strategy that will position the company for long-term growth and profitability involves making judicious choices: eliminating low-value activities now, to capture short-term cost benefits, while at the same time investing in the highest-potential ideas to create core value. This requires taking an objective and dispassionate view to decide what is really core to the business, where the growth potential lies, and how to capture it. Deciding what to stop doing is usually difficult for most businesses. The eponymous cognitive biases such as endowment, preference for status quo or emotional attachment easily blur what should be an objective and dispassionate assessment (e.g. exiting business lines that will no longer draw on the company’s core strengths, and differentiating capabilities to be built going forward).
  4. Do not underestimate the need for speed. The PE world exhibits a bias towards action, as exemplified in the eponymous 100-day program that they impose on their portfolio companies during the first few months of ownership. They view this time as the most critical to rapidly make decisions to implement the strategic changes they have identified, to the detriment of consensus building and alignment. Although most business do not have as much freedom and have to navigate layers of oversight, it is important to find the right balance between the need for consensus building and alignment to drive change, and the recognition that not acting fast enough carries an opportunity cost: waiting too long to implement necessary changes can profoundly impact the company’s future outcomes.
  5. Select the right team.  Strong and effective leadership teams are so critical to the success of PE firms’ investments that they sometimes invest in a company based of the strength of its management talent. The underperforming ones are promptly replaced: CEOs of one third of portfolio companies exit in the first 100 days. Middle managers are even more critical to the successful execution of a strategy. Talent management is not a frivolous activity – it is a must to success, and often businesses do not put the effort up-front to secure the right team.
  6. Select key metrics and set aggressive but realistic goals. PE firms manage their portfolio companies by developing a select set of key measures, in few areas critical to the success of the acquired company. They then set clear and aggressive targets and track them, relentlessly. Many businesses already exhibit some performance tracking through key measures, but they are usually disconnected from long-term value creation. The long-term strategy should drive a set of specific initiatives, with explicit objectives that should then drive annual plans and budgets, i.e. there is a direct operational link between the strategy and the business.
  7. Align performance and incentives. PE firms pay modest base salaries to their portfolio company managers, but add highly variable and annual bonuses based on company and individual performance, plus a long-term incentive compensation package tied to the returns realised upon exit. As a result, the fortunes of CEOs and their leadership teams are directly linked to the performance of their businesses; soaring when they succeed, but suffering when they fail to achieve objectives. Bonuses are only paid when the handful of aggressive but realistic performance targets are achieved, unlike bonuses at most businesses, which have become an expected part of overall compensation, irrespective of performance. Setting a tighter link between pay and performance, particularly over the long-term (instead of the current year) helps to truly reward star talent and stimulate a high-performance culture.

PE firms enjoy a number of natural advantages when it comes to building efficient, high-growth businesses, but some of their best practices provide powerful and broadly applicable pointers that can be adapted to the realities and constraints of many companies to build an engine for growth.

Replicating business success: Creating an effective strategy for new markets

Expanding into a new territory presents an exciting opportunity, but a central challenge to this arises when an organization tries to apply global strategies to a new and unknown market. Often, an organization relies heavily on the existing tried-and-tested global business strategy, replicating it with a few adjustments – but the resulting strategy can lead to unrealistic expectations for growth, and may underestimate the organizational and operational capabilities of your local team. However, if you develop a greater understanding of the local market and your local team’s strengths, you can optimize success across every location.

Large organizations may try and work out why their global strategy isn’t translating well to a new location. The business may look to the local team in hope of finding an explanation, but the responsibility lies first with the parent company to foster an in-depth understanding of how the business operates. While it can be tempting to assume that your team is well-versed in your company’s strategy from top to bottom, a recent survey indicates that few executives truly understand their organization’s global strategy. The negative consequences that can arise from attempts to replicate a global strategy within a local unit may then be amplified by inconsistent and unclear communication from senior management. Without comprehensive understanding and a compelling vision, local teams can move off-course and make poor strategic decisions.

If a local business isn’t performing as expected, it’s important to evaluate why this is happening before you take drastic action. Sending in a manager from another location to solve the problem because they’ve been successful elsewhere – or asking someone to take charge from a distant overseas office – may sound like a smart move, but generating local business success isn’t as simple as copying and pasting your strategic approach across the world. Replicating effective strategies can lead to business failure elsewhere, because this cookie-cutter approach doesn’t take into consideration all the differences that make every location unique: the cultural differences that impact your organization’s operations and create an environment where your business can thrive.


Factoring in the local business environment

Identifying the cultural differences present in a new location can help you to understand the strengths they offer your business and overcome the barriers to excellence that may inadvertently appear. The cultural differences in a new location can make replicating your global strategy difficult, because they impact how your business is organized and how it operates. If you don’t take into account the nuances of each location when you’re considering the core aspects of your business (such as the 4 Ps – Price, Product, Placement and Promotion), your operations may be quickly undone by local differences such as a country’s size, climate, consumer behavior, social and economic differences, infrastructure (ports, roads), tax legislations, and so on – and the list for every country will have additional localized idiosyncrasies. Business success relies on knowing your location and working with the challenges it presents.

The case of Brazil provides a useful example. Culturally, Brazilians are perceived as friendly and dedicated, but when it comes to business, they’re not known to be as open and direct as business executives from other markets. Also, business approaches that may seem normal in some markets can come across as disrespectful to Brazilian business professionals. This situation becomes more critical at the middle management level because colleagues have less global exposure – they won’t necessarily have travelled widely to other locations or been involved in global decision-making (unlike more senior executives). As a consequence, it’s common to find situations in which people struggle to take part in constructive debate, which leads to ineffective leadership and a lack of trust, which may prevent team members from contributing to important conversations and lead colleagues to perceive the organization as hierarchical and unfairly demanding.

One case in Brazil demonstrates the challenges of expanding into a new market. A successful global food company moved into Brazil without sufficiently considering the challenges within this market. It hadn’t factored in the specifics of consumer habits, or evaluated the challenges posed by Brazil’s infrastructure and the tax differences that exist between each region of the country. These oversights cost the business dearly, ultimately impacting prices due to poorly understood logistical challenges within the market (such as goods being imported from the wrong port, and clearing customs in one area while holding inventory in another, making it difficult to optimize potential savings from tax benefits). In addition, although the company sold a premium product, it was too sophisticated for local consumers, who often didn’t have the financial means to purchase the product (a factor that also varied across regions).

Increased local insight could have saved this company a lot of time and money, and it may have helped the organization find a way to operate more efficiently in Brazil – in a way that met with the global business’s expectations of the local operation. But this is easier said than done, as finding an effective approach that works well in a new market while complementing the global strategy requires you to tread a fine line between embracing the new location wholeheartedly and operating within global budgets and strategic controls (which are also pivotal to business success).


Listening to every stakeholder, from senior managers to your customers and suppliers

Developing a thriving local business relies on more than diligently future-proofing your organization against local challenges. It’s also imperative to ‘listen to the local crowd’ both internally (your top and middle management executives) and externally (your customers, suppliers and distributors).

To be an effective leader, you need to listen to your team: the answers to many problems may be right in front of you waiting to be discovered. One interesting example comes to mind that demonstrates this perfectly. A salesperson at a large and well-admired consumer company was able to boost the organization’s sales by developing an in-depth understanding of the characteristics of the organization’s core client base. By understanding the differences between successful and unsuccessful clients, they found a way to survey their clients, identify the clients with potential, and dedicate their time to these clients. By evaluating client behavior, they found a formula for repeat sales.

External stakeholders can also offer valuable insights when expanding your business. In another example from Brazil, a large European chemical conglomerate with a small-to-medium-sized Brazilian business unit faced similar challenges to the food company. Although it was an uncontested leader in the market for most of its products, the Brazilian business unit had been underperforming, and it was losing market share to competitors faster than expected. With the help of a-connect, and through a detailed organizational assessment and series of workshops, the organization developed a clear vision of its global strategy, adapted it to the local business unit, and built consensus around the local business’s potential, enabling it to set ambitions and common goals for the organization. The parent company was able to foster a company-wide understanding of its vision and global strategy, and achieve the buy-in of the local business unit’s management team. The company reassessed the local market opportunity with the help of its external stakeholders (direct clients, distributors, end-users and so on) and determined a realistic approach to achieving business growth. The local business unit then redefined its distribution model, sales organization, and commercial processes and policies to suit the market. By listening to and better understanding their clients, the local business unit was able to craft a more effective go-to-market strategy.

This case highlights that although local leaders may feel they know the local market well, they may not know everything that matters to guarantee business success. By empowering local teams to listen to and understand the local market in all its intricacies, local business units can stay ahead of the game and ensure they’re aware of changing market conditions, the new product landscape and the ever-evolving economic situation.

Business success begins at your organization’s headquarters and goes all the way through to the salespeople who take your customers’ orders. You need the buy-in of everyone at every level of your global organization. Less is more: if local leaders understand their market – its idiosyncrasies and unique challenges – you’ll need less meeting time and fewer 50-page reports to guarantee a thriving business that every colleague contributes to. And that happens when they’re empowered to take control of their team, be accountable for their decisions, and share the rewards.

To find out more about how a-connect can help your business prepare for the challenges of achieving business success in a new location, contact us today.

The ‘Innovation’ in Innovation Consulting

As a specialist in consulting to companies seeking innovation, I sometimes get the question “What’s so innovative about that?” At one level, it certainly looks the same, with slides, data analysis, and interviews. But innovation consulting has its own idiosyncrasies that differentiate it from what the big firms do. Having worked in both worlds, several lessons stand out, which may have meaning for others whatever their consulting focus.

What’s Distinct?

Crafting strategy for markets that are new or rapidly changing prevents easy application of some of a consultant’s most trusted tools. Market trend lines cannot be extrapolated, financial models compile unknown on unknown, and other firms may become ally, rival, or sometimes both. Different approaches are needed, and I wrote my first book Capturing New Markets to lay out methods for spotting new markets, assessing what doesn’t exist, and developing long-term channel strategies when so much is in flux. The key undercurrent is identifying patterns of market evolution. While many might claim that flexibility should be the watchword, oftentimes you really do need to make a decision. Patterns help to point the way to success.

Innovation clients are also their own genre. Their mandates are often fuzzy (“go make us more innovative!”), so selling to them has to be highly consultative to hone the project scope. At the same time, they often feel uncomfortable with their charge, so having a well-defined process for a project provides reassurance that the results will get delivered. Executing the project with them needs to be participatory; otherwise bold recommendations can feel as though they landed from Mars and have no buy-in for implementation. A recommended suggestion here is to have a client co-lead a focus group with you, or join you on ethnographies, to make the findings visceral and to spark the sort of creative back-and-forth that PowerPoint can struggle to trigger.

What’s Changed?

I entered this field in 2004, when most thinking about innovation was at quite a different level than it is today. Initially, clients wanted idea hunts, having outsiders lead countless brainstorming sessions in search of The One – the big idea that would reshape the company. This was a tall order and had several fatal flaws, but many clients believed they could recreate Edison’s genius in a conference room (never mind that, in reality, Edison networked extensively outside his labs, constantly iterated his creations, and failed innumerable times). Gradually, those beliefs have subsided and there is a growing realization that innovation has to follow a disciplined approach – one that consistently looks outside a company’s typical confines.

Projects also used to have a strong bias toward developing new products, rather than services or internal processes. This is changing, and now I’m doing projects on topics like “The Future of the Supply Chain” which would have been unthinkable a dozen years ago. People are realizing that innovation isn’t just for the white coated lab employees, but for anyone in the corporation.

Like many fields of consulting, innovation has endured fads. Design thinking, for instance, started with what is a valuable approach in certain circumstances and stretched it into fields poorly suited for its methods, or applied it in ways that displayed infatuation for process rather than results. The hype cycle in this case denigrated a valuable methodology, and now after disillusion some clients are applying design thinking techniques in more limited settings and embracing a broader portfolio of approaches elsewhere. People still want silver bullets, of course, but in innovation there really are none. This reality benefits the skilled practitioner who can advise on the right type of approach in the right circumstance.

What’s Coming?

I see three major trends affecting this field in the coming few years.

  1. Strategy and market research are being unified. The traditional division of labor between strategists and researchers falls apart when innovation is the subject. It is essential for strategists to get intimate with the customer. Far from distaining the task of conducting 50 interviews, strategists should embrace it as a chance to gain insight and trigger ideas that printed reports can never equal. This calls for a more senior mix of resources on consulting teams, which is one reason why the big firms struggle in the innovation field – they won’t shift their staffing model.
  2. Clients are increasingly demanding actionability. They have been burnt far too many times by seemingly great ideas that lacked a series of clear next steps. I’ve written my second book, to be published in November, to provide this sort of approach for projects looking to reshape markets or approaches to customer segments. Jobs to be Done: A Roadmap for Customer-Centered Innovation uses the “roadmap” term quite consciously; this is what clients crave.
  3. Finally, there are increasing numbers of engagements with a long-tail backend, in which a consultant is kept on for occasional counsel as innovations progress to market. Clients are recognizing that situations change fast, and that quick iteration of concepts is something counter to most corporate DNA. A skilled outside adviser can keep companies flexible and savvy.

Where’s the Innovation?

To answer the question posed at the start of this article, much in innovation consulting is innovative, and yet the lessons seem more general. Clients increasingly want tailored approaches, extensive participation, deep market insight, actionability, and help in sticking with new plans. These desires benefit a-connect IPs, because they have the experience and flexibility of approach that is often lacking on the standardized case teams of big consulting firms. As clients become ever more sophisticated about their needs, the signs point to a bright future ahead.

Inflexion points

Most movies contain a scene in which the protagonists stop defending themselves against the bad guy, and start attacking. It is the moment when a family member dies, for example, and Luke Skywalker, Bruce Wayne or Scarlett O’Hara decides to take arms against the world. In the movies, this moment happens so consistently that, if you opened a script, it would usually occur around page 25 and divide Act One from Act Two.

Many organizations experience a similar moment. After a long period of cost-cutting and disappointing results, during which success means surviving another day, they reach an inflexion point and figure out that it is time to start growing again.

Maybe this is because the crisis that triggered the need for cost-cutting is over. Maybe the company has achieved its cost goals, or a new market has opened up. Maybe the process of consolidation has taken care of oversupply.

Whatever the reason, it means that the crisis is in the past. The board has approved the growth strategy, and yesterday’s sacrifice has paid off, meaning the company can untighten its belt, reap the rewards of years of austerity and get busy with growing.

Except that things almost never happen like that.

Looking at a sample of sectors that underwent such contraction-then-growth cycles, a significant number of companies have had difficulties with inflexion points, and have sometimes taken years to ‘change gear’.

People are stuck in an old mindset

One issue that holds companies back is that many of their people are stuck in an old reality. Managers may fear that approved resources will be unapproved or just delayed. Salespeople may distrust the production numbers, and production people may distrust the sales numbers. And both may distrust the market forecasts.

Issues such as informal lines of communication, company culture, reward systems and lack of buy-in often reinforce these fears – especially if the senior leadership is not wholeheartedly committed to the new plan.

Besides the human factors, aspects like organizational design, processes, reports, performance indicators, governance model, discussion forums and skill sets may also be inadequate for the growth phase.

Even if everyone in the organization believes that times have changed, altering processes and structures takes time. In fact, the chances are that, for a long time, the company will be better equipped for controlling costs than creating growth.

Better management of inflexion points is a competitive advantage

Our experience with clients in similar situations points to four best practices: 1. design for early wins; 2. invest in confidence; 3. make public displays of commitment; and 4. look outside.

1. Design for early wins: Designing your growth strategy so that you can showcase and learn from your victories early on is a no-brainer. It creates positive momentum and makes you more adaptive.

A financial services company that I worked with realized that responding to market opportunities required reassessing some of the risk-management controls that they had developed in response to the global financial crisis. However, doing this would mean undergoing a long and complex change, which a lot of people would resist because of its perceived long-term impact on the quality of the business.

Hence, we started by focusing on other issues instead: for example, making processes more efficient and scalable, and increasing the company’s control over the risk–return indicators that we wanted to improve. Not only did this have immediate pay-off, but it also provided the management team with better controls for the next phase.

2. Invest in confidence: As a general rule, having a great strategy is always a good investment. Research indicates that companies with superior insight, greater buy-in and better-prepared teams outperform their competitors, and deliver higher returns to their shareholders. But this general rule is never truer than during inflexion points.

It is critical for senior management to invest time into developing and communicating the strategy, and to have support from high-caliber professionals who have experience in this process, and who recognize the challenges the company will face. It is also important to ensure that there is enough quality insight, data and analysis available to support the most critical decisions, and to clearly understand the business implications of making assumptions with differing levels of confidence.

Another client had been addressing this issue by investing in tools to improve the company’s demand-forecasting capabilities. However, after critically analyzing the business, it was obvious that improving the demand-forecasting in general had very little impact on the company’s preparedness and results.

For a very small set of products, though, any improvement in forecast quality yielded a significant business impact. The company then redefined the objective of its program around this set of products, and decided to accept the inherent margin of error on the rest of its portfolio – leading to great results.

3. Make public displays of commitment: Showing internal and external stakeholders that you are committed to the new strategy goes a long way towards recruiting them for the initiative. Thus, the new strategy must become the reference point of all the critical decisions, including the approval, prioritization and availability of resources.

During inflexion points, many business leaders believe that they can boost results by “delaying writing that cheque for a few days”. However, this often has the opposite effect, creating issues with critical resources, undermining financial discipline and confidence, and making the company less adaptable.

4. Look outside: In many cases, external partners are an additional source of inertia. If you sell through distributors, then part of the process of growing sales is outside your control. If you have critical suppliers, they may have different views of the market, and be reticent or incapable of making the capital commitment to scale up production.

Knowing where your external partners and clients are, and whether and how they are dealing with their own inflexion points, is not only critical to avoiding problems, but also a potential source of opportunities.

Organizations live in complex ecosystems and often the best way to ensure your success is to align it with the success of others.

Organizations that are aspiring to become adaptive and to capture opportunities from market inflexion points must ensure that they have laser-like focus.

From PowerPoint to bottom line

Actions speak louder than words, but words tend to dominate strategy implementation

Picture this: after months of hard work, the strategy project team has just delivered its final presentation to the management team, receiving praise, acceptance and a commitment to move forward on the recommended path. Thorough analysis has been conducted, great solutions have been developed, recommendations have been carefully crafted, and the team members breathe a sigh of relief and victory as they leave the room, perhaps celebrating this achievement later that evening. By the time the strategy is communicated, that same team has already disbanded into its respective, disjointed day-to-day jobs. Fast-forward a couple of months – two team members bump into each other in the hallway, and ask each other how the new strategy is working out. As far as they can tell, not much has happened; they both lament the slow speed of change and assure each other that something needs to be done urgently, before shuffling on to the business at hand.

If this sounds familiar to you, it is because the majority of large-scale project recommendations and changes are not implemented or not adequately implemented. The significant efforts that go into strategy design and producing hundreds of PowerPoint slides are, in most cases, insufficiently translated into an equally high-profile, high-urgency, and highly resourced implementation. As a result, many implementation efforts generate only lackluster outcomes, and the underlying strategic initiatives, along with the leadership who initiated and communicated them, lose credibility, and the extended team that was involved gets demoralized.

The struggle to get from PowerPoint to bottom line

The reasons why organizations typically struggle to implement initiatives are few and preventable, yet typically hard to address in practice. First, there is the challenge of the strategy itself, which may not have sufficient buy-in from the organization – in particular from middle management – and may be conceptual, high level, and unsuited to the realities of the company. All of these factors mean that it would not lend itself well to bottom-up implementation. Secondly, the right team is often not set up to run the implementation, which is equally as important as the strategy development phase and should get the same exposure to and involvement from senior management. Finally, many implementation plans tend to roll out sequentially rather than in parallel, making one change after another – the time required for this approach means that the plan risks being derailed by competing objectives, or loses momentum in the absence of continuous, noticeable progress.

Key factors for successful implementation

  • Develop an implementation plan
    The most obvious point is frequently also the least resourced and emphasized. High-level strategy goals need to be broken down into constituent milestones and work packages need to be designed, resourced and allocated. Planning needs to be given adequate time so that realistic and credible roadmaps are developed – otherwise implementation is not set up to succeed.
  • Create combined teams
    Implementation is often either the responsibility of line managers or special project managers. In reality, the best teams are a mix of both, allowing for the adequate balance between momentum and pragmatism, and the balance between strategy and business realities.
  • Establish a governance system
    Develop a governance system that audits the project, creates and measures KPIs, and is able to course-correct and escalate if results or progress are not materializing as expected. Those who are part of the governance team should have this reflected in their personal goal-setting to ensure that enough time and priority is allocated to implementation.
  • Manage stakeholders
    The management of stakeholders and their agendas is essential to the success of an implementation program. Stakeholders on all levels need to be addressed and adequately involved.
  • Ensure active senior management involvement
    Active senior management involvement and follow up is crucial to the implementation success. This means not just reviewing the reported ‘traffic lights’, but helping to remove obstacles and getting engaged in the problem solving.
  • Drive change management
    Larger initiatives require changes in organization and behavior. For this to be effective, project and line managers need to act as role models and ambassadors, not only for the strategy but for the associated behavioral changes. Through strong change management you enable organizational learning and knowledge transfer that will make the change stick and prevent the organization from falling back into the old way of working.
  • Complete a communication plan
    An extensive, long-term communication plan needs to be put into place to continuously reinforce objectives and keep the organization feeling like it is moving together in the same direction.

a-connect’s unique implementation capabilities

a-connect has a long history of successfully implementing client projects in Financial Services, Life Sciences, Agribusiness, Food and Chemicals (AFC) and Private Equity. The foundation for our success is three-pronged:

  • Our consultants combine comprehensive industry and line management expertise with extensive consulting experience. This allows them to fully understand not only the necessity and objectives of the strategy, but the real-time requirements of an organization that needs to simultaneously operate and change. Additionally, consultants with line business experience understand the ‘hidden rules of the game’!
  • We offer our clients full flexibility. Not only do we encourage a blended team approach where our consultants are fully integrated with the client team, but we also recognize that, especially when it comes to implementation, a dynamic approach is necessary. Sometimes the project requires only a single external resource; other times a full team is needed to create greater momentum. Moreover, we know that these needs change over time.
  • Implementation has been part of our core offering since a-connect’s inception and we are able to draw on rich and diverse project experiences to identify what works and what doesn’t work. 

Find out more about the implementation projects we have conducted in Life Sciences, Agribusiness, Food and Chemicals and Private Equity. Or, for more information on how a-connect can help you with your implementation challenges, contact us today.

Identifying inflexion points

In my last article, I discussed how business leaders should manage inflexion points – those moments when a company reverts from focusing on margin preservation and starts growing again.

During the first months of an inflexion point, before the market trend reversal is confirmed or a growth strategy shows results, it can be hard for leadership to feel confident and commit wholeheartedly to growth.

To make committing even more difficult, big bets based on the expectation of a market recovery that turns out to be just a temporary boost can destroy a lot of value and undermine the organization’s confidence in all the leadership’s decisions.

However, there is a substantial reward at stake for companies smart enough to make the right move at the right time. Market inflexion points are prolific in creating new opportunities and there is plenty of anecdotal evidence that smart movers can capture substantial market share during these inflexion points.

Therefore, a critical question is: how can companies recognize these inflexion moments? How can they be certain before everyone else that the tides are indeed turning, that their markets are really rallying, and that they made the right decision to refocus on growth? This article describes how companies can better recognize market-driven inflexion points and use this knowledge to their advantage.

Identifying market-driven inflexion points goes beyond reading market reports

Most companies track sales and buy reports with detailed historical data on their markets and forecasts. These are typically used in their yearly planning and, sometimes, while preparing business case proposals before major decisions. Companies get value from this approach as it uses market facts to anchor future expectations, which, in turn, anchor strategic decisions.

However, this approach is not foolproof. Some of its limitations include:

  • Your competitors are doing the same: Most companies rely on the same sources of data and intelligence to identify emerging opportunities and use the same forecasts to define their views. Thus, not only do they tend to move at the same pace as their competitors and miss inflexion point opportunities, they also tend to look at the opportunities the same way and reach similar conclusions.
  • Opportunities do not wait for you: There is significant lag in normal processes. First, market conditions need to change enough to trigger a review of expectations. Then, these changes need to be measured, results need to be compiled and published, and this information needs to be used in planning processes – which are typically yearly. Plus, approvals for recommendations based on changes of expectation tend to take longer.
  • Most public forecasts do not show how numbers change: Good reports include discussions of which factors are driving demand as well as which changes are significantly impacting them. However, this often serves more to provide reassurances to the reader than creating clarity on ‘how things work under the hood’.

Developing a customized approach to identifying inflexion points

Below are five complementary groups of actions companies should implement to better predict, recognize and deal with market insight, especially regarding inflexion points:

  1. Build proprietary knowledge: When most companies rely on the same sources, they often reach confidence in their decisions through peer validation (“I am confident because others are doing the same”) instead of diligent insight (“I am confident because I did my homework”). While public intelligence is important, developing proprietary knowledge in a few strategic areas can yield great results and, most importantly, produce insights before your competitors.
  2. Tailor planning to your needs: Likewise, developing more responsive processes, which can deal with information in a way that makes sense for your company, can yield significant results. Using this approach, one technology client developed a way to look at its markets based on their underlying platforms. This required changes to the company’s planning processes, as they could no longer simply plug in numbers from public reports.
  3. Track trending fundamentals: Fundamental drivers are the hard factors that translate into supply and demand. These drivers trend on different frequencies; for example, in consumer goods, discretionary spending changes with the economy but demographics follow long-term trends. Besides, tracking fundamentals allows companies to identify false inflexions. Tracking buildups of supply–demand imbalances, for instance, helps avoid mistaking temporary movements for long-term trends.
  4. Rely on quantitative tools: Statistical analysis of historical data can be used to determine the likelihood that new market data represents a trend reversal versus an expected variation of a current trend; for example, a financial services client used this approach for each of its product categories – revealing that a 1% reversal in a low-volatility market was more significant than a 5% change in a high-volatility one.
  5. Improve your forecasting: Finally, forecasting, like any other business process, can be improved. It is important to map the implications of different assumptions and variables and adopt different approaches to improve these over time. In one example, an industrial client realized that forecast errors only mattered for high-cost, perishable goods. Focusing efforts on improving planning for that subset of products had a very positive impact on the company.

There is no doubt that smart movers can profit tremendously during market inflexion points. By building proprietary knowledge, tailoring processes to the needs of your company, analyzing fundamentals, using quantitative tools and applying strategic continuous improvement to planning processes, companies can capture these opportunities and invest in growth with confidence.

The Parallel Lives Of Our IPs #6

1. How would you describe your current family situation?

I am married and have three teenage children and a cat. We live in Central London and have a large extended family – none of which lives in the UK, unfortunately. So there’s a lot going on – the kids all go to different schools and we tend to go back and see family in Sweden as often as we can. Both my husband and I work full-time, and always have done.

2. What does a typical day look like and what types of family decisions do you make on a daily basis?

I am often away – I’ve always worked full-time, so the family has to function without me around, and that works very well. The kids get up around 06.30am, wolf down a quick breakfast and leave the house between 7am and 7.15am. My husband and I often walk with one of them to the bus stop/train station when we can. Three times a week, we have help to clean up after breakfast, sort the house out and help with the laundry. The kids get home between 5pm and 8pm, depending on after-school activities. The eldest (16) is responsible for washing all of their clothes and the younger two (14 and 13) are responsible for making dinner. Sometimes it works, sometimes it doesn’t. My husband gets home between 7pm and 8pm most nights. If I am in London, I often do not get back until later, as I tend to work from a workspace. We do not eat together as a family during the week, and the kids do their own homework and revision without much daily support from us. During the evenings, we often help them with applications for orchestra camps, ordering new school uniform, paying for martial arts lessons, setting up new computers, planning instrument grading exams or revising for major things like GCSEs. Having three teenagers is like helping three slightly lost adults who do not quite know how to organize their very active lives yet.

As I am not around much, it’s not really possible for me to make decisions on a daily basis when away from home. We’ve got different areas of responsibility and I can’t really influence what goes on at home on a daily basis. Inevitably, my husband does a lot of what needs to be done there and then, and I am responsible for things that can be done online. I am responsible for ordering all the food for the family and making sure there is enough of everything. This often results in us having ten liters of milk but no butter or cheese. I also do some of the admin that can be done via email, such as dialogue with other parents and shopping for uniforms or sheet music. But I can’t say I really make many decisions on a daily basis; decisions need to be made jointly in advance and the rest of the family manages the household.

3. How do you achieve a work–life balance as a parent?

I don’t. No parent does to the extent they’d like to. But I try! My husband and I constantly prioritize and talk about how to organize the family. We’ve set up structures around us that enable everything to function with both of us working, but a lot of compromises are required.

I have learned a lot from others about how to organize a home with two working parents, and I try not to compare myself with others. I accept all the help I can get to make things work at home. Personally, I have not tried to change the way I work much. By being an IP, I can sometimes take time off between projects, which has been a great benefit.

4. What are the biggest challenges you encounter, both at home and at work? And how do you get around them?

I’ve chosen to take the challenges mainly at home rather than at work. We have set the family up to work without me around and created a flexible support structure that has adapted as the kids have grown.

When it works, it’s great, but it doesn’t always work. I had prepared myself for the inevitable “Why are you never home like other mummies?” before it came, so it probably hurt less. And it’s not been frequent; as the children grow, they see the benefits of having two working parents.

I know that I don’t work well in a 9-to-5 environment. I like challenging and complex projects and fast-changing environments. I tried for many years to work less, but I always found it hard. As an IP, I can manage this by either working or not. For me, alternating periods of intense work with time off works better than trying to manage my hours.

5. What advice would you give to IPs with families?

Accept that it requires effort from everyone involved

It can be demanding on everyone to be part of a dual-career family. I have a super-supportive husband who luckily doesn’t travel much with work, and the kids are used to me not being around. They have had to take on more responsibility and be more independent than if their parents had been able to be there every day and every evening. When I’m around, I tend to go to all the school events I can, as, for long periods, I can’t attend anything and my husband may have to go to four school concerts in one week. I can’t recommend highly enough marrying someone who agrees with having a dual-career family if that’s what you want. Otherwise, I don’t see how it could work.

Prioritize and don’t compare yourself with others

It’s a matter of prioritizing and accepting that some areas of life will be a mess for part of the time. But that’s probably better for me and the family than trying to organize everything perfectly. Most mothers in my area don’t work, and there is no way I can do the bake sales, charity fundraisers, coffee mornings and wine tastings that some of the other parents regularly engage in. It just can’t happen with my work and travel schedule, so I try not to compare myself with the neighbors. Be honest with yourself and your partner about what you want to achieve and what you’re going to have to leave.

Agree expectations

For me, it’s been important to be clear with all my family that, when I’m working, I can’t expect to be part of all the decisions and everything going on. I don’t have to speak to my kids or my husband on a daily basis because I trust them to get on with it and let me know if I’m needed for anything. They don’t count on me during the week, and I don’t interfere. I have time to focus on the project at hand, and can stay away an extra day if needed without the world falling to pieces. I don’t get upset if I miss an important event, unless I have taken a day off. I don’t try to plan anything at the end of the day when I’m working – I rarely make it out on time. On the other hand, I try to limit weekend work as much as I can.

In my work life, I’ve been clear about what my availability is and what travel and working hours are acceptable. However, I’ve generally taken the approach of creating a support structure that enables me to do whatever I need to do at work rather than impose limits on which projects I can take.

Allow some extra capacity and slack

Work–life balance isn’t only about work and daily family routines – it’s also about the social structures and planning that comes with family life. I found that setting ourselves up for the predictable demands isn’t enough; there’s slack needed because, in the middle of it, life happens. Planning holidays, supporting a sick parent-in-law, moving house, changing schools, researching tutors for GCSE revision, planning a 40th birthday party or supporting a friend through a divorce doesn’t happen all the time, but there’s generally always some sort of crisis brewing. The setup has to provide for some unpredictability and extra capacity, because it is needed more often than not.

Accept all the help you can get/afford

We used to have an au pair when the children were little and we needed someone to walk them to school. We also have a wonderful multitask cleaner who’s been with us for 10 years and we send our children to our parents for the school holidays. When the kids were little, we had plan A (a parent home), plan B (an au pair home), plan C (a grandparent/babysitter home) and plan D (an emergency childcare agency already set up to come at a moment’s notice). Yes, I used plan D once, handing a baby and house keys over to a stranger to make a flight on time. If you ever think you may need to be able to do this for work, it’s a good idea to set the structures up in advance.

The Parallel Lives Of Our IPs #7

1. How would you describe your current family situation?

My current family situation is fairly straightforward, with a slightly 21st-century twist. I live with my husband and we’re lucky enough to have two children, who are 3 and 5 years old. Diana, our daughter, is the oldest, and Tiago, our son, is the youngest. As a two-dad household, we get a lot of questions about our journey of creating our family, and we’re very happy to explain that we’re the biological fathers of the kids, who have been with us since the day they were each born.

2. What does a typical day look like and what types of family decisions do you make on a daily basis?

I think a typical day for a family can be described in the same way that a consultant would describe their work… there’s never a typical day. Saying that, there are a few themes I can pull out.

  • I start my day about 6.45am to get up before the kids and prepare breakfast for them.
  • The kids will get up just after 7am, and we eat breakfast together until about 7.30am.
  • Between 7.30am and 8.15am, we help the kids brush their teeth and get dressed, and get them ready for the school day by packing their bags with snacks.
  • At 8.15am, we wait for the school bus to pick them up – then I wave goodbye and my day can start in earnest.
  • Most of my clients are based in the UK, Switzerland or the US, so I often have a bit of time after dropping the kids off when I can hit the gym to keep in shape.
  • I’m lucky enough to be able to walk to my co-working space near the river in Lisbon, and I’ll hop on my computer and start working properly by about 10am.
  • I grab a quick bite near my office for lunch, then work until about 5pm, when I walk back home to meet the kids as they get dropped off.
  • From the time the kids get dropped off at home until dinner at 6pm, I try to play with them or, if the weather is good, find a playground so that they can use up their extra energy – that’s if I’m not on calls or getting ready for a big client update.
  • We help them with dinner and then it’s time for them to have a bath/shower, brush their teeth and get into their pajamas.
  • Normally, we will all gather round the TV for a short show on Netflix, which the kids have to choose together, so there aren’t any arguments. Daniel Tiger’s Neighborhood seems to be winning a lot these days.
  • After this, we convince the kids it’s time for bed, read a story (Goodnight Moon and Little Blue Truck are all-time favorites), sing Twinkle, Twinkle, Little Star, then give goodnight hugs and kisses.
  • Once they’re settled in, I normally go back to work for a couple of hours (grabbing dinner at some point – with my husband, if I’m lucky) to catch up on the afternoon, get in a few more calls/meetings and make sure I’m set up for the next day.
  • I’m in bed and chilling by about 11pm/midnight, ready to do it again the next day.

The types of decisions I make on a daily basis in regards to my family are, I imagine, pretty typical for a consultant. Since my husband and I are both in professional services, we’re often trying to figure out how at least one of us will be in Lisbon to make sure the kids will be taken care of. The remainder of the decisions are usually around how to get them fed, cleaned and clothed while not completely exhausting the two of us. On weekends, I switch into a child entertainer/taxi driver, trying to make sure we all get a bit of rest, a bit of fun and a bit of time with my husband’s family, who live close by.

3. How do you achieve a work–life balance as a parent?

In short, I don’t. Don’t get me wrong… I love it, but it’s an impossible mission if you’re trying to excel on all fronts at the same time. It’s a bit more complicated than work–life balance – it actually comes down to two big buckets and a bunch of smaller ones:

  • Life
    • Taking care of myself
    • Managing my relationship with my husband
    • Managing my relationship with my daughter
    • Managing my relationship with my son
    • Managing the dynamics between family members
  • Work
    • Serving current clients
    • Future client development
  • Everything else

I mostly try not to completely suck at anything – being mindful about how much I’ve focused on one area over the others in the last few days or few weeks. I always want to make sure I’m delivering great results for clients but, honestly, if my family needs something and my husband isn’t available to pitch in, then I have to ask for a bit of understanding. On the flip side, my kids understand that I sometimes have to work, so can’t play Lego with them or always serve dinner on time.

4. What are the biggest challenges you encounter, both at home and at work? And how do you get around them?

My biggest challenge is always running out of time – always. Since starting a family, I’ve got better at time management, prioritization and multitasking. Time management helps me keep perspective on my current task. I ask myself how long I need and how long I have to do something. If I can’t realistically get something done in a timeframe, then I don’t promise myself or others it’ll get done. Prioritizing basically helps me understand which fire I need to fight next, so that I can give my focus to one issue at a time. Multitasking isn’t a natural strength of mine but I’ve learned to develop it since having kids – I think all parents do this.

5. What advice would you give to IPs with families?

The best advice I ever got regarding raising a family was ‘Don’t take anyone else’s advice if you didn’t ask for it’. Every person and every family is so different that any advice I give would essentially be useless – listen to yourself and your family and take it from there. When in doubt, ask someone you trust.

Fad-Free Strategy:

It has become fashionable in some circles to dismiss business strategy design as a relic. Such circles argue the importance of ‘strategy as learning’ and say that detailed strategizing has become pointIess in today’s volatile, uncertain, complex and ambiguous (VUCA) world. They also argue that there is a ‘strategy-execution gap’, and that failures of strategy are primarily due to poor execution, not weak design.

Both of these arguments have some merit. However, from our combined 50+ years’ experience of advising mainstream companies and teaching executive MBA students at Harvard University and Hult International Business School, we find that such attitudes tend to overlook one important shortcoming: that many managers possess a lack of rigor when assessing the feasibility and financial effects of their strategic choices before pushing the ‘commit now’ button. Decision-makers should be more demanding about revenue (R) estimates – that is, the product volumes or quantities (Q) a company is likely to sell to its customers at various price levels (P). While most managers recognize the R = P x Q formula, many believe that real-world business does not lend itself to a rigorous approach. They think that it is easier and/or more desirable to apply good business judgment, guided by past experience, stretch goals and simple arithmetic.

In Fad-Free Strategy, we explain a rigorous yet practical approach that decision-makers can take to achieve vastly more reliable revenue estimates. Instead of moving straight from Grand Strategy design to Grand Strategy execution, managers should insert an Operational Strategy step. Grand Strategy is the upstream process through which a company defines its vision and determines the product-market combinations with which it aspires to realize that vision. There is nothing wrong with developing a Grand Strategy, provided one fundamental limitation is accepted: as the outcome of the Grand Strategy is based on averages and guesstimates (e.g. the average growth rate and profitability of a market, the overall attainable market share, and the assumed competitive advantages), it must be considered a hypothesis that subsequently must be validated, adapted and detailed, or possibly even rejected. This rigorous, evidence-based process of validation, adaptation and detailing prior to execution is what we call Operational Strategy.

Operational Strategy is based on modeling methods from decision sciences and microeconomic utility theory, which have been around for over half a century. In practice, it applies a number of irrefutable first principles that, unfortunately, some strategists tend to forget. These principles are that:

  • Customer demand drives revenues. Revenues are linked to customer demand for a particular product at different price points – not to the vision and ambitions pronounced by the management team during an offsite.
  • A customer goes for the best deal. When faced with a number of alternatives, a customer will pick the option that gives them the best deal; that is, the option that has the largest difference between what the customer is willing to pay and the price they have to pay for it.
  • A customer’s preferences need to be extracted. Customers often can’t express their preferences directly or don’t even want to reveal them. Customers need help with crafting and discovering their own preferences.

By applying these principles and methods, far less shareholder value and fewer career prospects would be destroyed, whether the strategy is about entering a new market, defending one’s own market against aggressive new entrants, or gaining share in commodity markets where customers only seem to care about price.

Fad-Free Strategy is endorsed by leading academics (from Harvard University, Duke University, NYU Stern School of Business, etc.) and CEOs (from Unilever, Allianz, CNH Industrial, etc.). It is published by Routledge – the world’s leading academic publisher in the humanities and social sciences space. You can find a Q&A, videoclips, tutorials, speeches, articles and reviews at


About Herman

Herman is part of the a-connect independent professionals network, focusing on strategy and organization assignments, primarily in Europe and the Middle East. He became an independent consultant in 2012, after 26 years at consulting firm Arthur D. Little, of which he spent 19 as a partner. He writes regularly in journals, such as the Harvard Business Review, Strategy & Leadership and MIT Sloan Management Review.