AEC is a sell-out or an

opportunity?

Market liberalization enforces corporate transformation

Inviting the world to compete with the local industry is a life altering event with opportunities and higher risk challenges. Such is the journey of the Asean Economic Community (AEC) and the Trans-pacific Partnership (TPP) — the latter Thailand has yet to subscribe to.

This will drive further economic integration across the associated nations, however, which companies will thrive and which won’t is in the power of the corporations and their management.

A great deal of companies have a current approach in which companies generate revenue, drive strategy, and have a standard operating approach. It might still have overhead and insiffciencies, but it does drive revenue and shareholder value.

In this context some of the largest players in Thailand, Malaysia, or Indonesia are in the regional or global context possibly not have sufficient size to become a regional player comared to larger companies — they do have benefit though of local experience. As per Financial Insights Thailand’s largest banks are in the “small-medium” category, in the regional context (less USD 10 Billion assets). In a closed market situation this is manageable, as rules and competitors are obvious. However, in an open market, anyone who has market access and follows regulations can be a competitor.

Strategic imperatives for companies in the region would be:

1. Decide on Niche or Market Leader / Country or Region / Developing or Mature Markets
2. New culture of rapid productivity, relentless execution, continues improvements (“Lean Startup” Culture)
3. Innovation through developing and evolving technology to expand the business model and the business— more than “buying” from vendors.

Both GE and Accenture have an operational agility down to the samllest entity or country operation — part of the DNA you might say — which drives changes of each unit faster than the outside. Both organisations have the ability to change faster then the market and the circumstances of the business ecosystem they operate in.

One might have noticed, that the business model — product and services these companies offer have changed over time. GE has greatly reduced financial services exposure and Accenture has commodotized a larger part of its business in line with market realities.

Opening up markets at an increasing speed, will create a much faster changing environment with strong upsides, but also risks. Especially, when this comes at a time of a new technology wave — driving further changes into the fray.

From a business model question, there are two key options:

1. Retain a niche at home with services improvement and faster innovation cycles or
2. Regionalise a successful business with an adjusted operating approach.

Both in reallity means significant business transformation.

Having worked for 20 years in Asia, my key observation is that especially a increase in producitivity — create a better corporate engine — will lead to desired benefits and yet is most difficult to achieve, as it also means cultural changes.

Jack Welch was asked whether producivity improvments wouldn’t eventually run out and he suggested, that he has never ever witnessed being close to limit. In effect, GE has championed “Innovative Breakthroughs”, which could be technology driven, processes, methods, products, or organizational changes.

Suffices to say, that in a time where technology startups eating traditional corporates lunch, further productivity is easily possible.

Now, one would assume you could hire a few consultants, buy some technology via the typcial vendors and be done. While this approach gives an incremental benefit, it does not truly change or refocus the corporation.

The consulting business model is changing (changing benefits) too and after all these are often the same people applying for jobs with you. To be honest, who has done regionalization and corporate transformation proejcts before? Not many. The vendor business model is also significantly changing, with expanded professional services to stay relevant under the thread of new startups and cloud providers.

Many organisation consider the creation of super transformational projects with 100 Millions of Baht being spent in implementing a new ‘target operating model’ and technology platform. This is the natural response from larger players.

Typically there will be a PMO office, with a program plan: Process Improvements, process digitisations, new software, upgrading of capabilities, and so on. This is how a big player thinks — but are you really big from a regional or global perspective? Does it not just drain management attention, funds, working level execution focus?

GE is a very large company, with a lot of management talent and can spend a long time before they run out of money — more than the market cap of an Adidas of Pepsico. Yet, they aren’t doing such project. They have a gradual way of thousands of initiatives tied to metrics and goals to continuously transform.

The issue is that lower figures are often regarded as less important in the overall program. Large programs also have management and meeting overhead, delivery slow and limtied value. Management also gets often the feeling “we delivered & end of changes”. That isn’t true either.

This exactly what Jeff Beozs (Amazon.com CEO) felt is prevented by the retail midnset of low margins and low spend.

I have never seen a larger multi year transformational program, which was successful in all dimensions. I conclude hence it is impossible! I have seen that smaller ‘ cash starved ‘ initiatives, with smart people are always exceeding expetations and are able to deliver increased value. Breaking down initiatives into manageable “poor” junks, will deliver increased value.

The Jeff Beoz has two principles: Each team shouldn’t be larger than 2 pizzas can feed and the “Retailers low margin mindset” being a blessing in disguise. It keeps him and his company, honest on spending and customer value. This mindset made the biggest bookshop, to the biggest online retailer, and the biggest cloud player — challenging even IBM.

This is my experience. Good things are done by great people. Great people are made by great leaders. Great leaders can be formed by other great leaders — regardless within the corporation or with vendors (although they don’t often share great people nor great leaders with customers). Mediocre skills without the great people and leaders, will only generate mediocre outcomes. Many people know this, but don’t act on it.

It doesn’t mean to hire & fire, it means to generate the right mix of people and have a culture of stewardship developing people, take them on an exciting journey.

How does a transformational program look like?

If a large multibillion baht program isn’t working, but we still need to execute in a timely manner, how would that happened?

When I recall all the transformational programs I have been in, in part with many thousands staff involved, it was always and every time the very same thing: A few great people and one great leader scattered across the program carrying the burden.

In the end 5–10 key resources will drive any transformational program into succees or failure. This is really true and I encourage everyone to understand how transformation in your respective environments really is working.

It is important, to consider that the 5–10 resources aren’t always very senior people. The skill level and seniority required, depends on situation and the content. Typically, they are some very, very experienced hands-on people and some experienced leaders with the right amount of vision — you talk to them and you know they see it in front of their eyes.

Assembling that team, is the one and only trick you need to manage well. The rest is downhill. I have seen companies who struggled a long time to get that team together. They changed employees, vendors, consultants, board members, etc. and eventually someone comes in with the vision, builds a team and succeeds.

The next step is to map out an ongoing ever evolving transformational journey. It starts, but it never ends. It is a “business as usuall” part. Identify gap, Change, Innovate, Change, and so on.

Key drivers for transformation:

• Assemble a core team of leaders and hands-on skills not large than 5–10 very experienced resources
• Define a strategy framework across business and enablement functions
• Execute initiatives into a natural stream of events, changing the culture of the engine, as well as, the engine itself
• Make small ‘cheap’ steps — each of them being able to ‘fail fast’ and be changed fast
• Define smart metrics for involved staff — making them accountable for success (annual bonus based on productivity increase, based on innovation, etc.)
• Start again

The key domains to consider:

• Technology change … but “Lean” operations before “Digitising”
• Drive Teaming culture with the operations
• Become data driven and have empowered staff basing decision on data and not on policies

More to come.

Written by aw@axelwinter.com and details are on www.axelwinter.com