Michael Alexander,Wolfgang Bernhart,Ralph Lässig,Sven Siepen
The market for power electronics – applications that supply the electric power to control motors and enable the conversion of direct current to alternating current or vice-versa – is experiencing rapid growth. Experts from Roland Berger estimate the growth of the global market at 7 percent per year for the period through 2018. The market looks set to reach a total volume in excess of 200 billion dollars and offer the prospect of margins ranging from 15 to more than 20 percent.
There are three main growth drivers behind this development: higher productivity caused by increasing levels of automation and digitization in industry, greater regulation, and the growing awareness of environmental issues. All of these combine to create ever more applications for power electronics, as found by this study "Powering ahead – Developments in power electronics mean a prospective bonanza for smart players". However, as Roland Berger Partner Michael Alexander points out, "Market players need to be aware that this growth in power electronics is not a sure-fire promise of success." He explains: "Established suppliers and new players in the market face different challenges. They need to position themselves appropriately in the international market and increase their capacity for innovation if they want to profit from the developments in this industry. New suppliers will need to have a lot of staying power."
Wolfgang Bernhart,Stephan Keese,Thomas Wendt,Marc Winterhoff
Consolidation in vehicle electronic architectures
Consumers expect the latest and greatest in electronics and safety when they go to buy a car. Whether it's an instrument cluster with a graphics rich, fully reconfigurable display or a lane departure warning system, a tremendous amount of processing power and electronic communication is required to operate today's vehicles.
Today's approach to adding these features to vehicle's electric/electronic (E/E) architectures is "ad-hoc," simply adding a new ECU every time a new vehicle feature requires processing power. While this solution has worked for a time, the industry is now at a tipping point, with this approach becoming too expensive and adding too much complexity to be sustainable. In this study Roland Berger Strategy Consultants explores a solution to this increasing complexity, known as module consolidation.
"All major automotive trends today, from improved cockpit electronics to new ADAS features, are largely enabled by advanced electronics systems," says Thomas Wendt, a Senior Partner in Roland Berger's North American Automotive practice. "OEMs will not be able to keep up with consumer's expectations, both in terms of quality and price, if they continue to add ECUs every time they want to add a new feature," explains Wendt. "A 'blank sheet' approach to electronic architecture design is needed."
The ecosystem-based balanced scorecard
In a world that is increasingly Volatile, Uncertain, Complex and Ambiguous (VUCA), the Balanced Scorecard needs to be reshaped to increase agility and flexibility. The traditional Balanced Scorecard no longer captures the drivers of competitive advantage. We propose an Ecosystem-Based Balanced Scorecard (EBBS) that puts the company’s ecosystem at the centre of things instead of the company itself, broadens the perspectives to ensure that the new key success factors are covered and offers more usage possibilities.
François Castelein,Michel Vlasselaer
In a world characterized by increased mergers and acquisitions, corporations face the challenge of making them a success, i.e. delivering maximum value and embedding change throughout the entire organization. To do so, companies need to be properly equipped to mitigate pitfalls and typical post-merger integration errors – awareness of key PMI success factors is decisive.
Frank Lateur,Michel Vlasselaer
Strategic business transformation
In a business transformation, managers and employees jointly reshape the company's future. This challenging journey highly relies on the organization's "energy-to-change": the willingness, motivation and energy to drive the transformation. To secure a successful business transformation, leaders should know how to build up and maintain energy-to-change throughout the entire transformation journey.
Industry 4.0: development initiatives rooted in 10-year horizons – Shiten No. 105
This report presents commentary on the initiatives of progressive companies focused on achieving the Industry 4.0 domain, mapping out optimum routes recommended for Japanese businesses.
- Visualization of more diversified dimensions
Envisage all corners of the supply chain, collaboration with partners, idle resources, future needs.
- Cultivation of overwhelming mobility
Stamp out inefficiency, shift away from out-of-pocket resources and efficiently incorporate future needs.
- Customer-rooted pursuits
Integrated company-wide efforts to address customer needs and generate greater added value.
Next-generation maintenance – Shiten No. 106
This report addresses the value of next-generation maintenance in profiling suggested strategies for bringing such efforts into play, supporting its arguments with specific case studies.
- Maintenance formulas continue to evolve hand in hand with the times, spawning the emergence of next-generation approaches keyed to take full advantage of ICT advances.
- The infusion of next-generation maintenance practices has realized broad-based cost cuts in aviation, electrical machinery and the majority of other leading industrial sectors.
- Achieving sought-after maintenance systems by surmounting hurdles on the “strategy” and “infrastructure” fronts.
Joe Jin,Tony Tang
Cancellation of drug sale subsidization for medical services and separation of drug sales from hospitals
According to Roland Berger's analysis, the "separation of drug sales from hospitals" and cancellation of "subsidization of medical services with drug sales" policies will be substantially and widely implemented during the 13th Five Year Plan, creating a major, long-term impact on the pharmaceuticals market and industry.
This report analyzes sales within China's pharmaceutical market, which is based heavily on prescription drug sales, predicting both policy trends and the extent to which the "cancellation of drug sale subsidization for medical services" and "separation of drug sales from hospitals" policies will be implemented following the 18th CPC National Congress. The report also examines how the existing models adopted by health care institutions and private companies can be integrated, analyzing the effects the "separation of drugs from hospitals" will have on industry institutions and enterprises.
Roland Berger Greater China Partner Joe Jin advises pharmaceutical industry players to take action early. "The government has clearly signaled its readiness to cancel 'drug sale subsidization for medical services,' and there have been numerous signs of the changes to come," said Mr. Jin. "We believe this policy will be implemented forcefully and at an unprecedented speed and scale. Under these conditions, the only way for companies and institutions across the industry to ensure future success is to proactively make preparations and position themselves in advance of the coming changes."
Sebastian Durst,Oliver Knapp,Michael Zollenkop
FRUGAL – Simply the Best
In 2030, four out of five consumers will live outside Europe and the USA. 95% of cumulative population growth and 70% of real cumulative GDP growth between now and then will take place in emerging countries, whose purchasing power is experiencing a stellar rise. The OECD anticipates a global middle class of 4.8 billion people, a huge market indeed. Frugal products – simple products that meet basic needs – let businesses benefit from new markets and, in the long term, encourage customers to trade up to higher-quality products. Yet not all producers make optimal use of the available potential, as a new Roland Berger Strategy Consultants study shows: "Simply the best. Frugal products are not just for emerging markets: How to profit from servicing new customer needs".
"The market potential that companies can penetrate with frugal products is vast," says Oliver Knapp, Partner at Roland Berger and co-author of the study. Why? Because demand for consumer products driven by rising incomes in emerging markets is only part of the story. Untapped potential also lies waiting in Western industrialized countries' low-end and mid-range market segments. Financial crises, recessions, stagnating household incomes and high unemployment are increasingly shifting patterns of demand. In the USA, for example, only 44% of people still see themselves as middle class – 9% fewer than in 2008. In their own perception, 40% of Americans have slipped into lower income brackets. "When companies meet the needs of these people with frugal products, they could also be pre-empting potential rivals from emerging countries – effectively protecting their established home markets against competition," says Michael Zollenkop, Partner at Roland Berger and another of the study's co-authors.
The top 5 mining companies became cashflow positive in 2014 and the industry as a whole is expected to do so this year. Difficult cost structure reorganizations of the past two years are beginning to produce results. Roland Berger believes that 2015 marks year one of the new mining reality. Companies need to decide which role they want to play in a more subdued yet more stable mining market.
These challenges are discussed in this study, Mining rebound: why 2015 is the perfect year to prepare your mining operations for the next cycle, which highlights how mining operators can prudently invest their scarce resources for best returns.
As in any other process industry, operating a mine requires long-term, large-scale investment and capacity management, keeping in mind long-term returns and consistent investor remuneration. "Companies in the chemical, metal or oil and gas industry all follow a similar business development approach and seek to optimize their value chain positioning. Miners however, had an embarrassment of riches fomented by BRIC's pervasive growth forecasts. Following a three-year restructuring period it is time to pause and assess how well this turnaround phase has positioned operations for the next phase and what could be done to further improve their competitive positioning," says Roland Berger Partner, Serge Lhoste, a lead author of the study.
Eric Confais,Emmanuel Fages
Solar PV has become a high growth market globally. The increase in 2014 in solar PV capacity of 39 GW is close to the nuclear power capacity of Japan and total global capacity now stands at 177 GW. Solar PV is installed on rooftops of houses and commercial building and at a utility-scale on landscapes. In Europe, traditional utilities are absent in this market segment. "Utilities own less than 1% of all solar PV capacity. Project developers, investors, households and commercial companies have started to compete with the utilities in power generation," according to Eric Confais, partner in the Paris office of Roland Berger
In Europe, more and more households and commercial players are expected to make the decision to invest in solar PV and install it on their rooftop. An investment in solar PV will only become more attractive over time, as system costs will continue to decline. In Germany, the price of solar PV is already 17 cents/kWh cheaper than the retail electricity price. New technologies, like battery storage and home automation systems will raise the amount of solar PV electricity that will be used by the owner himself, preventing the excess generated electricity being sold at lower prices on the grid. Improved access to financing and simple installation services offers will make it even simpler to buy a solar PV system.
Massi Begous,Manfred Hader,Robert Thomson
Tailwind for the aerospace industry
The global aerospace and defense sector is looking to the future with optimism. That is one of the findings of a survey of 150 of the industry's top international managers who were interviewed by Roland Berger Strategy Consultants for their "Aerospace & Defense Management Issues Radar 2015". In it, 73 percent of respondents believe the strong growth of the commercial aviation industry has at least another five years to run. However, only 58 percent of companies are making investments in additional capacity, and of these companies, three quarters are being careful about adding too much additional capacity. As a result, the supply chain may struggle to support the ramp-up in production planned by major players.
In the defense industry, 67 percent of managers expect the decline in European defense spending to be coming to an end. The trigger is the deteriorating geopolitical situation, coupled with ongoing security concerns closer to home.
"The big spending on developing new commercial aircraft programs has all been done in recent years," explained Manfred Hader, Partner at Roland Berger Strategy Consultants. "Now the job is to optimize production processes and supply chains to cut out the possibility of supply bottlenecks. Given that the current level of large commercial aircraft deliveries is already 52 percent above the previous industry peak, concerns over capacity will come to the fore. At the same time, the lack of new programs means that clear measures must be taken to preserve engineering competencies."
Frank Lateur,Didier Tshidimba
Western companies need to act FRUGAL to successfully sell FRUGAL products in emerging markets. But they are lagging behind in seizing this growing opportunity. For them to catch up would require a complete overhaul of their ways of working; i.e. building a FRUGAL operating model that focuses on the core functionalities, integrating local needs and installing cost-effective production processes.
A recent survey we conducted with over 60 top managers reveals that FRUGAL products account on average for 12% of sales – a share that is expected to double in the next five years.
Wietse Bloemzaad,Santiago Castillo,Kushal Shah
Succeeding as a telecom challenger
Struggling in competitive markets. Mobile telecom operators across the globe face the challenge of generating enough profits to recuperate their initial investments in spectrum licenses and network roll-outs, to cover the substantial recurring investments needed for new network technologies (e.g., 3G and 4G) and to improve their service quality.
Frank Lateur,Didier Tshidimba
Industry 4.0 2015
Industry 4.0 – Manufacturing in Belgium
Deindustrialization is a worldwide trend with significant impact on our future wealth and society. While some countries focus on cost leadership to counter it, a differentiation strategy is more attractive for Belgium. Industry 4.0 technologies could enable the manufacturing sector to create this sustainable competitive edge, but we have to act now.
Companies should start now by assessing their current status and readiness for Industry 4.0. To help them with this exercise, we have developed a simple self-test. This test measures the maturity of the company on each of the eight Industry 4.0 domains. Based on the results, they should identify which steps in their value chain can benefit from the application of Industry 4.0 technology. Benefits can be either increased differentiation or cost reductions, but of course the aim should be aligned with the strategic intent. Finally, its viability should be confirmed with a business case.
Industry 4.0 2015
Automotive 4.0 – Threat or opportunity for incumbents?
The automotive industry is undergoing profound change. The rise of Uber will not just impact taxi players, but car rentals, car sharing, leasing players, OEMs, and suppliers. Thomas Wendt, Roland Berger Partner in the US, foresees that the coming industry disruption has major implications for incumbent players. 'Automotive 4.0' is the next evolutionary step-change for the industry. Advancements in automated driving, vehicle connectivity and shared mobility will change the face of personal mobility.
A self-driving Google car will soon commence testing on public roads, and Apple is rumored to be working on an electric car. We will see the convergence of the automotive and technology industries. Consumers today would rather trust a self-driving car made by technology giants over those made by auto makers.
New business models must evolve as OEM purchasing decisions increasingly bypass the supplier role as integrator. Incumbents need to become more agile to better compete with shorter development cycles and light asset footprints. Finally, automotive companies must quickly fill talent, technology and competency gaps. Strategic tools such as corporate venturing will be crucial.
Horizons for the ASEAN healthcare industry supported by the AEC – Hiyaku No. 8
This report examines the changes in the healthcare sector projected to occur on the strength of the ASEAN Economic Community (AEC), as well as the nature of business opportunities likely to emerge against that backdrop.
"Private hospital groups" to forge the future of ASEAN healthcare
- Healthcare advances focused on urban communities are proceeding along the lines of the ASEAN model.
- The driver for this city-based concentration is investment by private hospitals with competitive strength in world markets.
- Steady increases are seen in the ranks of patients who, hand in hand with economic progress, prefer treatment at private hospitals even when required to pay out of pocket for the services.
With all factors considered, "private hospitals are attempting to cover excessive territory"
- Moves are afoot to expand regional networking and target a greater range of income groups.
- Efforts continue to strengthen specialized services.
- Searches for greater competitive strength and profit opportunities by collaborating with businesses surrounding hospitals.
Focusing on private hospitals to address the marketplace will bring greater business opportunities into view
- Contributions to bolstering competitive strength in core domains.
- Realization of greater efficiency in non-core domains, exploration of the status of outsourcing needs.
Max Blanchet,Oliver Grassmann,Thomas Rinn,Sven Siepen
Industry 4.0 – The role of Switzerland within a European manufacturing revolution
Industry plays a pivotal role in the European economy: it contributes 15 per cent of the industrial share of value, creates 80 per cent of the innovations and accounts for 75 per cent of exports. If you include industry-related services in the calculation, then industry can be seen as Europe's socio-economic engine. However, the manufacturing industry is coming under increasing pressure. The competitiveness of European industry is in decline due to new market players – from Asia in particular – and this has led to significant job losses in established markets such as Great Britain (-29%), France (-20%) and Germany (-8%). European countries are also developing in very different directions: while Switzerland and Germany have been able to hold onto or even increase their share in industrial markets, other EU countries, such as France, Spain and Great Britain are moving towards an era of de-industrialisation.
This development is weakening Europe as a whole, with the resulting depletion of jobs and know-how in industry. In the new Roland Berger study "Industry 4.0 – The role of Switzerland within a European manufacturing revolution", Roland Berger experts highlight what companies and politicians should do to support the development of Industry 4.0 – fusion of industry and digitisation – and focus on the opportunity it presents to Switzerland in particular.
Georg Altmann,Morris Hosseini
Industry 4.0 2015
Digital transformation in the healthcare space
In MedTech there are new Industry 4.0 applications evolving. Digital data and increased connectivity are prerequisites for their success along the value chain.
Patients receiving diagnoses from automated tools will actively participate in treatment decisions and share personal data in return. Additive manufacturing technologies like bio printing have found first applications in the area of regenerative medicine. The creation of customized prosthetics, implants, and anatomical models are further examples of this development. This means progress for both patients and physicians – and the pharma industry, too.
The digital transformation impacts the healthcare space far beyond the classical physical product. The information dimension will increasingly become part of the future offering either as part of the physical product or in the form of new data-driven business models.
Leading pharma and MedTech players have already understood the value of data and have started to generate extra value for their business in all parts of the value chain.
Alexander Belderok,Erwin Douma,René Seyger
FLEX – More care at lower cost
There are many changes coming up in the healthcare sector that challenge both costs and quality. This offers opportunities to rethink the current way of working in the broadest sense: from processes to products, organization and leadership.
With FLEX Roland Berger has a proven approach that goes beyond traditional process improvement and that shows how to improve quality while reducing costs. However, this takes courage to think differently and truly act differently.
Alexander Belderok,Erwin Douma,Alexander Keller
Chemicals 2035 – Gearing up for growth
The market for chemical products is expected to grow to some 5.6 trillion euros by 2035, more than doubling its current size. But even though growth prospects are good, the industry's dynamism is set to wane: growing at an average annual pace of 4.1 percent now, the chemicals market will expand by just 3.6 percent per year between 2030 and 2035.
The European chemical industry will see itself especially hard hit, annual growth amounting to as little as 1.5 percent through 2035. Besides sluggish growth in the domestic markets, Europe's industry has other significant hurdles to clear, such as the high cost of raw materials and energy and increased costs resulting from the tightening of EU regulations, according to the latest Roland Berger study, "Chemicals 2035 – Gearing up for growth: How Europe's chemical industry can gain traction in a digitized world".
"Even though European chemical companies are highly productive and very innovative, the market has been consolidating for years, especially in Europe," explained Alexander Belderok, Partner at Roland Berger Strategy Consultants. "Major topics like the growing digitization of industry and new customer demands are placing chemical concerns under ever-increasing pressure."
Industry 4.0 2015
Internet of Things and insurance
Connected car, home and health technologies could substantially change insurers' value proposition. 60% of European top insurers have launched connected car solutions, but almost none has entered the connected home or health universe. This is one of the results of our study on the Internet of Things and its implications for insurance companies ("IoT Insurance").
The case for connected car insurance solutions is currently the most obvious one. The frontrunners are Italy and the UK, where telematics play the most prominent role in motor premiums. For customers there is a saving potential, while insurers can benefit from improved risk selection.
For connected health, the "quantified-self" tools drive the demand. Connected health insurance could add significant value to customer relationships. However, regulatory constraints on the use of data may be a tough barrier to overcome. Privacy is the main concern.
Preparing themselves for the next 2-3 years, insurers need to define and implement a specific IoT roadmap.
Sascha Haghani,Falco Weidemeyer
Chief Restructuring Officer – The company savior with a new profile
The role of Chief Restructuring Officer (CRO) is changing: from a restructurer of companies in an acute state of crisis, often brought in by external stakeholders, to an interim CEO who also takes responsibility for corporate strategy. Companies are responding to this altered interpretation and are increasingly taking on their own CROs without prompting. The number of individuals offering their services is also on the rise. In an environment where client demands are high and competition is tough, it is important to precisely specify the profile of requirements that a CRO is expected to meet. This is one of the findings identified by the experts from Roland Berger Strategy Consultants in their study "CRO – The company savior with a new profile".
The survey produced one crucial finding: "Whereas CROs used to be brought in primarily to restructure companies, what they are now doing is transforming companies before things get to that point, so there's no need for them to go in and rescue the company at all," explained Dr. Sascha Haghani, Partner and Deputy CEO Germany at Roland Berger. 79.6 percent of the individuals interviewed for the study said they had seen the use of CROs increase in the past ten years. 57.1 percent of respondents expect this trend to continue. "But that's not because more companies are at risk of insolvency," said Haghani. "It's because the range of areas in which a CRO is now being deployed has grown: It's about more than short-term window dressing. Their clients expect realignment with an entrepreneurial outlook – entrepreneurial restructuring, in other words."
Klaus Juchem,Dominik Löber,Markus Strietzel
Betongoldrausch in Deutschland
Das gewerbliche Immobilienfinanzierungsgeschäft ist eine der wichtigsten Ertragsbringer für deutsche Kreditinstitute. Nach Berechnungen der Roland Berger-Experten beträgt das Volumen für gewerbliche Immobilienkredite 535 Milliarden Euro. Dies führt zu jährlichen Erlösen zwischen 5 und 7 Milliarden Euro. Doch das niedrige Zinsniveau, eine gute Konjunktur sowie Trends wie der demografische Wandel, eine zunehmende Digitalisierung und politische Initiativen verändern die Nachfrage in der Immobilienfinanzierung.
Dadurch wird der Markt komplexer und wettbewerbsintensiver. Dies stellt die klassischen Kreditgeber vor neue Herausforderungen. In der neuen Studie "Betonrausch in Deutschland: Paradiesische Zeiten oder kurz vor der Katerstimmung? – Herausforderungen in der gewerblichen Immobilienfinanzierung" geben die Roland Berger-Experten Handlungsempfehlungen anhand eines Analysemodells der gewerblichen Immobilienfinanzierung. So können sich Kreditinstitute heute schon auf gesellschaftliche und makroökonomische Veränderungen einstellen und auch in einem normalisierten Zinsumfeld erfolgreich arbeiten.
"Bei einer moderaten Zinsentwicklung und einer stabilen Konjunktur in den kommenden Jahren wird der Markt für gewerbliche Immobilienkredite bis 2018 auf rund 600 Milliarden Euro wachsen", erklärt Markus Strietzel, Partner von Roland Berger Strategy Consultants. "Damit bleibt dieser Markt ein lukratives Geschäftsfeld für Kreditinstitute. Allerdings wird der Markt immer komplexer und wettbewerbsintensiver. Bereits heute sollten daher Finanzinstitute einen moderaten Zinsanstieg antizipieren und sich entsprechend positionieren."
Damien Dujacquier,Nitin Mahajan
Building and managing a value-centric network
Telecom operators are under pressure. Every penny being invested into a telecom operator's network counts to maintaining returns on invested capital (ROIC). This is because of rising costs – and falling margins – to serve an ever demanding consumer in the era of mobile data. Thus, telecom operators need to step up their game and be sure that they maximize their ROIC through smarter investment decisions. This 'pressure' phase will also generate new set of winners in the telecom industry, who will find new ways to invest and maintain a network with the highest ROIC.
Having said that, it's far from easy to create a value-optimizing investment plan as it requires answering complex questions that dives deep into a telecom operator's network data sets: Where does my network underperform? In profitable areas, how do we fare against our direct competitors? Where is the external market potential? Where and who are my Core Value Customers? What do they desire from a network?
While it wasn't possible to answer many of these before, our proven approach – driven by Big Data – can now provide exhaustive solutions to these questions. Our approach brings to life Big Data applications with strategic impact to finely balancing capital expenditure (CAPEX) tradeoffs to achieve revenue growth, subscriber acquisition and traffic growth, whilst maintaining Quality of Experience (QoE)!
Our approach not only saves 10-15% CAPEX spend per year for telecom operators, but also aligns marketing, sales and the network on action items in each territory. This study by Roland Berger examines how operators can accurately allocate their CAPEX investments to maximize returns.
Brandon Boyle,Frederic Choumert
Oil price risk re-awakens
Roland Berger's study discusses how OPEC's decision to abandon its role as market manager amidst the current low price environment and oversupply context creates a new and increased level of risk for upstream operators – especially marginal North American tight oil plays and select offshore projects. In addition to traditional price risk, operators now need to consider how they manage the inherent volume risk created given OPEC's ability to push additional lost cost barrels into the market. In the article we also outline a set of key questions that marginal operators should consider as they look to navigate these tumultuous waters.
OPEC recent decision to maintain production levels indicates they are no longer interested in managing the global crude market
- For several years, OPEC has been managing the global crude market to maintain oil prices within a well-defined band – notionally USD ~85-100 bbl. Brent
- Upstream operators have relied on the stability of this pricing model as they ventured into projects with higher capital requirements and operational costs (e.g., deepwater and tight oil)
- OPEC's decision to maintain production levels given the low price environment and oversupply context indicates a move away from being the market "manager"
OPEC's decision has left the market oversupplied and driven down price – creating a heightened level of price and volume risk for marginal operators
- OPEC's move creates an abnormally risky market for operators with projects "on the margin" – far right on the supply total cost curve
- Marginal projects will be exposed to price volatility due to being on the steep exponential portion of the cost curve as small shifts in supply and demand create large movements in price
- In addition to traditional price risk, operators also face volume risk as OPEC has the ability to push incremental low cost barrels into the market and push marginal projects out of the market
- Combination of price and volume risk is already putting tremendous pressure on financially weak operators and those with suboptimal land positions
Risk fundamentally affects asset value – are operators asking the right questions with regards to this fundamental shift in the global crude market?
- Valuations on marginal assets have significantly eroded over the last six months – forcing financially weak operators into distress
- Operators need to make sure they fully understand the fundamentals and implications of the market risk
- We have developed a set of key questions for operators to consider as they chart their path forward
- How should projects be evaluated in an environment where commodity prices can move +/- 50% in a matter of months? What are the key decision criteria?
- Given the new risk context, how should marginal projects be evaluated in the context of an overall portfolio?
- How can technology and operating practices make an operator more apt at delivering real value from marginal projects?
- What are the operating and capex decisions that can lower overall corporate risk and the resultant cost of capital?
Roland Berger is currently engaged with oil & gas clients on these and other critical issues facing the industry.
Probing the essence of “digital health”
This paper discusses the essential nature of “digital health” – a mammoth market that, while attracting high hopes and keen expectations from companies spanning most all sectors, remains largely opaque in terms of its actual commercial potential.
When all is said and done, the greatest headache in coming to grips with the digital health market today lies in the fact that distinct business models have yet to emerge. Accordingly, when moving to formulate viable business models in this domain, there is the need to reach beyond the realm of the feasibility of the digital health business itself. Considerations, that is, must likewise be devoted to the significance of undertaking digital health enterprises from company- and group-wide perspectives.
The author examines the values to be targeted, and the specific hurdles to be surmounted to ensure the business feasibility of such corporate ventures.
- The global digital health market will attain a scale of $100 billion in the year 2020
- Demands for success in the digital health sector include mounting approaches above and beyond the existing established notions for “improving the quality” and “cutting the costs” of healthcare.
- Three barriers impeding market formation:
1. Difficulties in monetizing
2. Large numbers of stakeholders
3. Short lifecycles
Learning medium to long-term management perspectives from Germany
During the 1990s, the so-called “Lost Decade” for Japan, a large number of Japanese companies moved to adopt U.S.-style management methods. A steady stream of business indicators appeared on the scene at that time, with companies relying on such benchmarks to advance the “selection and concentration” approach. This effectively amounted to generating profits over the short term, and then channeling those earnings back to shareholders. In retrospect, it can be said that a certain degree of success was achieved on the strength of advancing corporate operations in this mindset.
However, while U.S.-style management can be said to be oriented to the labor mentality of Americans, it does not appear to be so congruent with the vision of labor prevalent among the Japanese workers who advanced the Japanese-style management model that served as the foundation for the nation’s rapid economic rise in the post World War II era.
Against this backdrop, there is the view that it is in fact the medium- to long-term perspective of management in Germany, a nation that continues to make a solid showing within the slumping European economic scene, which is best attuned to the Japanese labor perspective. In that sense, the German model may very well offer a reliable reference in the mission of building up robust Japanese company operations.
This report examines the reasons behind the strength of German companies, and discusses what viewpoints Japanese corporate managers should bring to the table in learning from those firms.
Three suggestions for Japanese corporate management
- Seize the initiative in creating market environments
Build market environments on your own, as opposed to reacting and responding to existing market conditions
- Re-establish Gemba-power
Take firm steps to further elevate the caliber of gemba-power not only at factories and other recognized labor frontlines, but at the white collar level as well
- Muster new concepts in advancing overseas
Overseas business advances should encompass more than simply opening offices or acquiring local companies. Steps should also be taken to enlist allies in moving to foreign markets, while redefining the company’s own role in the quest to emerge as a “hidden champion”
Björn Bloching,Philipp Leutiger,Torsten Oltmanns,Carsten Rossbach,Thomas Schlick
The digital transformation of industry
This is the first study to scrutinize the implications of the digital transformation with regard to the "industrial heart" of Germany and Europe. On the basis of an extensive analysis, we were for the first time able to measure the overall effect of digitization on the German and European economy. The findings reveal the dramatic consequences of the changes currently in progress: If Europe fails to turn the digital transformation to its own advantage, the potential losses for the EU-17 countries add up to 605 billion euros by 2025 – equivalent to the loss of well over 10 percent of the continent's industrial base.
But if Europe is able to harness the possibilities opened up by connected, more efficient production and new business models, its manufacturing industry could gain an extra 1.25 trillion euros in gross value added by 2025.
In light of these high stakes, our study makes specific recommendations on what companies, their associations and the governments in Germany and Europe can do to safeguard the future of their industrial base and generate positive employment effects. The key areas in which action is needed are digital maturity, common standards, powerful infrastructure, and pan-European coordination.
Growth for cities
How do metropolises worldwide establish growth and wealth for their inhabitants? How can other urban areas learn from cities' success factors and, through strategic urban management, make themselves attractive to both residents as well as businesses?
If cities want to attract international talent and enterprises, they have to maintain and strategically expand their position as dynamic and competitive regions. This study, which was developed at the request of the Berlin energy service provider GASAG, outlines the crucial drivers. It illustrates that enduring urban growth is dependent on an excellent strategy, clear deciding factors and professional implementation. The study identifies nine concrete factors in successful urban management that decision-makers in Berlin as well as in other cities can utilize for the benefit of their regions.
Utilities as the partner of choice for consumers' facility management
New models of business development are required for utilities in Belgium in order to compensate declining profits from power generation and retail. In retail, new cooperative models are required to broaden the offering, hedge risks, decrease time-to-market and minimize investments.
Power generation has become less profitable due to weak energy demand in Europe, unstable legislation, the rise of renewables and low energy prices. Burdened by debt, utilities have been unable to invest in new plants and have focused on cutting costs and divesting assets instead. At the same time, retail margins are being squeezed in a somewhat late reaction to the liberalization of the market (in 2003 in Flanders, 2007 in Brussels and Wallonia).
As a result of continuous market entry and the promotion of price aggregators, 16.5% of Flemish electricity "connections" switched suppliers in 2012, compared to just 8% the year before. Now, the switching trend appears to gradually slow down as prices have decreased and converged.
Frederic Choumert,Shashin Shah
A new age dawns for oilfield services
Roland Berger's new study A New Age Dawns for Oilfield Services discusses how two recent back-to-back structural events – the collapse in oil prices and the Halliburton – Baker Hughes merger announcement – will change the rules for winning in oilfield services. Agile oilfield services players will take advantage of the highly dynamic oilfield services environment to emerge as new industry leaders alongside Schlumberger and Halliburton.
Impact envisioned upon realizing the ASEAN Economic Community – Hiyaku No. 7
This report considers the current status of the budding ASEAN Economic Community (AEC), and the suggested directions for Japanese companies in the quest to remain competitive and successful in this part of the world.
AEC as a mix of opportunity and complexity
- Opportunities lie in the reality that movements of people, goods and money will grow more brisk across national and regional borders.
- Complexity insofar as the blend of microeconomic forces (in each nation) and macroeconomic trends (across ASEAN as a whole) will keenly impact the arena of business endeavor.
Timetable for realizing the AEC
- Current forecasts are that the final integration of this economic community will be delayed beyond the original target date (the end of calendar 2015).
- Notwithstanding, in the midst of the gradual moves toward liberalization in the region, ASEAN competition is expected to steadily pick up steam in the not-so-distant future.
What Japanese companies must do
- Cultivate balanced perspectives (grounded in both macroeconomic and economic dynamics).
- Attract opportunity (position to make future progress).
- Prepare and position for emerging opportunities (firmly secure and realize the opportunities that are attracted).
Manfred Hader,Carsten Rossbach
Cyber-Security – Managing threat scenarios in manufacturing companies
The digitization of processes and products continues unabated as part of the fourth industrial revolution. Players from sectors as diverse as the automotive, consumer goods, chemicals and aerospace industry are increasingly reliant on digital processes to store and to share important data internally and with external suppliers. While this makes for faster and more efficient production processes, it does increase the risk of companies falling prey to online attacks. Data protection is therefore becoming an ever more complex, time consuming and costly business for companies. These are some of the aspects examined in the study by Roland Berger Strategy Consultants: "Cyber-security. Managing the threat scenarios in manufacturing companies".
"Dealing with hacking attacks is a huge problem, with different parts of the value chain often coming under attack simultaneously," explains Roland Berger Partner Manfred Hader. "The trouble is, traditional IT security departments mostly have their eyes fixed on business IT – the communication systems or business applications. What companies should be doing instead is addressing the issue of cyber-security from an integrated perspective."
Wietse Bloemzaad,Santiago Castillo,Kushal Shah
The Big Promise of Big Data
The study examines the big promise and the challenges of Big Data for the telco industry. Big Data provides ample opportunities for telcos to extract more value from the customer base, to optimize costs and to create new revenue streams. Although the full potential of Big Data is not yet crystal clear to all telcos, its potential to drive revenues and reduce costs is enormous.
Elaborating on the question on how a telco can best make Big Data work, the study provides several examples of Big Data initiatives from across the globe and identifies four key success factors necessary to make Big Data work. The article finishes with a call to action for telcos to make the move on Big Data now to tap into its vast potential.
Björn Bloching,Egbert Wege
Digital revolution in retail banking
Digitalization is changing the face of business and society for good. What this transformation means for banks and what opportunities are available to them in the new multi-channel world has been examined in this study on the "Digital Revolution in Retail Banking" by Visa Europe and Roland Berger Strategy Consultants.
Based on an extensive analysis, the study produced detailed insight into what customers expect from the bank of the future. A total of 3,000 account holders from Germany and Switzerland were interviewed. The study found that digital-savvy customer groups already represent 60% of total income in Germany. And demonstrated that the desire for online banking services is not confined to the young generation but spans all age groups.
The majority of study participants already think "online first" when it comes to making bank transfers and checking balances: 63% of them do their everyday banking online. The figure is as high as 96% among the digital-savvy group. Customers like the flexibility and the speed of the Internet, especially when they're dealing with simple financial products. One in four customers already consider the Internet the most important channel for discovering and getting more information on new banking offers.
Banking customers have a wide range of channels at their disposal these days – from financial advisors in branch to the website and brochures, from call centers to mobile banking. But so far, there seems little appetite among customers to switch between channels in the process of purchasing a banking product. "Where customers' attention is first drawn to new products offline, 92% of them will make the purchase offline, too," explains Björn Bloching, Senior Partner at Roland Berger. "If they do switch channels, they primarily go from online to offline, because there is still rather a lack of options for completing a purchase on the Internet. Financial institutes should take action on this front and support their clients digitally, right up to the point of purchase."
Big Data – How data science can be serving public interest
Once a buzzword, Big Data has demonstrated its value in various business applications. Public initiatives, on the other hand, are still very limited and focus on open data or the emergence of a competitive Big Data sector.
However, based on a worldwide benchmarking and projects, Roland Berger believes Big Data can also serve public interest by improving the effectiveness and efficiency of public policies.
Wolfgang Bernhart,Thomas Wendt,Marc Winterhoff
Industry 4.0 2015
The news is full of transformative technology innovations and business models like advanced connectivity systems, innovative shared mobility concepts, and of course, self-driving cars being showcased and introduced around the world. Certainly the automotive industry plays a big role, but tech companies and new entrants are increasingly becoming the driving forces behind these developments.
We've seen this type of fundamental change recently in industries including brick and mortar retailing, cell phone manufacturing and computer manufacturing. Once new players enter the value chain with innovative business models and game-changing technologies, the ensuing shake-up can leave prominent incumbents irrelevant and facing consolidation or bankruptcy. The numerous trends impacting the automotive industry, everything from powertrain electrification to retail concepts without dealerships, require the industry to respond — but it's the confluence of connectivity, shared mobility and automated driving that we believe will truly put the industry as it's known today to test.
Bruno Colmant,Kasper Peters,Grégoire Tondreau
Direct banks in Belgium
The direct banking market in Belgium has slowly but surely conquered ground over the last ten years and we believe its growth will further accelerate in the coming five years to reach 25% of Belgian retail clients.
Three types of business models can be identified in the direct banking market: direct banks with a savings-focus, direct banks with a brokerage/investment-focus and direct banks with a daily banking focus. Next to product offer, the positioning of direct banks on the market can also be discriminated based on their relationship with the client: does the bank act as 2nd / 3rd bank where the client cherry-picks selected products or does the bank attempt to position itself as a 1st bank and establish itself as home bank?
We believe that based on the differences in product offer, target client relationship and context of the mother company, direct banking players will undergo different evolutions which will lead to a segmented direct banking market.
Norbert Dressler,Christian Fischer,Jochen Gleisberg,Sascha Haghani,Ralph Lässig,Stefan Schaible
Many companies are wrestling with the question of how ambiguous developments are going to affect their bottom line. Whether business will ultimately be up or down as a result depends on the company's individual business model.
"Smart Efficiency" is an approach we have developed to enable companies to gear up for uncertainty as the new state of affairs and to give themselves more breathing space. They can do this by increasing their elasticity and efficiency concurrently.
We offer a special tool that can analyze both of these dimensions at once. Having thus taken stock of the situation, we then define an action map that prioritizes all of the options at a company's disposal: we recommend quick wins, look at how elasticity can be improved in the medium term, and stake out prophylactic actions that only need to be implemented if and when conditions worsen significantly.
2015 – How can we break out of deflation?
The real challenge in 2015 will be to avoid the economic shipwreck of the Eurozone in what is often presented as a Japanese-style deflationary scenario. Unfortunately, that scenario seems more and more plausible – prices have been going down over the past two years and the inflation rate has become negative at the beginning of 2015.
Technically, of course, this could be described as disinflation rather than deflation, or as a trend towards low inflation, in order to avoid stigmatising a general fall in prices. A distinction could also quite justifiably be drawn between good and bad deflation – a drop in oil prices causes good deflation, whereas a drop in demand and pay causes bad deflation. Or, resorting to purely technical definitions, it could be pointed out that “deflation” means a fall in at least 60% of the prices on the inflation index (oil products excepted), and this has not happened.
But these subtle academic distinctions are of no interest whatever. We are in the midst of a demand crisis. Demand is too weak and is producing insufficient growth. The economic actors are postponing their consumption and investments, causing a price fall which is leading to deflation. Many major economic factors are at play here: an ageing population, the shift of growth centres to other continents, the lack of a forward-looking industrial policy, an inability to modernise our economies through non-confrontational social dialogue, the maintenance of a partially ineffective welfare state, insufficiently entrepreneurial attitudes etc.
How can we break out of this deflationary scenario? The recent quantitative easing (QE) by the ECB will not be a silver bullet. A set of overlaid solutions focusing on the simultaneous easing of budgetary and monetary policies is required.
Wilfried Aulbur,Wolfgang Bernhart,Norbert Dressler,Sebastian Gundermann,Marc Winterhoff
On the road toward the autonomous truck
Until 2025 the truck industry will have to become more efficient, green, connected and safe. The importance of SAFE is set to rise in the coming years. Efforts to increase truck safety were strongly focused on reducing the impact of truck-related accidents in the past. Advanced driver assistance systems (ADAS) now offer the opportunity to achieve accident-free transportation. While e.g., the sensor technology is already quite mature, key challenges still remain to be resolved:
- From a technical perspective, the main need for innovation is on the software side. Systems must orchestrate highly complex driving behaviors and have an architecture that protects against technical failure and covers system malfunction.
- A new legal (end insurance) framework is required before any autonomous trucks can drive on public roads. Today, autonomous driving is prohibited by law. A key question to be addressed by a revised legal framework is liability (OEMs, suppliers, drivers).
Our recent study focuses on the drivers of self-driving technology and sketches the way forward from a technology and a legal perspective. It also discusses the implications for the OEMs and suppliers:
- For OEMs, the main task now is to prepare technologically for self-driving trucks by further developing ADAS operating understanding on the vehicle and system level in-house.
- For suppliers, the future focus must encompass both technology (sensor and software development) and effective business models for providing both complete systems and ADAS components only.
Sebastian Durst,Oliver Knapp,Thomas Wendt,Marc Winterhoff,Jonathon Wright,Michael Zollenkop
FRUGAL innovation in the engineered products and high tech industry
"Frugal innovation" – the art of making more out of less, when the "less" is already on hand. In a recent study we asked top managers about their companies' experience and success with such goods: While frugal products today stand for 12% of sales of surveyed companies, their share is predicted to almost double to 22% in 2018. Alarming though: Only 45% estimate their company's success with frugal products as high or very high. And as little as 30% are satisfied with profitability of their company's frugal products.
The abovementioned product examples give a taste of the importance and reach of frugal products for both companies originating from developed and emerging markets. Frugal products offer opportunities in new markets specifically to players in the business of Engineered Products and High Tech. Many of these players are based in the United States and are highly successful in selling their feature-rich high-end products in the Western world – but often they are lacking full access to mid-range and low-end segments in emerging markets. These are areas they easily could enter if they offered the right products at the right costs.
Fabian Huhle,Tim Zimmermann
From Headquarters to ahead-quarters
In globally operating companies, the pressure on corporate headquarters is constantly rising: they are increasingly called upon to justify their existence to the operating entities and demonstrate just how their functions contribute to the company's overall performance. Moreover, corporate headquarters face new challenges arising from the growing complexity of markets and the ever-intensifying competition.
If they are to establish themselves as a genuine driver of value in the company as a whole, corporate headquarters need to become more flexible and agile, develop new capabilities and position themselves as more of a partner to the operating business units, according to the key findings of our study "Corporate Headquarters 2014". "Corporate headquarters need to adapt their brief to the new situation in the markets and redefine their role," says Tim Zimmermann, Partner at Roland Berger Strategy Consultants, explaining: "Operating units look for greater support from their corporate centers in volatile times. Value adding capabilities have a particularly important role to play in that context."
Raising Gemba power – Hiyaku No. 6
In this study, Indonesia is utilized as the focal example in considering the issue of raising Gemba-power in the world’s newly emerging markets.
Why turn the focus to Gemba-power at this time?
- On the macro level, the need for enhanced productivity has been pointed out for more than 20 years.
- The current environment of “stagnant growth,” “intensified competition” and “heightened complexity” underscores that there is no time to waste in improving productivity levels.
Why is raising Gemba-power so difficult in emerging markets?
- The absence of role models to target and the know-how necessary to proceed.
- The difficulties in cultivating competent personnel characteristically encountered in newly emerging countries.
What have companies successful in raising Gemba-power in emerging markets done right?
- The adoption of meticulous approaches to operation fundamentals.
- The maintaining of market-average benchmarks.
- Relentless execution and retention.
The quest for successful cross-border M&A – Shiten No. 102
The number of M&A ventures involving Japanese companies continues to grow, and it can be said that this genre is increasingly taking firm root as a generally accepted management method. Within the trend, there is an expanding move toward so-called “cross-border M&A” – deals distinguished by the acquisition by Japanese firms of overseas companies and businesses. While the strategic importance of M&A continues to climb in this way, it is also regrettable to see around half of the ventures end in failure.
This paper analyzes the reasons for such outcomes, followed by concrete discussion of proposed key requirements to succeed in these undertakings.
Viewing M&A as a natural and necessary road to corporate growth and contention
The number of cross-border M&A in which Japanese companies acquire overseas firms has grown to some 500 deals per year. Expanding hand in hand with this sheer volume is the diversity of the companies being purchased, in terms of industry category and scale alike.
The odds for M&A success remain mired at around 50%
The number of M&A deals contributing to improved earnings, higher stock prices and other progress accounts for about 50% of the total. The key reasons for failures can be found in strategic deficiencies and faulty corporate merger patterns.
The key to successful M&A lies in scrupulous strategy development and effective post-merger integration
Essential elements for M&A venture success include elaborate advance strategy planning and studies of the synergy to be involved. True to this formula, steady business integration in the wake of any initial merger is indispensable for building the caliber of consistent and reliable synergy needed for such achievements.
Increasing global brands out of Japan – Shiten No. 101
It certainly goes without saying that brands have keen importance as a source of added value in products and services. At the same time, however, when viewing “real ability” from the perspectives of scale of economy, cultural maturation and other benchmarks, it is difficult to conclude that many Japanese companies possess brand power capable of making their marks on the global marketplace.
In this report, three areas are discussed as key points for Japan-based brands to succeed globally.
Clarification of how the brand will compete
For brands, the formulas to be adopted as tactics will vary by the markets being targeted – luxury, premium, mass and so forth. It is vital to first define the basics in this context, and then proceed to the establishment of a winning game plan capable of setting the brand apart from others.
Possession of a structure to maintain brand freshness
Even with outstanding creators, designers and other professionals onboard, it is tough to continue to maintain the “freshness” of any brand over the long haul without a solid structural scheme in place. Accordingly, it is vital to instill an in-house structure aimed at preserving and extending such brand sparkle.
Build a brand-based organization
To effectively develop a brand business on the global front, it is a key to exercise organizational control based on the brand itself – while additionally placing the top priorities on functional and regional axes. Especially vital at such junctures is that the head office function be closely geared to the specific type of brand being advanced.
Emmanuel Bonnaud,Olivier de Panafieu,Georges de Thieulloy
Field Crops – global perspectives for French companies in a volatile market
France is Europe’s number one producer of wheat, corn, rapeseed, sunflower and sugar beet. Its Field Crops players are well-positioned in the context of worldwide growing demand for cereals, but face market, product and supply chain issues.
We believe that French Field Crops added value has the potential to increase by 50%, thereby achieving EUR 10 billion, despite the gradual losses of subsidies (biofuel and sugar beet), the growing international competition, and the additional regulations to come that will further burden the French agri-business industry.
To do so, French agri-business industrials need to pursue the development of specific winning strategies, combining enhanced control of their value chain, disruptive innovations (notably in green chemistry and ingredients), diversification to better resist volatility, and expand internationally in the relevant geographies and with the right partners.
Industry 4.0 2014
Predictive maintenance – Is the timing right for predictive maintenance in the manufacturing sector?
Manufacturers are increasingly seeing maintenance as a strategic business function as they seek to reduce both maintenance costs and downtime, and increase asset lifecycles. Gone are the days where maintenance was seen as a "necessary evil"; manufacturers now have more alternatives than ever to employ a costly "run until it breaks" reactive maintenance strategy, or an inefficient "fix it regardless" preventative maintenance approach.
Together with Castrol, Roland Berger has been exploring the use of predictive maintenance technologies by manufacturers in order to co-write this thoughtpiece.
Our findings reveal that there are now emerging predictive maintenance solutions available that allow manufacturers to streamline maintenance operations by using asset condition data to predict impending failures and therefore schedule maintenance only when it is needed. Best-in-class manufacturing companies that have adopted these solutions to predict when equipment fail may have seen a reduction of unscheduled downtime to c. 5% lower than the industry average and an increase in overall equipment effectiveness (OEE ) of more than 8%.
Predictive technologies are evolving, and we are exploring this evolution and the benefits predictive maintenance could bring to today's manufacturers. As part of this we have looked at the practical barriers and challenges that need to be overcome to increase adoption in the manufacturing sector.
Low interest rates – A threat to the banks
The real danger lying in wait for the commercial banks is the low level of interest rates which, combined with risk limitation requirements, curbs their potential profitability. Moreover, the banks are facing major operational challenges, as they have to bear the operating costs of two retail channels (physical and digital) at a time of recession.
The intermediation margin, i.e. the difference between interest received and interest paid, may well become too narrow to ensure a satisfactory return for the shareholders. This is a real problem, as an economy needs profitable banks in order to absorb the risks they take. An insufficiently profitable bank no longer takes risks and so no longer fulfils its social purpose. This is why the interest rate on bank deposits, which already provide only weak returns given the present context of extreme economic liquidity, could drop to zero or could even become slightly negative, as is already the case for certain banks in Northern Europe.
Cause for concern?
THE NEW BALANCE – Why Germany needs a new leap forward in the quality of work/life balance!
There's a sea change in the air for family friendly corporate policy. In a broad-based offensive over the past ten years, businesses and policymakers have done a great deal to get mothers back into the workplace. Now a new leap in quality is on the agenda. Companies are called upon to meet the needs of modern fathers and contemporary partnership models – and to create flexible policies to cope with the different phases of life in which members of their workforce find themselves and the diverse lifestyles they enjoy.
Our latest THINK ACT publication "The new balance" examines how family friendly the German economy has already become. And analyzes the trends and developments that are raising the bar in terms of what people need in order to balance their work and home lives.
The new balance represents a challenge for companies' HR policy and leadership culture. An exclusive survey of German executives conducted by Roland Berger and the Welt newspaper group found that almost 80 percent of top managers consider their company ill prepared. So our study also outlines various effective management strategies that can be employed to this end.
Martin Erharter,Thomas Rinn,Michael Zollenkop
The magazine for Chief Operating Officers – the new COO Insights on Industry 4.0
Industry 4.0, the comprehensive interconnection of processes in production, logistics and services, is a huge issue at practically every large manufacturer in Europe. Humans, machines and resources all communicate with each other. Smart products know their production process and where they will ultimately be deployed.
Our research across Europe shows that digital production has already begun to revolutionize value chains at many companies. Based on talks with management and associations, we compiled this COO Insights issue on Industry 4.0 and its many facets.
In an exclusive interview with Harald Krüger, the BMW Group's Chief Production Officer and future CEO is clearly optimistic about what human-machine interaction will bring to automobile production. Our publication also highlights where the really lucrative 3D printing niches are springing up – and looks at how companies can defend themselves against the downside of connectedness: cyber-attacks from the Internet. Jean Botti, Chief Technology Officer of Airbus Group, explains the part played by ethical hackers in this context. We also take a trip out east to explore the importance of Industry 4.0 for China.
What factors help companies successfully realize Industry 4.0 models is a question to which we have found more than one key answer. More details are provided in the latest edition of COO Insights.
Automotive Insights 02.2014
Until a few months ago, it seemed as if growth in the BRIC automotive markets was unstoppable. But as 2014 is drawing to an end, the euphoria appears to be well and truly over. Automakers and suppliers in Brazil, Russia and India have seen demand weakening over time, and business has been disappointing. Indeed, China was the only market where the industry showed further positive developments.
With the precursors to slower growth already emerging in the core markets of Europe, the United States and Japan, automakers and suppliers need to know for sure whether they can rely on the BRIC markets in the future.
The current edition of Automotive Insights addresses this question. Our authors explain why we believe that Brazil and India are set to make a comeback. They identify risks the industry has to face in Russia. And they describe the challenges faced by automakers and suppliers in China's increasingly saturated market.
Laurent Benarousse,Max Blanchet
The European Aerospace & Defense Industry
The A&D industry is undoubtedly a success story, leaning against the de-industrialization trend we have been experiencing for years. Indeed, Germany, France and the UK have all seen a sharp outperformance of their national A&D sectors industries compared to their national manufacturing sectors in value added.
It can be explained by an early exposure to the fast growing economies of the emerging markets in general and to Asia Pacific in particular, the massive investments, the cutting-edge technologies and the high-skilled workforce specific to this industry. Furthermore, the A&D industry has secured on-going product innovation.
Finally, the A&D industry is one of the finest illustrations of what cooperation at the European level can achieve and is testimony to the importance of European integration.
Grégoire Tondreau,Didier Tshidimba
Net neutrality within a changing European media landscape
Some Internet Service Providers are looking at forms of paid traffic management to cover investments in network capacity expansion to prevent congestion. In the meantime, the European Parliament has submitted a proposition to block such initiatives, hence imposing Net Neutrality by law. This seemingly technical discussion has far reaching business implications for this industry and the economy.
Wolfgang Bernhart,Marc Winterhoff
Automatic driving has the potential to fundamentally transform the automotive industry in the coming years – be it through innovative software technologies and vehicle models or new ways of using cars, such as "mobility on demand". The expectation is that cars will be able to drive completely autonomously from 2030 onward, without the driver taking an active role. The market potential for the automotive industry is huge.
In their new study "Autonomous driving", the Roland Berger experts expect sales of components like cameras, sensors and communication systems to add some 30 to 40 billion dollars to the size of the global market. Further revenues worth 10 to 20 billion dollars could then be generated from the sale of advanced software and related services.
"Automatic driving will initially become established in a gradual process, but after 2030 it will bring a real revolution to the auto industry," explain Wolfgang Bernhart and Marc Winterhoff, Senior Partners at Roland Berger Strategy Consultants. "So OEMs and suppliers should already be thinking about the role they want to occupy in this market of the future, and design their business model around that."
Whither defence? – Preparing for the next Strategic Defence and Security Review
Following the General Election that is expected to take place in the UK in May 2015, one of the first challenges to face the next government is the development of a Strategic Defence and Security Review (SDSR).
The SDSR is likely to take place in the context of a constrained but improving financial environment, and at a time of significant geopolitical uncertainty. The SDSR is also likely to be subject to high levels of scrutiny by a number of stakeholders, including the armed forces, the media, industry, trade unions, academia, and the taxpayer, some of whom will have divergent and competing interests in the outcome.
Delivering an SDSR that meets the requirement to set out the strategic direction of the armed forces and security services in providing for the defence and security of the UK within the context of constrained resources will be a significant challenge. The approach taken by policy-makers within the incoming government and defence planners within the civil service will therefore need to be carefully considered.
Based on our analysis of the UK's approach to defence planning since 1998, we have derived some recommendations to policy makers and industry.
Bruno Colmant,Grégoire Tondreau
Retail banking – The coming revolution
Traditional banks are currently facing a difficult deflationary context, and they have to juxtapose two networks – a physical network of branches and a digital one. The maintenance of the physical network is legitimate, responding as it does to the need for local services.
It is in this context that Apple has caught the banking world on the hop by doing without a physical network for its new scheme. That was, incidentally, already the case for the credit cards that are now part of that set-up. Who has ever seen a high street branch of Visa, Mastercard or American Express, even though credit cards are a banking instrument? Apple has transformed a device issued by a financial institution (the credit card) into a full-scale bank.
Innovation in oil and gas
With less than half a percent of revenues spent on R&D, the oil and gas industry has one of the lowest levels of R&D intensity of any sector. Nevertheless, with the shift in focus towards unlocking the vast reserves in unconventional formations — which we define broadly to include tight oil and gas, oil sands and heavy oils — the need for innovation has increased dramatically. Driven by a combination of economics and environmental pressures, new technology solutions are essential to fully realize the opportunity.
In our view, much more can and should be done to create the right conditions for technology breakthroughs in unconventionals. Despite an increase in upstream technology spending, in general the industry has continued to focus on incremental R&D rather than on more radical innovation. As a result, major breakthroughs remain elusive.
The strategist's change: How successful CSOs transform their companies
In a world of permanent change where geopolitical factors strongly impact the economic context, companies need to be in a position to review and adapt their strategy and business model. For two thirds of firms, transformation is therefore the normal state of affairs as they endeavor to do business successfully; 90 percent of companies have an in-house strategy department these days.
This is one of the findings of the study, "The strategist's change – How successful CSOs transform their companies" by Roland Berger Strategy Consultants and the University of St. Gallen. The study is based on an extensive survey of 160 CSOs from European companies across a range of industries.
The Chief Strategy Officer has become established as an important member of the top management team in most companies as they strive to efficiently drive this permanent process of transformation. "CSOs enjoy increasingly high status in companies across all industries," explains Roland Berger Partner Tim Zimmermann. "They report direct to their company's top management and stand ready to advise them on shaping the future of their company."
But even though the role of CSOs is growing in importance all the time, they are faced with increasing resource shortages – both financial and human. "Tasked with devising and implementing the right strategy for their firm, the chief strategist needs sufficient resources to be able to install a dedicated team," explains Prof. Markus Menz from the Institute of Management at the University of St. Gallen.
Yet the reality on the ground is often different, with companies across Germany, Switzerland and Austria now having even fewer full-time employees in their strategy departments than they had three years ago. "The widely held notion of bloated strategy departments is a myth in most companies," says Prof. Menz. However, the study did show up some discrepancies between industries: While financial services companies and biotech, pharmaceuticals and chemicals firms do have much larger strategy departments, players in the service industry and in consumer goods and retail are considerably smaller in that regard.
Charles-Edouard Bouée,Hakim El-Karoui
Digital transformation 2014
Les classes moyennes face à la transformation digitale
Middle classes facing digital transformation: how should we anticipate, how should we support?
Technological progress moves the frontier between the business we knew as potentially automated, and those thought to be preserved. Big data, learning machines, and the Internet of Things today transform intellectual activities. What is new is that the intermediate jobs are also at risk. These include administrative, legal business or supervisory functions, which have historically been providers of employment for the middle class. Digitalization could impact 3 million jobs in the horizon 2025.
It would be useless, and even dangerous, to fight against this technological change. It is already running. Public authorities must however be alerted right now to its importance. France, which has adapted its production facilities with difficulty to the wave of automation that marked the secondary sector since the 1990's, can face digital transformation successfully, if it commits quickly to structural reforms, which will enable to capture the dividend of digitalization and reinvest it in the economy.
Such adaptation necessarily involves the implementation of a proactive strategy by the government. It also requires taking head on a number of cultural bottlenecks, such as the reform of ongoing training.
Christian Fischer,Sascha Haghani,Gerd Sievers,Falco Weidemeyer
To do a good job of restructuring a company these days, you need to look at more than just costs and the headcount. Successful restructuring means quickly coming up with a new business model that is convincing and sustainable. Roland Berger Strategy Consultants approaches the task from a strictly entrepreneurial perspective. On behalf of our clients, we moderate what are often conflicting demands. We also manage the transformation process as though we were handling our own business. Responsible, energetic and rigorous decision-making is at the heart of this "entrepreneurial restructuring" approach.
Our publication "Entrepreneurial restructuring – Crafting tailor-made business models for sustainable success" provides a deeper insight into this Roland Berger concept, our new philosophy, our top-flight capabilities and our big-picture approach to corporate challenges.
Selected real-world examples testify to Roland Berger's impressive track record as a reliable partner for turnaround and restructuring projects.
Bruno Colmant,Kasper Peters,Grégoire Tondreau
Leveraging the Roland Berger Retail Banking Wheel®, our analyses point to the start of a new era in the retail banking landscape, driven by client behavior and business model changes. Roland Berger developed the Retail Banking Wheel®, aimed at stimulating strategic assent at executive level about the key drivers of the financial sector. We believe that a new turning point is ahead of us for which many banks are ill prepared: the era of client behavior and business model changes.
Next generation insurance in Central Europe
Things have changed in the insurance industry in recent years. A new generation of consumers has appeared on the scene, representing an enormous opportunity for insurers. To maximize this opportunity, insurers need new skills, insights, and a sophisticated understanding of the behavior patterns of this new generation.
At the same time, many people believe that Central European insurance markets are saturated. They complain that there's simply no room for further growth. However, growth opportunities do exist – insurers just need to refine their focus in order to find and exploit them.
Take both aspects together, and it becomes clear: The key to unlocking growth is realizing that client behavior is changing. Our investigation revealed potential growth opportunities that insurers with the right skills and understanding can exploit.
The impact of economic sanctions – Our Economic Scenario Update 9/2014
The European Union's sanctions against Russia are also hitting the German economy. As a Roland Berger survey conducted at the "Leaders' Parliament" in late August found, only just under 29 percent of the German managers polled do not expect the economic sanctions to have any tangible effect on the real economy for 2014 and anticipate a rapid de-escalation of the conflict in Ukraine. By contrast, more than half of respondents believe the crisis will last some considerable time and think that growth will fall by up to half a percentage point. A good 16 percent of the managers expect it to fall by even more than that. In their latest economic scenario, the experts from Roland Berger Strategy Consultants therefore revised their previous forecast of 2.0 percent economic growth slightly downward. For the full year 2014 they now anticipate growth of 1.7 percent.
However, the Roland Berger economic scenario remains optimistic in comparison with other forecasts, which expect growth to slacken more. "Had the economic sanctions not been tightened, we would not have revised our forecast at all," said Prof. Burkhard Schwenker, the reason being: "With its industrial expertise and its strength, the German economy has held up well in the face of unfavorable developments in countries like Japan or Brazil. The current geopolitical situation brings additional uncertainties, though." This is something that is also reflected in the way the Roland Berger Uncertainty Indicator has developed, having risen from 2.0 to 3.0 since the last economic scenario dating from spring 2014 and now ranging in the "moderate uncertainty" category.
Keys for corporate managers to triumph in the VUCA world – Shiten No. 100
VUCA is a term coined from the initials for volatility, uncertainty, complexity and ambiguity. Applied to the realm of business, it is used to express the volatile, uncertain, complex and ambiguous state of the market environment typically surrounding corporate endeavor. In this report, we consider the key requirements and concrete action plans needed for corporate managers to emerge triumphant in the VUCA world.
Five conditions for triumphing in the VUCA world
- Solid vision and scenarios
- Ability to think on the run (trial and error)
- Business “double-tracking” skills
- Excel as a game “rule maker”
- Ongoing pursuit of innovation
(in Japanese only)
The quest for expanded use of hydrogen energy – Shiten No. 99
Moves are heating up in the mission to introduce hydrogen energy. In this paper, we incorporate specific case studies in advancing a discussion of the issues surrounding Japan’s energy sector, seeking to define the requirements for realizing a society best geared to spearhead the effective use and application of hydrogen.
- Social Significance of Hydrogen Use
From the perspectives of energy security, and realizing a society low in carbon and energy diversified for lasting self-reliance, there is great significance in making effective use of hydrogen.
- Avoid the Trap of Hydrogen Hype
As seen in the hype surrounding hydrogen that descended upon the United States in the 2000s, a temporary surge in interest, driven by publicity and propped up by subsidies, will leave only a legacy of resentment and disappointment for future generations.
- Build Models Rooted in Economic Rationality for all Stakeholders
Devoting the time and effort to devising a model economically sound for users, operators, national and local governments, along with all other stakeholders, holds the key to realizing the optimum means of ensuring proper and sustained use of hydrogen energy.
(in Japanese only)
Fanny Cao,Junyi Zhang
Automotive e-commerce 3.0 – A great era for OEMs
"Auto e-commerce" first entered our lexicon following the 2013 "double-11" online sales promotion, which generated sales of RMB 24.3 billion in a single day. At present, the auto e-commerce market has already taken offline users of aftermarket services as a foundation for an auto ecosystem, which aims to increase customer stickiness to an offline-to-online (O2O) model. With this new model and ecosystem, the industry is entering a new era – auto e-commerce 3.0.
Roland Berger's latest report "Automotive e-commerce 3.0 – A great era for OEMs" analyzes future trends in the structuring of auto e-commerce platforms. According to the report, OEMs enjoy a first-mover advantage in the coming era of auto e-commerce 3.0. In the emerging auto e-commerce ecosystem characterized by the O2O model, OEMs will enjoy significant advantages.
In its early stages of development, auto e-commerce was essentially limited to extensive online marketing, and the main players were vertical online sales platforms. Online sales, generally viewed as playing only a supporting role by OEMs and dealers, were handled separately from offline sales. This early stage, termed "1.0," lasted for about one year. Over the past three years, however, with major e-commerce platforms realizing the importance of integrating online and offline user data and more platforms making forays into offline sales, a complete O2O auto e-commerce ecosystem has gradually begun to take shape.
According to estimates, China's O2O auto e-commerce sales are expected to grow at an annual rate of 20-30%, reaching nearly RMB 225 billion by 2016. Roland Berger believes that platforms operated by OEMs will be the first players to capitalize on the huge potential of "3.0." OEMs possess three major advantages over vertical sites, integrated e-commerce sites and other models:
1) OEMs are able to quickly activate an offline user base and dealer resources, allowing their customer base to quickly reach a critical mass;
2) diversified channels can be easily put in place for online customer interaction, and users are already drawn online by in-car computer systems and CRM systems;
3) membership programs can be used to create an integrated ecosystem and enhance the effectiveness of a multilateral network.
Russian automotive market update: what would be the real cost of sanctions?
The economic downturn and political uncertainty have kept revenues in the Russian automotive market on a downward trend for months now. In the first eight months of the year the market fell 12 percent, even tumbling by some 25 percent in July and August. And there's no sign of a recovery any time soon, as Russia struggles with an ailing economy, rising inflation and a volatile currency. The uncertain outcome of the Ukraine conflict and the harsher sanctions imposed by the European Union and the United States are adding to the pressure.
Any decision by Russia to retaliate and impose sanctions on car imports from Europe and the U.S. could undermine the Russian economy even more. In our study " Russian automotive market update: what would be the real cost of sanctions?" our experts devised three scenarios to illustrate the impact of sanctions on the Russian automotive industry.
Mark de Jonge
Choosing clients strategically – A comprehensive guide to profitable growth in banking
In a resource-constrained world, banks have to set their sights on those clients with the best strategic fit. 80% of bank revenues are usually generated by 20% of clients. Typically, those clients also have the highest earnings potential – and thus set the standard for a bank's service model. Such focus benefits both banks and customers, thus creating a win-win situation. The best products and services for a selected set of target clients will distribute resources in the most effective and efficient ways. This strategy offers new growth opportunities for a bank.
At the same time the service model and processes for non-target clients need to be standardized to such an extent that the cost structure becomes flexible, making it possible to lower the cost base in line with reductions in non-target client activities – without putting revenues at risk.
Our new market study, "Choosing Clients strategically – A comprehensive guide to profitable growth", focuses on key levers and success factors for reshaping existing business models in banking.
Norbert Dressler,Sebastian Gundermann
Agricultural equipment markets in BRIC – Opportunities and challenges for OEMs
As in many other industries, the size and growth potential of the BRIC markets have been attracting the attention of OEMs in mature agricultural markets for more than a decade now. In terms of volume growth, the BRIC markets have developed well in recent years and also enjoy a positive growth outlook.
Regional requirements in BRIC markets still differ strongly from the standards seen in mature markets, and also vary between countries:
- Brazil: High technology level driven by large farm size and demand for precision-farming equipment
- Russia: Relatively large share of Western-style equipment but large replacement demand and growing political uncertainty
- India: Low technology level expected to persist as farms remain small
- China: Overall low technology level with domestic manufacturers starting technology projects with state support
These differences pose a significant challenge to OEMs in mature markets and require differentiated market strategies. While in Brazil and Russia several OEMs are running successful operations, most of the players have so far only been able to make slow inroads into India and China. For these OEMs, flexible modular strategies will play a decisive role in their future positioning in these markets.
The attached study focuses on the similarities and differences between the BRIC markets. It shows how modular concepts can be used not only to realize the growth potential in Brazil and Russia but also to address the high market volumes in India and China. It also tells how we derived key success factors and which levers should be considered for implementation.
Financial Performance of European Insurers
The European insurance market came through the financial crisis relatively unscathed. Over the last five years, insurers have enjoyed stable revenues. Thanks to improvements in profitability, they have increased their operating results by three percent on average and after-tax earnings by seven percent. Return on equity (RoE) is also up: After a sharp decline to 4.9 percent in 2011, it rose to 8.5 percent at the end of 2013, almost reaching its 2009 level (9.0 percent). The biggest winners in the industry were small, innovative niche players, who experienced double-digit growth in both revenues and RoE. These are the results of the study "Financial Performance of European Insurers", in which experts from Roland Berger Strategy Consultants analyze the 2008 to 2013 annual reports of the top 30 European insurance companies in Germany, Belgium, France, Italy, the Netherlands, Spain, the United Kingdom and Switzerland.
"The sovereign debt crisis has revealed just how much the European insurance market depends on the capital markets," says Wolfgang Hach, Partner at Roland Berger. The investment result fell by almost 50 percent between 2009 and 2011, to EUR 237 million at the end of 2013, just over its 2010 level. This is because investment income is primarily determined by the yield on government bonds, while premium income depends on gross domestic product.
Norbert Dressler,Sebastian Gundermann
Truck aftersales: Roadmap to excellence
With margins in new truck sales eroding and competition becoming fiercer with new players such as Original Equipment Suppliers (OES) and independent retailers entering the market, the importance of aftersales to generate profits is growing.
To turn "know-how into do-how" Original Equipment Manufacturers (OEMs) require three pillars of excellence in aftersales: Know your customer, unleash your current potential and exploit new potential. All three pillars need to be addressed, but OEMs cannot implement these actions in a generalized manner. They need to be adapted to specific markets, brands and products.
With the aftermarket business offering huge potential on revenue and margin (25-40% contribution margin), OEMs require comprehensive guidelines to conquer the multidimensional challenges.
Our recent study focuses on the decisive management factors for realizing aftersales excellence. We believe that three areas of action are crucial for ensuring strategic and operational excellence. Read the attached study to find out how we derived key success factors from general market trends and how to best implement them.
A comprehensive or piecemeal approach to clearing up air pollution in China
Severe pollution-induced haze has brought about the end of the heyday for unchecked industrial growth. However, the high costs of current emissions-cutting policies, such as transitioning from coal to gas and implementing large-scale factory closures, make such measures unsuitable for broad application. In addition, the unique makeup of each industry has further increased the difficulty of enforcing emissions standards. Indeed, China's initiative to reduce industrial air pollution seems to have encountered turbulence.
Based on the experiences of Europe and the US in tackling air pollution, solutions that target sources of emissions on a piecemeal basis do not produce ideal results. Therefore, in order to reach the targets for emissions reduction set forward by the government's 12th Five Year Plan, it is necessary to expand the scope and intensity of efforts in the industrial sector.
The report from Roland Berger states that a precise and comprehensive analysis of the emissions sources is a prerequisite to combating PM2.5 air pollution. The state of such analysis is still in a preliminary stage of development, currently lacking a mature system of enforcement and oversight. In the future, such analytical work will become procedural and standardized as a foundation for further emission reduction initiatives. This will create vast business opportunities for the environmental protection industry.
Logistics in transition
The logistics industry is playing an increasingly important role in international commerce. Global revenues had reached €981 billion by 2011 and the market for logistics services is expected to grow up to three percent per year worldwide in the period up to 2020. According to Global Logistics Markets – Trend Analysis, a new market report by Roland Berger Strategy Consultants and Barclays, logistics companies must adapt to new market trends that pose very challenging demands. The logistics industry is presented with new opportunities, such as the growing importance of intra-regional markets, the expansion of E-Commerce and in providing specialized services to a range of industry sectors.
"The volatile market environment, the ever-stronger online market, the shift in markets towards Asia, and the growing demand for special transport services necessitate new corporate strategies and considerable investments on the part of logistics providers," explains Dirk Friebel, logistics expert at Roland Berger.
How pharmaceutical companies can optimize operations
Thirty years into its policy of "reform and opening up," the competitive advantage China once derived from its massive population is now receding, and the financial crisis has significantly deteriorated the macro industrial environment. These factors, coupled with additional pressure from healthcare reform, have pushed down drug prices and increased pressure on domestic pharmaceutical firms to optimize their existing cost structures.
Thousands of domestic drug companies are now faced with the question of how to raise the quality of medicine while simultaneously improving operational efficiency.
The "operational excellence" outlined in this study aims to help companies realize both cost optimization and a manufacturing transformation. The first round of systematic operational upgrades implemented at one leading domestic pharmaceutical company, for example, resulted in an RMB 50 million reduction in annual costs.
An upgrade of manufacturing operations led to savings of more than RMB 30 million; and optimizing procurement operations saved RMB 20 million.
Successfully mastering Germany's energy transition
The energy transition is presenting the German energy market with considerable challenges: Conventional power plants are losing their competitiveness, customers are increasingly more willing to switch providers, legislation and rules are constantly changing and decentralized energy provision is becoming more and more prevalent. This is putting pressure on energy providers and squeezing their margins. Against this backdrop, our Roland Berger experts prepared a study, which includes a detailed examination of some 500 energy providers – from major players to regional and local suppliers. The study's authors analyze the financial situation, operational efficiency and the business models to identify strategic opportunities for providers in the current market environment.
"Energy transition is driving a major change in the role German energy providers play," explains Roland Berger Partner Torsten Henzelmann. "Especially regional and local providers must become more efficient and develop new business models in order to operate profitably in this new environment. Production innovations, partnering and new compensation models are some ways to master these challenges."
Philipp Leutiger,Carsten Rossbach
Digital transformation 2014
Lean Telco – Redefining the telecom business
New challenges await telecommunication companies in Europe: The cost-cutting strategies that have boosted growth and profits in the past have long since exhausted their potential. Until 2007, telcos were still able to increase profits by as much as 7% per annum. Since 2008, however, this upsurge has given way to a constant decline of around 2% a year – and there is no sign of an end to this negative trend in the years ahead.
"Telcos have been too complacent about their business models for too long," explains Philipp Leutiger, Partner at Roland Berger Strategy Consultants. "That has precipitated their downward slide in recent years." To return to profitable growth, he adds, they must alter their strategies and create leaner corporate structures. Roland Berger's experts show exactly how this can be done in their study "Lean Telco. Redefining the telecom business – from cost-cutting to smart efficiency". At its core, Lean Telco is all about enabling companies to respond flexibly to the market conditions around them – and to cut operating costs by up to 20% in the process.
The cure for Swiss hospitals
The hospital environment in Switzerland is in pieces: The number of hospital beds per patient is far below the European average and the infirmaries are relatively small. Nevertheless, most Swiss clinics offer a large portfolio of treatment options, some with a rather low number of cases per procedure. Furthermore, many hospitals have outdated infrastructure. These conditions make it difficult to offer care that is both economically efficient and of the highest quality.
At the same time, Swiss patients have high expectations for their treatment. Indeed, they pay around 8,500 Swiss Francs per year for their health – that's 12% of the Swiss GDP pouring into the hospital sector. And health care costs continue to rise, as they have been for many years.
The Swiss government introduced in 2012 flat case rates, called the SwissDRG (Diagnosis Related Groups). Since then, payments are no longer made on a case-by-case basis, but rather categories of cases now cost certain fixed amounts. Cost and payment should thereby be transparent and similar, and disincentives such as long hospitalization time and overcapacity should be eliminated. The goal is to cut costs, improve the efficiency of the overall facility, and to fuel competition between clinics.
To demonstrate how clinics can brace themselves for the future, we have identified the key areas for action in the coming year: the professionalization of purchasing management, performance improvement, strategic management of reconstruction projects and the integration of organization after mergers of clinics.
Digital transformation 2014
Socialize your business
Today, social media is one of the biggest sources of business-related data and one of the key drivers of digitalization. But it is a fairly recent phenomenon even for the New Economy. As early as March 2, 2009, the digital evangelist Avinash Kaushik tweeted, "Social media is like teen sex. Everyone wants to do it. No one actually knows how. When finally done, there is surprise it's not better." Five years later, this "teenage angst" has been overcome. Facebook, Twitter, YouTube and the like have become a solid part of society as well as marketing and communications channels in the corporate world.
All in all, we think that social media is less of a threat to corporate sovereignty, autonomy of action and brand identity than an opportunity to improve a company's long-term performance.
Digital transformation 2014
Usage is replacing ownership – This change in consumer habits is set to transform the private transportation of the future. The world of shared mobility, where vehicles are shared and mobility offerings used jointly, will see rising revenues and growing customer numbers in the period through 2020. The Roland Berger experts anticipate annual growth rates of up to 35 percent in the new business fields around car, bike and ride sharing and shared parking.
This is one of the findings of our latest market study, "Shared mobility – How new businesses are rewriting the rules of the private transportation game".
"The mobility sector is one of the fastest growing areas in this new type of economy," explained Roland Berger Partner Tobias Schönberg: "Because it's thanks to the way that mobility offerings are intelligently linked that big cities the world over will see a sharp acceleration in the trend toward shared mobility."
In a clear sign that this market trend is taking off, the number of market players in the segment is growing. Besides innovative start-ups, ever-greater quantities of established companies like auto makers, transportation and logistics firms and airlines are entering the fray. The spectrum of innovative products and services they offer is very broad: not only are there new online platforms but also a growing number of companies supplying IT technologies and (industrial) hardware in the form of vehicles and bicycles, for example.
Jérôme Colin,Philipp Leutiger
Digital transformation 2014
Media 2020 – A universe of digital opportunities
Traditional media are facing multiple revolutions. Traditional time and space constraints progressively disappear; consumers can access online contents round the clock through multiple channels and devices, enhancing a new "media-meshing" experience. For media players, a direct consequence is a strong dilution of consumer's attention, weakening their traditional business relying mostly on advertising. However, those new behavior patterns simultaneously create strong business opportunities.
Customers are now reachable at any time and through all sort of devices, and huge amounts of information regarding their preferences and personal life are becoming available. This is a game changer for the traditional media industry and most incumbent media companies need to reinvent themselves in order to meet the new requirements expressed by their clients.
In this new game, over-the-top players have the upper- hand. Digital-native companies such as Google, Amazon, Facebook and Apple have progressively collected comprehensive data on their clients and already started to monetize this knowledge. This brutal competition has generated great deal value for GAFA shareholders but also created friction in the media ecosystem.
However, the die is not cast yet for traditional media companies and lessons can be learnt from US OTT giants. First success stories confirm the path to follow to adapt to the new deal : Axel Springer, Hachette, Schibsted, Solocal, and many others…
Frederic Choumert,Shashin Shah,Jonathon Wright
The winners – How chemical companies deliver superior shareholder value
As part of our extensive strategy work in the Chemicals industry, we have observed that chemicals companies display a very wide range of shareholder returns (dividend and capital gains). We thus set out to investigate how chemicals companies create value for their shareholders. We started by identifying the set of companies which outperform the industry – the "Winners". 22 Chemicals companies stand out as Winners, demonstrating both superior growth and profitability. Examples of Winners include Ecolab, Monsanto, and 3M. Interestingly, the choice of an industry segment does not drive financial performance: any type of company (Commodity, Specialty, and Diversified) can "win" in the broader Chemicals industry.
We have found that four strategic attributes drive "winning".
- Business leadership
- Strategic coherence
- Financial scale
- Proven ability to execute
Chemical companies can use our "Winners' Analysis" described above both as a diagnostic framework to understand historical corporate performance as well as a blueprint for future corporate strategy development and execution. The Winners' Analysis is based on business and financial fundamentals and is universal in its application: we have completed similar analyses for two additional sectors — industrial equipment and oilfield services — and observed that Winners in these industries share similar characteristics.
The difference in European economies
Roland Berger Strategy Consultants has published a study focusing on the European economic model and more specifically on the European economic divergence, which the European Union is facing.
According to our experts, this discrepancy is linked to two main causes:
- uncoordinated economic policies since the creation of the Euro
- a productive specialization, inherent in any monetary zone. In France - as in the United States or in Japan - this specialization exists, with territories that produce more than others, or something else
Today, rather than fight this specialization, should we not assume it? If so, it would be a real challenge for Europe because assuming specialization involves, as in any country, transfers (social, tax...) to ensure the coherence of the area under consideration.
Christophe Angoulvant,Hakim El-Karoui,Dominique Gautier
World economy facing a global ageing population
And if one of the major obstacles to a sustained recovery of economic growth in Europe was the ageing of its population ?
Indeed if the world is ageing, the workforce shrinks more in Europe than anywhere else in the world. The economic and social effects of an ageing population go well beyond the issue of health and retirement policies: the evolution of savings, access to credit, real estate prices – all these economic fundamentals are affected by ageing.
In many ways, ageing is the enemy of growth and competitiveness. First, because ageing goes hand-in-hand with the shrinking of the workforce, which itself becomes more and more pressured to finance pensions and dependency. But it goes further. An older and smaller population hesitates to take risks and has little disposition to carry out long term projects. Innovation financing is less desirable. Finally, an ageing society calls for the development of services activities with lower value-added.
The Roland Berger Paris Institute offers a comprehensive diagnosis and a framework for the analysis of the challenges issued by ageing at the global level.
What are the links between ageing and competitiveness?
What are the consequences of ageing on the financing needs of economies? How does ageing change the power balance between emerging economies and mature ones?
Today's political and economic decision makers have to seize these issues to identify not only tomorrow's challenges, but also the opportunities arising from this major development.
Because asking the right questions is the first step toward adapting our economies to this change.
Market access as the key to Chinese pharmaceuticals – Hiyaku No. 5
This study examines the Chinese pharmaceuticals market – a sector that has steadily posted solid and swift growth at an annual clip exceeding 20% in recent years. As of 2012, the Chinese pharmaceuticals market was No. 3 in the world. By 2020, it is expected to rise to No. 2 and offers higher profitability than its counterparts in developed nations. But the era of sales supported by quantitative superiority and sheer sales strength is over. There is a shift from “Sales-Driven Marketing” to a meticulous market access to regional governments which holds the key to success from here on. Local products and spot-on assessment of business opportunities are challenging demands for the Chinese pharmaceutical market.
The Menace of "Business Entropy" – Shiten No. 97
There is nothing particularly new about initiatives that seek to apply the principles of natural science and sociology to the theory of business management. The approach of observing nature, society and other aspects of the world in which we live, and then employing the suggestions obtained from such know-how in management theory is characterized by high versatility. Here, we will introduce one example of that thinking – the expansion of entropy.
- Management Theories Learned from Natural Science
Physical laws also dominate the world of business. It is not wise to act in defiance of those laws, which instead should be put to effective use.
- Business Entropy and Commercial Lifecycles
To control commercial lifecycles is to control business itself. In striving to ascertain lifecycles, keep a close eye on the expansion of entropy.
- Strategies Keyed to Expansion of Entropy
If the expansion of entropy can be perceived, then the proper direction to advance will also come into view. This is tantamount to obtaining the guidelines for drawing up effective strategies.
Nonprofit organization strategies for targeting donors – Shiten No. 98
Roland Berger has supported the establishment of mid-term action plan for "Malaria No More Japa"n as part of the firm's pro-bono activities leveraging its consulting expertise. Besides that project, Roland Berger has a long history of assisting various different nonprofit organizations (NPO) not only in Japan, but on an expanding global basis as well. The goal of these efforts is to take maximum advantage of the knowledge, know-how and other vital assets we have accrued on the strength of large numbers of normal consulting projects, in contributing to the enhancement and further development of NPO activities.
For this study, to illustrate one of the areas of proficiency learned through this experience, we profile the importance of the branding and marketing used to target NPO donors (referring to financial contributors), and the specific methodologies enlisted in those activities.
What impressions do donors have of your particular organization? Compared to that, what type of impression would you like them to most embrace?
“What,” exactly, does your organization furnish to its donors, and “in what way” and “for what amount of money” is that supplied?
- Organizational Structure and System
What type of structure and system does your organization utilize for implementing the measures envisioned to target and approach donors?
THINK ACT – Growth
Sales growth must be accompanied by profit growth. That’s a truism, but it’s also one of the biggest challenges facing any company. Businesses must grow in order to defend their market niches, achieve economies of scale, get investors onside, and offer good incomes and career prospects to their employees. In short, they must be attractive.
But we also know that few companies achieve long-term profit growth. That’s because size often leads to hubris, people rest on their laurels, today’s competitive advantage becomes tomorrow’s obsolescence, and economies of scale can easily turn into diseconomies of scale. In today’s saturated markets, it’s difficult to keep coming up with new business models that generate growth and maintain people’s enthusiasm with each change of direction.
In this issue, we look at how businesses can face up to these challenges and achieve profitable growth. As always we’ll be featuring exclusive interviews, this time with Nils Smedegaard Andersen, chief executive of A.P. Moller-Maersk, the world’s largest container shipping company, and with Martin Richenhagen, his counterpart at AGCO, the world’s third largest manufacturer of agricultural machinery, whose search for profitable growth has taken him to Africa. For both, growth is the best way of sustaining their long-term profits and reputation.
We’ve achieved both during our thirty-year presence in China, which we celebrate in our supplement. Zhang Ruimin, CEO of the consumer electronics and home appliances giant Haier, shares some fascinating insights into the country’s rise to economic power and the challenges he believes the future holds for Europe. One other ingredient of profitable growth is curiosity, a willingness to make use of new ideas and knowledge and experiment with new ways of doing things.
THINK ACT – China Special
Some thirty years ago, Roland Berger Strategy Consultants took on its first project in China. Since then, the country has experienced an unprecedented economic upswing, and we have been closely involved as consultants.
The aim behind this China Special is to look back, and to look forward. In 1983, when our founder Roland Berger traveled to China, he was years ahead of the competition. Even some of his staff asked why he was going. He had a ringside view of the country’s rapid changes: as he says in the interview on page 10, “I went every six months or so, sometimes more often, and on each occasion I saw a different reality.”
Hardly any other person embodies China’s ascent better than Zhang Ruimin. The son of a blue-collar worker, he took over a run-down refrigerator factory in 1984, turning it into Haier, a global corporation with 80,000 employees. “Selling is not our overriding goal,” he says on page 4 of this issue of THINK ACT. “We want the most demanding customers abroad to accept our products.” He cannot understand why people are afraid of the country’s economic power: “The Chinese have never felt threatened by growth in other countries. So why should they be afraid of us? Globalization is bringing us all closer together.”
Roland Berger Strategy Consultants’ involvement in China is a success story that has been profitable for both sides. We will continue to use our experience and know-how to help the country successfully manage the next stages in its development.
Andreas Maennel,Jürgen Reers
Perspectives on the Chinese car sharing market
Car sharing is a global trend. This business model, developed in industrialized countries, is meeting with increasing interest and demand in emerging economies as well, especially in Asia. Nearly two million users worldwide have already signed up for some kind of car-sharing service, and the market is worth about one billion US dollars. And it continues to grow: Since 2006, the number of car-sharing vehicles has grown almost five-fold, and the number of members is expected to grow by almost 30% annually over the coming years. This development is being reinforced by other global trends, such as how vehicles are becoming increasingly connected with the infrastructure, other vehicles, etc. (referred to as car-to-X). Other examples include state and regional promotional programs and changes in individual mobility behavior. Many car-sharing providers and automotive manufacturers have recognized the opportunities here and are already internationally active, whether for private users or in fleet operations.
The car-sharing market in China is growing at an above-average rate: In their new study "Sharing the future – Perspectives on the Chinese car-sharing market", the experts at Roland Berger Strategy Consultants predict annual growth of about 80% for the next five years. Jürgen Reers, Partner in the Automotive Competence Center at Roland Berger Strategy Consultants, explains the reasoning behind this optimism: "Chinese consumers view this topic in a very positive light. The technological requirements such as mobile internet are widely available, and the government has already started supporting the first domestic providers of car-sharing services as they enter the market. We therefore see a broad range of opportunities for providers of car-sharing and fleet services."
Negative interest rates
2014 – POINT OF VIEW, Roland Berger Belgium
If we still needed just one final proof that the eurozone has gone into deflation, in other words into a situation of falling prices and more or less zero growth, we now have it.
On 5 June, the ECB has cut the interest rate on its deposits so much that they become negative. This rate, which rewards private banks’ deposits with the ECB, is currently 0%. A negative rate on deposits would mean making private banks pay to place their liquidity in the ECB.
The very idea suggests that the ECB has been providing so much protection to the banking system that the price of this guarantee should be higher than the return on money. Which implies that the ECB is indirectly encouraging the banks to lend their excess liquidity to States or private debtors. So a drop in the cost of money seems to be substituting for the weakness of money circulation in the economy.
Satoshi Nagashima,Martin Tonko
Automotive Japan – broader lineups call for new sales channel concepts
In order to continue to achieve or stay on track for growth, the Automotive industry is in the midst of unprecedented change manifest in two global macro trends: Firstly, the revolutionary move from a platform strategy to a more flexible modular architecture system of manufacture, resulting in a hitherto unseen abundance and frequency of model updates. Secondly, the revolution in drivetrain technology from gasoline and diesel powered internal combustion engines to a variety of electric, natural gas or hydrogen powered engines.
Both trends are extensively discussed. Notably, however, not in conjunction to one another and rather from a production than from a sales perspective. Yet it is the combination of both trends that will bring unprecedented choices to the automotive customer and challenge automotive wholesale as well as retail: progressively more car models need to be marketed, displayed, and repaired on given shop floor. Particularly for European premium car makers it is a pressing issue.
This is particularly true for saturated markets, where unit volume growth is limited and margins are tight. At wholesale level, more choice will result in lower sales per model, putting fixed cost for launch and sales & marketing on the spot. At retail level, more choice will demand the optimization or even expansion of limited retail floor space, display and demo car fleets, as the customer will continue to appreciate the driving experience and not just brand image to make a final buying decision. As simple capacity expansion will further erode margins, innovative concepts are needed to further optimize critical resource usage.
Metropolitan Japan may serve as a reference case. In the case of foreign automobile import, wholesale and retail levels are nowadays often not cooperating sufficiently along the retail sales value chain, limiting benefits from centralization. Also, since the cost of capacity expansion is very high, automotive retail is in particular need for innovative ways to optimize capacity in the coming years.
In fact, for dealers of leading foreign automobile importers in Japan alone, Roland Berger estimates an investment need of several hundred million Euros in the next five years, which has to be addressed in due course.
Not only the Japanese market calls for action. Some OEMs have started to proactively address this challenge also on a global level. Others which currently have other priorities may have to pay the price for it later on.
Digital transformation 2014
Corporate Learning goes digital – How companies can benefit from online education
The online education market is growing rapidly, because thanks to the technological developments of recent years, online training offers are becoming ever less expensive and more readily available. The global market volume for e-learning is already today around 91 billion dollars. In Europe alone there are 3,000 providers active in this field – and their number is on the rise. In fact, the e-learning market is predicted to grow by more than 20% per annum up until 2017.
And the demand from companies for online education products will also continue to increase: The corporate e-learning market will grow by about 13% per annum in the period up to 2017, because companies are seeking new ways to further their employees' know-how that are flexible and tailored to the individual person's needs. This study conducted by Roland Berger Strategy Consultants "Corporate Leaning goes digital – How companies can benefit from online education." analyzes the enormous potential of e-learning.
"Many companies have already recognized the benefits of online learning," explains Katrin Vernau, education expert and Partner at Roland Berger Strategy Consultants. "More and more of them are making use of e-learning offerings, because they cost less and are easier to integrate into a normal working day."
Marcus Berret,Thomas Schlick
Study on future automotive growth markets and implications for suppliers
The car industry must get ready for changing conditions in the BRIC countries: The Russian market is shrinking, growth in Brazil is slowing and India's development is uncertain. China is the only market that will grow substantially. This means car suppliers must take appropriate action and tap new growth markets.
The BRIC markets guarantee carmakers and suppliers long-term reliable sales markets and low-cost production sites. A current study by Roland Berger Strategy Consultants takes a close look at the prospects in Brazil, Russia, India and China up through 2019. The findings: The dynamic growth experienced in BRIC is over. Except for China, all other BRIC markets experienced losses in 2013 and will recover only over the medium term. Only China will continue to grow significantly – with almost double-digit growth rates. We point out the risks and opportunities in the four regions, present strategies so that car suppliers can adjust their local activities to the changing situations and show where new attractive growth markets are emerging.
Martin Bodewig,Stephan Keese
Brazilian automotive perspectives 2014
Roland Berger Strategy Consultants and media company Automotive Business jointly present "Automotive Perspectives 2014" – a survey of how automotive executives working in Brazil expect the business environment to develop this year.
The survey shows that automotive industry executives in Brazil are primarily concerned with profit margins (57%), idle capacity (31%) and supplier relationships (28%). Factors such as logistics (16%) and R&D (9%) are not considered the main challenges.
According to the executives, the main concerns at the top of the industry's strategic agenda are price wars among automakers (51%), new players entering the market (47%), portfolio renewal and productivity ramp-up (both 31%).
Of respondents working in the light vehicle segment, 56% believe that sales will stagnate in 2014, albeit with minor fluctuations from -2% to 2%, while 31% expect a slight increase of up to 5%. Despite the expected stagnation, executives believe that there will be a modest increase (5%) in production, driven by a slight recovery in exports. The main reasons given by industry executives for this scenario are tax policies, car prices, economic uncertainty in Brazil and access to credit. This contrasts with the actual development to date in the Brazilian market which shows a decline both in terms of sales and production.
More optimism is found in the commercial vehicles sector: 55% of the executives in this segment expect 2014 to be a year of moderate growth (of 5%), with prices remaining stable (fluctuating between -5% and 5%). This positive expectation was not met by the actual market development which shows a significant decline in the first months of 2014.
Among the executives interviewed, 46% expected the business relationship between OEMs and suppliers to remain the same, compared to 30% who expected some ups and downs in the relationship this year.
The increase in global platforms is still seen as neutral or negative by 44% of respondents, who believe that this trend increases the risk of losing ground to global suppliers.
Tijo J. G. Collot d'Escury,René Seyger
Samen beter (Better together)
Cooperation between hospitals comes with many benefits in terms of volumes, quality and efficiency. Still, such cooperation seems mainly driven by external pressures of regulation, market circumstances and cost control.
Roland Berger Strategy Consultants advocates cooperation driven by strengths, guided by fundamental medical decisions but which dares to think beyond the traditional structures and boundaries of a hospital. This offers opportunities for healthcare that is structurally better and more efficient.
(available in Dutch only)
Corporate and Investment Banking Outlook
Incessant new regulations, changing client demands and ever-fiercer competition have durably eroded profitability in the Corporate and Investment Banking industry. Against this backdrop, the winners will be those Corporate and Investment Bank s that have clearly defined their positioning and rethought their industrial model in a coherent manner, rooted in value creation.
To achieve those goals and shape the future, they will have observed the best practices from other industries, re-dynamized their talent pool, and built a smart "multi-boutique network" supported by strong, common, and synergetic foundations.
Alexander Brenner,Philipp Grosse Kleimann
Online automotive parts sales: The rise of a new channel
Online business in all areas is growing faster than expected: today, 16% of all purchases are already made online – and that number is on the rise. The same holds true for sales of spare automotive parts and vehicle services. In 2013, the German market for spare automotive parts was worth about EUR 15 billion. Of that, 11% – approx. EUR 1.6 billion – was generated via the internet. And in the next few years, the German online market for spare parts will expand rapidly, according to our study entitled: "Online automotive parts sales: The rise of a new channel". Philipp Grosse Kleimann, a Partner at Roland Berger, predicts that "by 2025, we expect online sales to account for 20% of the automotive spare parts market. That would correspond to a sales volume of EUR 3.6 billion."
For online dealers, this development opens up significant business potential. To tap into it, they need to develop a high degree of brand recognition and tailor their product and service offerings precisely to customer demands. At the moment, more than 60% of spare parts available online are sold to end customers and 30% to repair shops. Decisive purchase criteria are first and foremost price, followed by ease of installation and availability.
Not all spare parts are suitable for sale online to every customer group. As traditional business increasingly shifts toward online retailing, new business models will emerge, such as networks that offer products and services according to a modular principle. This means, for instance, when customers are shopping online, they can either choose to simply order a part from the dealer or also set up an appointment with a repair shop. Another example of this is that customers can also get additional insurance to protect themselves against possible damages. "Market players such as automotive manufacturers, service providers, wholesalers and repair shops have to respond to this new trend early on and find the right online strategy for themselves," advises Philipp Grosse Kleimann. "In doing so, it is especially important to ensure that customers, products and sales channels fit together."
Pioneering the Myanmar Market – Hiyaku No. 4
With its rapid move to democratization, Myanmar has made a dramatic transformation into the nation now enjoying the greatest interest and attention among any of the ASEAN states. Hand in hand with this robust growth potential, genuine global level struggles are already emerging in this market.
The world’s leading companies are arriving there in mass, with demands coming to focus on “top class” products and services on all fronts. At the same time, however, it can also not be denied that Myanmar is a tough market to conquer without a solid grasp of its structural issues as a nation.
In this report, an examination is made of possible strategies for advancing into Myanmar, using specific examples of the current conditions existing in that nation to shed greater light on the issues and challenges in moving down that road.
(available in Japanese only)
Oliver Knapp,Thomas Rinn
Leadership in family business / Familienunternehmen
Family businesses play a major role in the German economy, yet only a handful are still owned and run exclusively by one family. Many successful family companies have become too large and complex. The imperative to go international often exceeds the experience and equity of the founder(s). That's why it's not enough for the family to do it all themselves and pass the demands and requirements on to the next in the line of succession. Finding the right outside manager can help many companies in this regard.
In our new study, "Führung in Familienunternehmen – Erfolgsfaktoren im magischen Dreieck (Leadership in family business – The magic triangle of success factors)", we identified three critical points: management continuity, optimal involvement of the family and starting the succession process at the right time. The study, which interviewed owners and outside CEOs of various family businesses, found that the companies are viewed as a performance-driven organization, not as part of the family's inheritance. More and more businesses are recognizing that given the increasing complexity of the markets, it is often simpler to find competent outside managers than successors within the family.
(available in German only)
Financing population ageing in Belgium
2014 – POINT OF VIEW, Roland Berger Belgium
An important challenge for the Belgian government during the coming decades will be to cope with the effects of population ageing.
From a global perspective, the European population is ageing faster than the population on any other continent and within Europe, Belgium is one of the countries that will be affected the most.
Furthermore, the Belgian pension system is very vulnerable to this type of demographic changes and no substantial preparations have been made. This challenge and its massive implications are well known, but impactful policy decisions are currently missing. We contribute to the discussion by assessing the magnitude of the measures that need to be taken and by proposing a balanced solution.
Entering China's private hospital segment
Although China's private hospital sector only accounts for a small share of the healthcare services market, its growth momentum will continue to strengthen as the investment environment improves and investment patterns diversify. Growth in the sector is being driven by overall market demand, loosening regulations, as well as diversification and specialization. In the future, the sector will see new hospital chains, expansion of existing hospitals, improvement of services, and shifting specialization focus. Foreign participation in this market is nascent but growing.
Market entrants prefer specialty hospitals, especially in areas such as plastic surgery, OB/GYN , and orthopedics. For those looking to enter the market, we recommend a systematic three-step process that encompasses the development of a strategic basis, pre-investment due diligence, and a well-planned post-investment improvement process.
Capturing innovations that move with product cycle – Shiten No. 96
There is no doubt about the reality that innovation is constantly in motion. Against this dynamic backdrop, there is an ever-growing need to constantly stay abreast of the movements of all players active in the value chain, in probing means of incorporating those strengths as the value of one’s own company.
In the majority of industries today, strong moves are afoot by businesses through collaboration exceeding the realm of the value chain to secure innovation as their own in-house added value. For Japanese companies to survive and prosper on the marketplace, it is no longer sufficient to rely solely upon the conventional concept-driven product development approach to innovation.
To continue to succeed, it will be increasingly vital to advance a steady stream of diversified innovation embracing all aspects of the value chain. In this report, the focus is placed on how best to tap into and address the innovation unfolding in today’s world, with specific examples added to bring greater clarify to the discussion.
(available in Japanese only)
Strategic management to flourish in an uncertain future – Shiten No. 95
Enhanced product performance and added functions accompanying diversification in customer needs, the necessity to adapt to local conditions linked to expansion of sales territories to the emerging nations and other markets, divergence in variables surrounding products, growing uncertainty in the development sector.
As these and other demands come to be increasingly placed on corporate limited development resources, efforts to raise business certainty will see greater importance connected to the ability to maintain effective balances between the “foresight” to discern diversifying future needs, the “draw” required to usher market needs into in-house strategies and the ”readiness” to address such diversified wants in minimum periods of time.
Among companies active on the global stage, there are many that excel in the effective mobilization of such “foresight,” “draw” and “readiness” to forge independent positions for themselves on the marketplace. In this report, examples of businesses that fit the aforementioned description are used to punctuate discussions of the essentials for Japanese companies in effectively managing such uncertainty, striving to ultimately make the transition to the status of true global players.
(available in Japanese only)
The Appeal and Pitfalls of the Indonesian Healthcare Industry – Hiyaku vol.3
Attention in the Indonesian health care industry is growing in leaps and bounds, fueled by the nation’s launch of universal health insurance against the backdrop of solid economic growth. Then again, there are also cases of foreign companies, which after advancing to that market with aggressive and grow-based business plans have encountered struggles far beyond what they originally envisioned.
These and other stories suggest that Indonesia is no simple market to crack. In this report, the author draws from personal experience in first addressing the “three major pitfalls” that foreign companies are prone to fall into, then going on to discuss the key points in advancing business development on the Indonesian health care market.
(available in Japanese only)
Thomas Rinn,Michael Zollenkop
Escaping the commodity trap
Almost all industries today are struggling with the increasing commoditization of their products and services. This is putting considerable pressure on prices and margins and leads to fiercer competition. And not only the mass market is being affected: even more complex and innovative products are subject to increasingly technical and qualitative standardization. The upshot is that new market players are getting more and more competitive while established providers are successively becoming interchangeable. This study by Roland Berger Strategy Consultants and the International Controller Association (ICV), entitled "Escaping the commodity trap", shows that 63% of the companies surveyed are already facing the commoditization of their products and services.
"Companies that focus on price competition instead of investing in innovation, added value and adjusting their business models will inevitably face steadily falling prices for substitutable products or services," explains Roland Berger expert Michael Zollenkop. "This means profit margins will continuously shrink, the industry will consolidate and many companies will fold."
While the standardization of products and services has been evident in the low-end and mid-market segments for some time, the premium segment is now being increasingly confronted with this situation: 20% of the surveyed companies are feeling the effects of commoditization on their high-end products.
Travel retail in Asia
Chinese outbound tourism is still at an early stage of development, but with China's middle class doubling in size between 2010 and 2020, upward pressure on outbound travel and consumer spending will remain high for years to come. As Chinese tourism changes, so will brands begin to adjust to the new travel retail environment.
The end of 2013 and the beginning of 2014 saw a brief slowdown in Chinese outbound travel, primarily due to higher tour prices resulting from new cost-transparency laws for tour operators. The disappearance of Malaysian Airlines flight MH370 also caused consumer jitters. Sales growth in travel retail also took a hit.
In 2013, Chinese tourists spent USD 120 billion worldwide, reflecting rising per capita spending. By 2020, spending by Chinese tourists is expected to exceed USD 1,800 per trip (excluding transport), a 50% increase over 2013. In addition, despite the precipitous drop in domestic luxury sales growth in 2013, luxury purchases overseas by Chinese travelers rose 18% year-on-year, driven by lower prices in other Asian countries—by as much as 30%—and a rising international to domestic travel ratio.
These trends mean big changes for the travel retail environment. Consumer segmentation is becoming more complex, with sophisticated travelers from first-tier cities overlapping with a new generation of middle class spenders and travelers from second- and third-tier cities. Consumer tastes are also changing.
The Roland Berger report features an interview with Nicole Teng, Market Intelligence Manager with DFS Group, the world's largest luxury travel retailer. According to Ms. Teng, the shifting face of the Chinese travel consumer and increased competition mean that brands will have to refocus their strategies. Specifically, they will have to further emphasize brand heritage to differentiate themselves from others, build advanced CRM systems linked to airports' passenger information systems for "big data" that they can use to understand their consumers, and strike a balance between expanding the store network while maintaining exclusivity and quality.
Portfolio management in the chemical industry
There is clearly an ongoing portfolio management trend in the chemical industry. Recent actions or announcements include DuPont's and FMC's splits, or Chemtura, Dow, Rockwood and Ashland divesting significant parts of their portfolios. Furthermore, Ferro and a number of other chemical and materials companies are being pressured by both activist and traditionally passive investors to revisit their portfolios.
In our view, the time is right for companies to ask themselves: "Am I the highest-value owner of my portfolio businesses?" Indeed, over the last 12 months, the companies which have answered "no" to this question and taken action by shedding businesses have clearly been rewarded by the market.
We believe these portfolio actions reflect a compelling strategic rationale, especially when viewed through our "Winners' framework", which posits that:
- Investors value companies that demonstrate consistent profitable growth ("Winners")
- Winners share four characteristics: business leadership (Can your businesses set the agenda in their areas of market participation?), portfolio coherence (Are you the clear high-value owner of your portfolio businesses?), corporate scale (Are you relevant and efficient?) and the proven ability to execute (Can you deliver results?)
- Winners' portfolios tend to be valued greater than the sum of their parts – of the 12 chemical companies we identified as "Winners" between 1997 and 2013, and which have multiple businesses, 10 have market enterprise values whose sum exceeds the value of their individual businesses
Bruno Colmant,Grégoire Tondreau
Light Footprint Strategy
In order to survive the VUCA world, companies need to innovate by introducing and leveraging tools that are holistic, quick and global. A meta-winner is indeed technophile and leverages the technology to win a decisive advantage over its competitors.
Technology, when well understood and implemented, can bring flexibility, reduce the industrial relations as well as the logistics costs, free up employees for higher value uses and help the company prepare for what may be a totally different future to the one that had been envisaged. Additionally, the knowledge gained through the day-to-day use of the technology enables the meta-winners to foster innovation and create value for the clients.
Roland Berger Strategy Consultants pondered the characteristics of a meta-winner in the VUCA world. Based on the concrete examples of companies features, we derived several principles forming the Light Footprint approach.
How to adapt in China's evolving pharma landscape
The changing stakeholder landscape in China's pharmaceutical market behooves pharmaceutical companies to revisit their commercial strategies and go-to-market approaches. Along the value chain, the evolving needs of hospitals, physicians, private payors, retail chains, distributors, patients, and government entities present opportunities and challenges.
There are already emerging models of innovation all along the value chain, although it remains to be seen which players can mold these stand-alone innovation models into a winning formula for the long term. Companies must prioritize these different initiatives based on their own strategic vision, existing gaps, and core capabilities.
Max Blanchet,Thomas Rinn,Georges de Thieulloy
Digital transformation 2014
INDUSTRY 4.0 – The new industrial revolution
The next revolution with Industry 4.0 represents a huge opportunity for Europe – and it fits the European model.
Industry plays a central role in the European economy: It contributes 15% to overall value added and accounts for 80% of innovations and 75% of exports. When taking into account industry-related services as well, industry is the engine of Europe's social economy. But the manufacturing sector has been feeling more and more pressure lately. Due to its declining competitiveness in the face of new market players – particularly from Asia – jobs have been lost in established markets such as the UK ( 29%), France (-20%) and Germany (-8%) over the past 10 years.
What's more, countries in Europe are developing differently. While Germany and Eastern Europe continue to increase their share of the industrial market, other EU members are facing de-industrialization. "This development will weaken Europe overall, because more jobs and know-how will be lost in industry. After automation, electrification and digitalization of industry, the introduction of the Internet of Things in the factory marks the advent of a fourth industrial revolution," says Max Blanchet, Partner at Roland Berger Strategy Consultants. However, Europe is much better prepared for this new industrial revolution than many think. In our study entitled "Industry 4.0 – The new industrial revolution – How Europe will succeed," the Roland Berger experts explain what companies and politics should do to support the development of Industry 4.0 and leverage this opportunity for Europe.
Pensions – The real challenge for our country
2014 – POINT OF VIEW, Roland Berger Belgium
Apart from stabilising its public debt, the real challenge facing this country is the funding of pensions and healthcare. Long overlooked, this problem is obscured by the lack of proper accounting by the State. Unlike a private enterprise, the State records only the flows of income and expenditure, without trying to estimate the amount of debt accruing from past commitments.
A dwindling active population will not be able to afford the growing cost of those who are inactive. For instance, people of working age (25-65) will make up less than half of the Belgian population in 2050. And yet, it will not be feasible to finance the expected ageing of the population simply by increasing the active workers’ contributions, any more than we could pass on the whole cost of this ageing to the retirees themselves by slashing pensions.
Moreover, this is a question of intragenerational as well as intergenerational equity. To put it another way, equity must be ensured not only between different generations but also within them. What is also at stake here is the pauperisation of certain classes of older people, and revenue disparities between pensioners. Thus, educational levels, vocational adaptability, family circumstances, the number of children and life expectancy also give rise to inequalities.
How to integrate overseas acquisitions successfully
The latest Roland Berger Strategy Consultants THINK ACT content study identifies six key success factors Chinese companies need in order to manage the post-merger integration (PMI) process following an international M&A. These six factors are designed to help Chinese companies maximize the value of their overseas M&A, despite the hurdles of an unfamiliar business environment and lack of PMI experience and know-how.
Chinese companies are on the rise. In the past few years, they have become increasingly active in global M&A, and it appears that their appetite is not yet satisfied. As more and more Chinese companies globalize through M&A, the importance of professional PMI to fully leverage M&A benefits is becoming increasingly apparent. However, unfamiliar business environments and unfamiliar business techniques pose significant challenges to Chinese overseas PMI. To support Chinese companies in their PMI endeavors, Roland Berger reviewed more than 30 Chinese overseas acquisitions and post-merger integrations in various manufacturing sectors that took place between 2008 and 2013.
"Our review found that Chinese companies are inexperienced and lack the guidance of professional, systematic PMI," said Yi Ping, Roland Berger Partner and co-author of the study. "They therefore often fail to capture the full value of their overseas acquisitions." Of the 21 manufacturers that made overseas acquisitions worth more than USD 100 million between 2008 and 2013, 33% had no previous M&A experience at all, and 80% had no overseas M&A track record.
Roland Berger's analysis of China's overseas acquisitions revealed two main challenges facing Chinese companies: unfamiliar business environments and unfamiliar business techniques. "Chinese companies only have a short history of going global. Their unfamiliarity with the business environments in the US and Europe, coupled with their lack of M&A and PMI experience, makes for a particularly challenging situation. Even when there's a strong willingness to invest, they may not necessarily know how to go about doing so," said Christian Neuner, Principal at Roland Berger and co-author of the study.
The study, which is based on interviews, press research and Roland Berger project experience, pinpoints six key factors for a successful and systematic PMI approach.
Bruno Colmant,Grégoire Tondreau
Separation of banking activities: which realities in Belgium?
Since the great depression of the 1930’s, the advantages and drawbacks of combining retail and investment activities in the same bank have been widely discussed. The financial crisis of 2008 brought once again the debate into the spotlight, creating a wave of political initiatives to further regulate the scope of banking activities.
The Belgian banking landscape has not escaped to this trend, and bankers will have to rebalance their focus towards better understanding and serving their clients, while keeping a healthy cost-base to maintain their profitability level in this challenging environment.
ENERGIEWENDE RELOADED! (German only)
The energy turnaround is one of Germany's top-priority economic projects in the years to come. Its success will determine whether Germany will continue to be a competitive location for industry.
Thus far, public discussion about the energy turnaround has centered mainly on reforms to the EEG (Renewable Energy Act). But there are many more factors that will determine the initiative's success. This is the result of our recent study "Energy turnaround reloaded! Rethinking the megaproject" (available only in German). "For a successful energy turnaround, numerous aspects have to be considered," says Torsten Henzelmann, Partner of Roland Berger Strategy Consultants: "All parties involved have to agree on the right course to take and on the actions that requires."
Xavier Aymonod,Didier Bréchemier,François Guénard
Circuler en ville pour une nouvelle mobilité
Paris est la 7e ville la plus embouteillée en Europe, avec un niveau de congestion d’environ 36% (il faut en moyenne 36% de temps supplémentaire pour effectuer un trajet vs. le même trajet sans encombrement). Pourtant les constats sur la problématique des transports urbains sont connus, et des solutions existent, aussi bien sur le plan technologique (services numériques) que sur celui de l'évolution des usages (location, covoiturage) ou de l'offre transport (transports à la demande).
Mais ces solutions restent partielles et ne dessinent pas l'horizon d'un changement des conditions de mobilité dans les grandes agglomérations.
Pendant les élections municipales françaises, le cabinet Roland Berger explore les raisons de ce "paradoxe de la mobilité" dans les grandes villes à travers l'étude "Circuler en ville : pour une nouvelle mobilité", et montre qu'une transformation réelle et durable des conditions de mobilité, requiert un nouveau pacte institutionnel, social et politique à l'échelle des agglomérations, et une refonte du modèle économique des transports urbains.
Ainsi, nos experts ont identifié 4 leviers d'amélioration:
- Augmenter l'offre de mobilité de manière disruptive : le Nouveau Grand Paris, qui se veut une réponse aux enjeux de mobilité franciliens et l'exploration de la verticalité
- Optimiser la gestion des flux dans la ville dans les infrastructures existantes : cela passe par le développement de solutions de bout en bout optimisées et "customer-oriented", adossées à des services numériques performants
- Réduire la demande de mobilité : via notamment le développement du télétravail (au nord de l'Europe, le télétravail concerne 25 % de la population active)
- Refonder le modèle économique des transports urbains : la dépense d’exploitation des transports urbains a augmenté d'en moyenne 10% en France par voyage depuis dix ans alors que la recette d’exploitation a baissé de 9%. Il n'y aura pas de mobilité innovante sans modèle économique robuste et équitable.
How brands can navigate the rise of e-commerce
Statistics show that in the last few years, e-commerce and online shopping have grown to occupy a substantial proportion of Chinese retail. In 2008, e-commerce comprised just 1% of the retail market. Just five years later, this figure had risen to 8%. Online shopping is expected to comprise 12% of retail by 2015. Since 2012, over 1 trillion B2C and C2C transactions have taken place online, generating CNY 1.3 trillion in revenue. Analysts believe that between now and 2015, China's e-commerce market will continue to maintain an average CAGR of 60%, with total transaction value reaching CNY 4 trillion.
The rapid rise of e-commerce has put considerable pressure on traditional brick-and-mortar brands, especially their supply chain efficiency, operations management, and business integration. For these brands, design, production, and inventory are all unavoidably affected by any inaccuracy, so making sales forecasts is risky. The real-time nature of e-commerce, combined with its customer information and preference feedback systems, makes its sales forecasts more accurate, allowing companies to get out in front of consumer demand and react more quickly to the market. Traditional companies stress supply chains while neglecting the end consumers, operating according to a line of thinking in which sales channels are king. E-commerce improves customer loyalty by improving platform operations and offering differentiated services, something with which traditional companies often struggle. Furthermore, traditional companies operate within a rigid system that makes it very difficult to accommodate ever-changing consumer demands. In e-commerce, collaborating with a variety of platforms gives brands access to a wider range of consumers.
According to the report, brands that make a wide variety of products that have a mature online market and high internal willingness to invest should use e-commerce as a new, innovative channel to help them achieve major product breakthroughs. These companies may even consider a fully online model. If product variety, online market, and willingness are moderate, brands should consider using e-commerce as a key channel to help achieve on- and offline synergies. For these companies, online retail serves as a driver for revenue growth and customer, product, and geographic expansion, but does not significantly change the company's business structure. For brands with a limited number of products, an undeveloped online market for their category, and low willingness to invest, e-commerce can serve as a supplementary channel to traditional brick-and-mortar retail. E-commerce in these cases replicates existing structures and does not fill a primary role in sales. For each of these three options, the report details the appropriate support system needed to ensure the successful implementation of an e-commerce strategy.
Fleet business in BRIC and emerging markets
Western OEMS are facing ever more saturated domestic markets, including the fleet segment. Particularly in Europe, OEMs are having trouble growing their market shares in this area. For example, OEM fleet business accounts for 62% of sales in Germany, 54% in the UK and 48% in Spain. These are the findings of the new Roland Berger study entitled "Fleet business in BRIC and emerging markets".
The picture is different in the BRICs and other emerging markets with fleet business less well established than in Europe. For example, fleet volume in China makes up just 9% of the national car market; in India and Russia, the figure is 13%. "This shows that the BRICs in particular still offer great growth opportunities for western OEMs," explains Marcus Hoffmann, Partner at Roland Berger Strategy Consultants. "But they need the right market strategies tailored to each country. European business models cannot be transferred directly to these markets."
Christophe Angoulvant,Charles-Edouard Bouée
Looking ahead to the next decade, which companies strike you as being ready for the changes that are approaching? More importantly, how did they achieve it? Preparing for the coming years is particularly complex for firms, as they need to make strategic decisions regarding unprecedented challenges. In particular, these are the trend toward digitization, growing uncertainty regarding regulation, the navigation of emerging markets, rethinking the value chain and the need for more organizational agility.
Briefly put, the most prepared companies succeed in developing a vision both of their business sector and of their firm's place within it. In this publication, we take a look at companies that are better prepared than others for the 2020s. And we also explain what you should know about how they do it: firms need to accelerate evolution and inject revolution. Meta-winners manage to do both at once, heading for the next S-curve of profitable growth while looking for a paradigm shift to change the name of the game.
Where is the semiconductor industry heading?
The semiconductor industry has been plagued with declining growth rates for some time now. Over the past five years, the global market for microchips (sales volume of USD 300 billion) grew on average by just 2.7% a year. From 2000 to 2007, growth was an annual 3.3%. The slowdown is due to overcapacity and strong cyclical fluctuations. And things won't be getting better anytime soon: New Asian companies are taking over the global mass market for computer chips – to the detriment of established European and Japanese semiconductor manufacturers.
"For years, established providers have been confronted with an increasingly difficult international market environment," says Martin Eisenhut, Partner at Roland Berger Strategy Consultants. "Our current analysis outlines four possible scenarios for the future. Clearly, only manufacturers that can sustainably offer high value-added products on the global market will be able to beat the lower-priced competitors from Asia."
The new Roland Berger study, "Opportunities and challenges beyond Moore's Law", reveals that companies do not necessarily have to follow the well-known principle in order to succeed on the semiconductor market. Moore's Law states that the industry will double the number of transistors on a computer chip every one-and-a-half to two years – at the same unit cost. However, this requires high investment, often supported by government aid. For this reason, the center of gravity of this business model has been shifting more and more to Asia.
As our experts see it, the alternative for Europe and Japan's highly developed semiconductor industry lies in new generations of computer chips that offer a broader range of applications. They call this the "More than Moore" approach. This area, which already accounts for about 40% of the semiconductor market, is growing twice as fast as the traditional mass market.
Economic Scenario for Germany
In our Economic Scenario, we are forecasting that the German economy will see a trend reversal and growth of at least 2% in 2014. This would mean that Germany's GDP is increasing twice as fast as the eurozone's. It would also mean that its growth is once again living up to its potential, which the authors had estimated at 2% in their previous economic analysis.
The authors of the Economic Scenario base their optimism on four arguments: One, the German economy has considerable momentum from last year. After a disappointing start to 2013, exports and consumer spending rose considerably and the trend for incoming orders, industrial production and income continued upward. Two, in response to the continued weak growth in Europe, Germany was able to dramatically increase its exports to non-European countries in the years following 2008. "If the growth rates in these countries rise again, the firm foothold that German companies have gained there will pay off," states the Economic Scenario.
The third reason for Germany's strength, as articulated by author and Berger CEO Prof. Burkhard Schwenker, is the German economy's distinctive business model: "We have a unique mix of large corporations and competitive small and midsized companies. They are globally positioned and offer an optimal combination of industry and high-quality services." Fourth, this strong export focus is increasingly supplemented by domestic impulses, which also reinforce the internal strengths of the German economy.
(Available in German only)
Recent negative reports from the financial industry make it clear that banks and financial institutions urgently need strategy-oriented risk management. In a volatile environment, risk management is not merely a regulatory and compliance element, but it also becomes a decisive active design element in ensuring profitability and sustainable growth. According to the new analysis "Navigating risk" by Roland Berger Strategy Consultants, banks that implement an improved risk management strategy see their market value go up by as much as 24%. "At many banks, there is a direct relationship between the quality – i.e. the effectiveness – of risk management, and the sustainability of profit development," says Dr. Marc D. Grüter, Partner in Roland Berger's global Financial Services Competence Center and Head of the Global Finance and Risk Practice.
Successfully navigating risk requires integrating risk management into the overall strategy. A crucial aspect here is concentrating on high-risk areas, which calls for an understanding of complexity drivers and key interdependencies. "The latter is particularly difficult, since the banking environment is becoming noticeably more turbulent and challenging in a VUCA world (volatile, uncertain, complex, ambiguous)," explains Dr. Grüter.
Grégoire Tondreau,Michel Vlasselaer
Scenario-based strategic planning
2014 – POINT OF VIEW, Roland Berger Belgium
The scenario-based strategic planning approach helps companies to account for complexity. It does by developing multiple scenarios and strategic options to counteract volatility. It stimulates companies to take a step back from the trusted environment and the more traditional thinking in order to reflect creatively with a fresh look about the future. This approach enables companies to reconceptualize the vision of the future in order to identify new opportunities and stimulate the intuition to be more receptive for upcoming changes.
The Roland Berger scenario-based planning methodology builds further upon traditional planning methods. In traditional strategic planning, a deductive and rational approach is applied where strategies are defined based on quantitative analysis and benchmarking. In contrast to traditional planning, our approach follows an inductive thinking logic. The planning process starts from more qualitative elements such as the definition of a company’s DNA and the identification and analysis of industry trends. This provides input to formulate scenarios in the mid to long term that are willingly disruptive and serve to structure a reflection on the strategic implications for the present. A company can make itself future proof by building a strong strategy for the preferred scenario and by being agile in adapting the strategy in case an alternative scenario comes true. The last phase is the onboarding of the company to prepare for the transformation where the focus lies on communication and alignment within the organization.
Charles-Edouard Bouée,Alexis Gardy,Yannig Gourmelon
Chinese tourism in Europe
Chinese tourism in Europe looms as the great opportunity of the years to come. It is time for stakeholders of the tourism industry to face the challenges, not only to continue to attract Chinese tourists, but also to better serve their specific needs.
Though less appealing to Chinese than the USA, Europe remains the most common destination for Chinese outbound tourists. With 4.6m Chinese tourists expected to visit Europe in 2012, Chinese tourism is seen as the next growth driver for the European tourism industry.
The standard travel package to Europe is becoming more individual and is evolving towards mono-destination travel with an average length trip of 6 days. France is the preferred destination for Chinese tourists. Still, challenges have to be addressed if it wants to stay ahead in the competition – the unwelcoming attitude, less-than-ideal accommodation and security concerns are the main reasons for the deterioration in the perception of France after the trip.
Re:think automotive retail networks
Automotive dealers in the US made a historic comeback in profits in an industry that was plagued by bankruptcies just four years earlier. The post-crisis recovery of automotive dealerships has certainly made this industry look attractive again. But is this revival based on solid foundations? Are the current dealer profits truly sustainable over the coming years and decades?
"We believe – contrary to popular opinion – that things are not as positive as they seem," says Thomas F. Wendt, Partner in the North American Automotive Practice at Roland Berger Strategy Consultants. "In our view, the massive consolidation of the recent past was not the end, but the beginning of the change needed for dealers to maintain healthy profit levels and for OEMs to transform their distribution networks."
Philipp Angehrn,Oliver Herweg,Ralph Lässig,Sven Siepen
Evolution of service
It's no secret that services represent a large chunk of profits for the engineered products industry. As markets become increasingly saturated, services offer new revenues and a chance to leverage the installed base. Not only that, the service business can help smooth out the ups and downs of economic cycles, at the same time as binding customers into a close relationship with the supplier. But spare parts – which along with maintenance traditionally form the main pillars of the service business – are declining in both revenue and profit terms. This places companies in a dilemma: How can they compensate for their shrinking business? What should they be doing to exploit the upside potential that still exists? How can they develop more sophisticated offers, including services such as consulting and performance increase, say? And in terms of organization, should they structure their service business as a separate business unit or integrate it into the new machine business?
To find answers to these pressing questions, Roland Berger carried out an extensive study of services in the machinery and production systems industry in German-speaking countries. We spoke to senior executives at 30 companies, both big and small, to find out what they were doing and where they felt services were heading. On the basis of our discussions, we identified four types of companies, each employing a distinct business model in the area of services. For each type of company we developed key strategies – strategies that can help them prepare for the challenges of the future.
Eric Confais,Klaus Peter Müller
Home automation – The next big move in the utilities and telecom industries
Home automation solutions are becoming mature, with convincing products already being marketed. The smart home market is seen as a required strategic move for all players. Utilities and telcos will setup balanced partnerships to smoothly mix their skills and assets.
The home automation market ranks extremely high on the strategic agenda of several players – Utilities, telcos, manufacturers of white and brown goods, insurance companies, health specialists, service providers, real estate specialists, etc. Some contemplate both the upsides it may offer (new business segment, expansion of offering, recurring revenues, differentiation from competition) as well as the risks of not positioning themselves (obsolescence of offering, threat from intermediaries, business model upheaval).
Most initiatives are stand-alone efforts: one company tries to develop a proprietary solution on its own and then proposes that others act as contractors or suppliers. Yet, truly innovative and convincing initiatives are already available on the market (SmartAC air conditioner remote operation, Nest smart thermostat, etc.), and are enjoying significant sales figures and substantial margins. But the 'killer app' combined with a robust business model is not yet available: no current solution offers a reasonably wide range of features, with good value for the money, leveraging a reasonably open protocol to guarantee interoperability and sustainability.
We believe that utilities and telcos will be key in the forthcoming game. They hold highly distinctive and valuable assets: large customer base, strong brands with customer confidence, innovation capacity and (sometimes) investment power.
CSO Survey 2013
"CSOs need to formulate a strategy that strengthens business agility without taking unnecessary or incalculable risks," says Dr. Tim Zimmermann, Partner at Roland Berger Strategy Consultants. "The challenge is to find the right balance."
This is one key finding of the Chief Strategy Officer Survey 2013, conducted by Roland Berger and the University of St. Gallen. With more than 150 participants from 14 different European countries, the CSO Survey is the world's leading study of corporate strategy departments and those who head them.
The North American oil and gas sector
Roland Berger has done extensive work in the North American oil & gas value chain, supporting chemicals and materials suppliers, equipment manufacturers, service companies, and oil & gas operators in their quest to participate in the shale-driven energy industry revival in the region. After 5 years of unbridled growth between 2006 and 2011, industry expansion has slowed down, with falling gas prices, oil prices stuck in a narrow band, and logistical constraints in the Bakken driving low tight oil pricing at the wellhead. In parallel industry participants have increased their understanding of where value is created and captured along the chain, and, in this lower growth environment, are adapting their participation models and behaviors accordingly. Roland Berger believes that this value chain reconfiguration is creating significant opportunities and threats for incumbent players as well as new entrants from North America or other countries seeking to capture a slice of the shale boom pie.
Industry 4.0 2013
Manufacturing metal three-dimensional objects using 3D printers (additive manufacturing) could soon be ready for use in series production. As early as the 1980s, companies recognized the time, cost and design benefits of this technology for making prototypes and small series. In 2012, the global market for additive manufacturing was worth EUR 1.7 billion. The manufacture of metal structures accounts for around 10% of this figure.
The experts at Roland Berger even expect sales of this technology to more than quadruple in the next 10 years as the associated costs fall sharply. Additive manufacturing will thus be much more appealing for many applications. These are the main findings of our study "Additive Manufacturing – A Game Changer for the Manufacturing Industry?".
"Using 3D printers to make metal products already offers major potential for special components such as injection nozzles, prostheses and tool inserts. Developers and manufacturers that enter this market early on and offer suitable solutions can benefit greatly from the growing demand over the next few years," predicts Martin Eisenhut, Partner at Roland Berger Strategy Consultants.
Post-trade services are at a crossroads
Europe's financial markets have been inundated by a veritable flood of regulations. Their focus is on safeguarding financial stability in the euro area – for example through the Central Securities Depository Regulation (CSDR), which is still being finalized, or the European Market Infrastructure Regulation (EMIR), which largely prohibits over-the-counter trading of standardized derivatives. The harmonized Target 2 Securities (T2S) settlement platform pushed by the European Central Bank should vastly reduce transactions costs, thereby helping to guarantee a smooth flow of global capital through Europe's stock exchanges. This will lead to realignment of the post-trade services market and shrink settlement margins by up to 80%. The result is that providers are now facing major challenges.
The abolition of national monopolies expected over the next three to five years will initially lead to further fragmentation of the post-trade services market. This is because the 24 national central securities depositories (CSD) – who have signed up for T2S – will try to expand into neighboring markets, either alone or with partners, to achieve a pan-European position," explains Dr. Peppi Schnieper, Principal at Roland Berger in Zurich. In the medium term, however, this line of business too must brace itself for consolidation, as there can be no justification for today's multiplicity of providers in a harmonized European market. For CSDs, the major challenge is thus to position themselves now for the wave of consolidation that will probably reach its peak in begin four to five years from today," says Schnieper.
Nigeria's power sector open for business
A newly liberalized market welcomes new players. But fundamental challenges persist and must be addressed to deliver the power required to secure the nation's future
There is a high degree of optimism surrounding the industry's prospects. The government is often hailed in the press for crafting and implementing a prudent and transparent privatization process that is moving forward with great momentum. Key parties at the helm of privatization are credited with opening up opportunities for a host of enterprises, from private investors to equipment suppliers and technical service companies. Agency spokespersons release public statements from time to time, promising drastic increases in electricity generation and supply within a relatively short timeframe.
This exuberance must be tempered with the reality that key issues impacting the long-term success of privatization are yet to be resolved. As demand continues on its upward trajectory, stiff bureaucracy, conflicting policies, infrastructure inadequacy and law and order problems remain the status quo. Without sweeping and effective changes in government policy and the creation of a business climate that attracts significant private sector investment the sector will not deliver the power required to secure the nation's future.
Digital: The new frontier of Marketing
With the on-going digital revolution, companies need to anticipate and adapt to consumers’ new behaviors. A whole set of challenges remains open: How to provide consumers with new, relevant and truly personal content? How to create a deep relationship with every one of them? How to efficiently capture consumers attention whilst they are browsing online? How to anticipate impactful technology changes?
Part of the answer might be found in the four current trends that are shaping the modern way of doing marketing.
Christophe Angoulvant,Charles-Edouard Bouée
How to survive in the VUCA world
Do challenges and opportunities that used to take months to mature now suddenly strike you without warning? If so, you're not alone. What you are experiencing is the VUCA world: Volatile, Uncertain, Complex and Ambiguous.
In a recent study at Roland Berger, we looked at how fifty firms from a range of industries and with different maturity levels are adapting to the new VUCA world. Some stood out as clear "meta-winners" – firms so singular that they are game-changers in their industry and in some cases have even created a whole new industry segment. Many of these meta-winners were born into a world where VUCA was already the norm. A few of them are known around the world, including Google, Amazon, Facebook and Apple. Others are primarily known in their home markets, such as the French telecom company Free and the US provider of on-demand Internet streaming content Netflix, or their home continent, such as the Spanish fashion retailer Zara, part of the Inditex Group. Asia also has its meta-winners, such as the Chinese Alibaba Group and South Korea's Samsung.
Our investigation revealed seven key principles used by meta-winners to survive the VUCA world. Together, these principles form what we call the "Light Footprint" approach, in reference to a striking example of adaptation to the VUCA world: the strategy implemented by the United States military during the Obama administration in reaction to the transformation of warfare.
The role of banks in the internationalization of European SMEs
Roland Berger Strategy Consultants has analyzed the role of banks in the internationalization of European small and medium enterprises in the study: "What role can banks play in the internationalization process of European SMEs?". According to the results of the study, it is essential for the economies in European countries today, that banks strengthen their system of support for SMEs internationally. That is, because internationalized SMEs create more jobs than those only focused on domestic markets. Roland Berger estimates that up to 600.000 jobs could be created in Europe in the next 5 years as the result of a full financial support to European SMEs' internationalization.
Internationalization of small and medium businesses can take different forms: importing raw materials or intermediate products, exporting finished products, foreign direct investment, subcontracting, etc. Beyond their role as engines of innovation, internationalized SMEs create a lot more jobs than purely local SMEs: there is 7% annual growth in the number of jobs at internationalized SMEs, versus 1% for others. "So internationalization is a key lever for reversing the unemployment trend," says Cécile André, Partner at Roland Berger Strategy Consultants. French SMEs for example lag behind in this area; just 31% have any international activities, compared to 44% on average in the European Union.
The Promises of Aging
In the year 2050, the average Western European will be 47 years old, the average Japanese 54. And with an average age of 46, even China's population will belong to the top of the age pyramid. The United Nations refers to this phenomenon as the greatest social challenge of the 21st century. But hardly anyone talks about how the aging of the population can actually be good for companies, as it offers opportunities for more productivity and better competitiveness. But this success depends on having the right strategy. That's why in our publication, we explain how companies can turn these changes to their advantage.
Certain myths about older employees have become entrenched in the workplace to the point where they can impede changes in strategy. These myths include the belief that older workers are less innovative, become sick more often and can't work as hard. "Many companies fear hiring older people will result in high costs and lower productivity," says Maren Hauptmann, Partner at Roland Berger Strategy Consultants. "But older employees also offer distinct advantages."
"To make sure they don't lose the innovative and creative potential of older employees, companies have to undergo a thorough change in strategy," cautions Hauptmann.
Private Health Insurance in South East Asia
This think: act STUDY focuses on the rapidly growing demand for healthcare in Southeast Asia. Overall health expenditures increased two and a half times between 1998 and 2010, reaching nearly USD 68 billion. Private insurance accounts for only 4% of this total, so there seems to be a huge potential for growth.
Demand for healthcare is growing rapidly in Southeast Asia (SEA). Overall health expenditures increased two and a half times between 1998 and 2010, reaching nearly USD 68 billion. Private insurance accounts for 4% of this total. Three major factors are driving this development: steady population growth, steep increases in medical costs, and – most importantly – increases in per capita consumption of healthcare services.
The maturity of the healthcare market varies widely across Southeast Asia. Cambodia, Laos and Myanmar are still at an early stage of development, while Indonesia, Vietnam and the Philippines provide basic healthcare services to their populations. Malaysia and Thailand are at a more advanced stage of development and now focus on providing high-quality care. The most advanced market is Singapore, which promotes private contributions to the financing of healthcare.
The health insurance sector in Southeast Asia offers significant opportunities. But it is not immune to challenges, such as boosting customer acquisition, balancing product affordability and coverage, and coping with fast-rising medical costs. Ultimately, insurance companies must build customer trust in their brand and service offering by providing adequate coverage, guaranteed payouts and a smooth, hassle-free claims process. Players who rise to these challenges by implementing best practices on a local level will benefit richly from the growth in the market and, in turn, contribute to the growth and maturity of Southeast Asian healthcare.
The shale gas phenomenon
Roland Berger Strategy Consultants presents a new issue of the think: act CONTENT series, entitled Shale gas phenomenon, which contains insight and data that can bring clarity to US-based companies regarding the advantages of the abundant resource within the country. "There is an opportunity to bring back production to our region and generate jobs by doing this," said Jonathon Wright, Partner at Roland Berger Strategy Consultants.
According to the US Energy Information Administration (EIA), the United States has shale gas reserves of 862 trillion cubic feet (tcf) – plus the world's largest network of natural gas pipelines situated in US territory. This 300,000-mile network can be leveraged to benefit several industries, notably utility companies and manufacturers, which use 28% and 18% of current shale gas resources respectively. "This means that everyone developing shale gas – from small players like Hunt Oil Corporation to major producers such as Shell and Exxon – can get their gas to market. Among the countries that have significant shale reserves, only the US and Canada have 'open access' to pipelines," Wright explains.
Re-considering Corporate Headquarters
Headquarters need to demonstrate that they add value to the business in order to justify their existence. Around the world, companies are redefining the role of their headquarters, which includes turning corporate centers into key drivers of operations. Furthermore, they are increasingly assuming functions that go beyond representation, management and governance. "Corporate headquarters are growing in size and are managing increasingly complex systems within the group," says Tim Zimmermann, Partner at Roland Berger Strategy Consultants.
Besides traditional tasks such as finance, accounting and controlling, HQ must focus more heavily on 5 key capabilities: providing strategic direction, managing complexity, driving innovation, working in global networks and ensuring the execution of actions worldwide. If headquarters can successfully provide these services, they can avert conglomerate discount and contribute real value.
The co-author of this think: act CONTENT, Fabian Huhle, talked to management radio about corporate headquarters. Listen to the interview here.
Learn more about our expertise, experts, and publications on corporate headquarters.
Charles-Edouard Bouée,Wu Qi
Private equity in China
Private equity (PE) activities have increased substantially in the Chinese market over the past decade. PE funds invested in China rose to more than USD 15 billion in 2012, from below USD 1 billion in 2000. China now represents approximately 10% of global investment.
The reason for this rise is that the Chinese government sees private equity as a key tool for supporting SMEs which generate 60% of China's GDP, employ 80% of the Chinese workforce, and account for 70% of exports. Chinese authorities promote a triple role of PE funds to inject fresh capital into SMEs, support companies' internationalization and strengthen their business models. These are the findings of a study by Roland Berger Strategy Consultants, "What does the future hold for private equity in China?", published as part of the think: act CONTENT series.
However, the recent market and regulatory changes have increased uncertainty about the local PE environment (e.g. about the supervisory authority responsible and about national politics) and clouded prospects for investors in the Chinese market. Securing returns, especially through IPOs which were the most important selling option for private equity investors between 2000 and 2010, has become more challenging. Following the shutdown of IPOs since last autumn, some 900 companies are estimated to be waiting for permission to go public. PE funds are thus currently developing other exit channels such as trade sales.
These days, when you’re a manager, uncertainty is almost everywhere you look. Risks grow bigger, technology changes faster, global networks are more complex, and all of these factors have important implications for our view of planning and management. If trends can no longer be relied upon, numbers have limited value as a basis for forecasting and decision making.
How do you manage a company in an uncertain world? What tools, methods, and strategies still work? In our special feature on leadership, we talked to a series of leading personalities – with often surprising results. In an exclusive interview, Jack Welch, former CEO of General Electric aka Mr. Shareholder Value, says respect is the most important tool of management. Adidas’s CEO Herbert Hainer explains how to motivate young talents to join his company, and Hapag-Lloyd’s CEO Michael Behrendt talks about the need for managers to show humility.
All of these examples have one thing in common: they show that values and personalities lie at the heart of successful management. Most importantly, it takes courage, decisiveness, and analytical skills to identify and seize new opportunities.
This magazine is also available for iPad in the Roland Berger Kiosk app. Simply search for "Roland Berger" in the app store. To download the magazine on the Roland Berger Kiosk app, click the "Free" button. You may need to sign in with your iTunes account.
Light Footprint Management
What can managers in today’s uncertain, unimaginably complex world learn from President Obama’s military doctrine and the Chinese management style? In his new book (Bloomsbury, 2013), Charles-Edouard Bouée, member of the Global Executive Committee and President of Roland Berger Strategy Consultants, Asia proposes the adoption of “light footprint” management – comparable to President Barack Obama’s military doctrine and similar to the recent emergence of vision and tactics over strategy in Chinese management.
Bouée argues that this shift in approach blazes a trail that Western companies will be obliged to follow, and explains how conventional management methodologies, techniques and tools can be adapted to the conditions of an increasingly ambiguous and apparently unmanageable world. Light Footprint Management sets out a roadmap for the transformation of companies into adaptable, "post-strategic" business organizations.
Light Footprint Management at Saïd Business School
Charles-Edouard Bouée spoke about Light Footprint Management to a full house of business students, academics and consultants at Saïd Business School (SBS) at the University of Oxford on March 10, 2014. The event, entitled "In Conversation with Charles-Edouard Bouée", was an opportunity to elaborate on the Light Footprint Management idea.
Book launch at Harvard
Frédéric Sanchez, Chairman of the Executive Board at Fives Group, a large industrial engineering group, talks about the key points that he retained from reading the book on Light Footprint Management. Watch the video.
On September 18, 2013, Charles-Edouard Bouée presented his new book Light Footprint Management: Leadership in times of change at the Harvard Business School. In a forum entitled "How to lead in a VUCA world: Lessons from the US military and China", Bouée stressed that a light footprint strategy could be a means to address the challenges of uncertainty, by using what we know about recent changes in military doctrine and a novel management approach emerging in China. Bouée was joined in the forum by former US Ambassador to Germany Philip D. Murphy and Harvard Business Review editor-at-large Julia Kirby.
Watch this video of the plenary session "How Should Leaders Embrace Complexity?" at the Global Drucker Forum in Vienna, in which Bouée was a speaker.
Listen to Charles-Edouard Bouée explain the big idea behind his new book Light Footprint Management in the audiocast for think:act MAGAZINE #19.
Listen to his interview with China Radio International where he talks about strategic leadership in a VUCA (volatility, uncertainty, complexity and ambiguity) world.
Follow @Light_Footprint on Twitter for updates about the book and related events as well as insights on "post-strategic" management.
"Charles-Edouard Bouée's argument that lightness is a primary value in a more volatile and uncertain business world is pervasive and well made."
– John Quelch, Harvard Business School, USA
"The picture Charles-Edouard Bouée paints of tomorrow's business world, and of the kinds of organization most likely to thrive in it, is both original and plausible."
– Sir Tom Hunter, CEO, West Coast Capital, United Kingdom
“Management is the next big thing for Chinese companies and entrepreneurs. Charles-Edouard Bouée’s argument that the Chinese management style must find links to military strategy in the VUCA world and his conception of the “light footprint” are fascinating. Entrepreneurs, both those in China now and others who intend to dive into Chinese business, will find his ideas
– Gang He, Editor in Chief of Harvard Business Review China and Managing Editor of Caijing Magazine, China
“From Chinese history, cyberwarfare and the use of drones and special forces, all the way to the lessons of Apple’s resurgence, Bouée takes the reader on a fascinating whirlwind tour of turning points in business and geopolitics. From his extensive international experience and unique ability to draw parallels and establish connections, Bouée derives an innovative management philosophy adapted to a new world order of volatility and uncertainty.”
– Bernard Liautaud, Founder of Business Objects and Partner at Balderton Capital, United Kingdom
About the author
Charles-Edouard Bouée is the Chief Executive Officer of Roland Berger Strategy Consultants, a member of its Global Executive Committee and President of Roland Berger Strategy Consultants Asia. For over two decades, Bouée has been working on strategy, mergers and acquisitions and large scale performance improvement projects in over 20 countries.
He is the author of the book China's Management Revolution: Spirit, Land, Energy
Philippe Chassat,Damien Dujacquier
Mass affluent consumers in South East Asia
In this study, we reveal how examining consumers' values can help us identify different sub-segments of the "Mass Affluent" consumer segment in three important markets in Southeast Asia: Indonesia, Malaysia and Singapore. Using the RB Profiler, we explain which values drive the purchasing behavior of the different customer groups and provide insights into what sort of people they are made up of. Companies can use these insights to focus their strategies better on capturing parts of Southeast Asia's Mass Affluent market.
Our analysis of Indonesia, Malaysia and Singapore using the RB Profiler shows that, despite the diversity of languages, ethnic backgrounds, religions and cultures, there are four key segments of Mass Affluent consumers that cut right across the region. Four further segments are only found in one or two of the surveyed countries, including just two that occur in individual countries only.
What does this mean for companies? Domestic, regional and international firms working in Southeast Asia need to deploy a mix of standardized and tailored market approaches to address the values – some shared, some specific to certain countries – of the various consumer segments within the Mass Affluent group. In some cases, regardless of the industry, they can use cross-border market strategies to reach the segment with the most potential; in others, they require more tailored approaches to reach individual segments.
Using the results of our analysis, companies can thus adapt their market approach to appeal specifically to relevant segments of Mass Affluent consumers. By deploying more sophisticated strategies, companies can target Mass Affluents across Southeast Asia more effectively than in the past.
Charles-Edouard Bouée,Alain Le Couédic
Asia Asset Management: Consider Taiwan
Although Taiwan's population is only 2% of the size of mainland China's, and its economy is about 6% of mainland's GDP, a number of strategically-minded foreign asset managers have found remarkable success on the island, thanks to Taiwan's open regulatory environment, solid economic fundamentals, and growing wealth. Taiwan's retail market in particular has fostered considerable success for offshore funds, which represent 60% of total mutual funds assets.
"Taiwan is not typically seen as one of the 'giants' of Asia," says Alain Le Couédic, a Partner at Roland Berger Strategy Consultants in Asia and one of the authors of the study. "But its asset management market offers significant opportunities that others do not." The study credits Taiwan's attractiveness to a growing appetite for foreign assets, a large pool of relatively low-debt investors who hold most of their wealth in financial assets, and an asset management market that has grown 10% per annum for the past six years straight.
The study also finds that Taiwan's regulatory and competitive environment is more friendly than those of other regions or countries to foreign players that want to establish a footprint in Asia.
Wealth management for entrepreneurs
At a time when growth rates and returns are dwindling, the banks are rediscovering wealth management for private clients. And in so doing, they often overlook their corporate clients, despite the fact that these are frequently the perfect candidates for wealth management.
Even offering wealth management to the owners of small businesses can result in interesting income opportunities. In total, there is annual income potential of more than EUR 7bn in this area.
Banks can only make the most of this revenue opportunity if they modify their structures – in particular, they need to improve the cooperation between their internal divisions for conventional corporate client account management and wealth management.
Restoring profitability in life insurance
Profitability within the life insurance sector has been weakening for several years. A three-fold hit – first the financial crisis, then dropping interest rates and now sovereign debt unrest – has made it difficult for life insurance companies to turn a profit.
For now at least, as high-value old contracts lapse and low-value new contracts join the portfolio, insurers are pressed for profit. But there is no need to pronounce the life insur-ance market dead yet. The situation may be difficult, but it is by no means desperate. Profitability and value creation in the life insurance sector mainly come from the in-force, where old contracts generate most of the margins, not from new accounts where initial margins are low. With EUR 5000 bn in reserves in play, and in this difficult economic landscape, more value can be created by optimizing them than by acquiring new contracts.
This figure alone demonstrates why insurers should place more and more attention on the profitability of their Portfolio policies. Strategies should be consistent with the market context, which is currently seeing low margins in a low return environment. As such, insurers should focus less on shuffling investments and resources (HR, sales and finance) towards new product and client development and more on working on their in-force. Accelerating and refocusing their attention on the in-force will not only rejuvenate in-force margins, it will also improve them: a 10 bp increase means EUR 5 bn in additional margins.
Einweisermanagement in deutschen Kliniken (Referral management in German hospitals)
Competition on the inpatient healthcare market is getting fiercer. German hospitals are under immense pressure to maximize their bed capacity utilization. The legal framework (imposing, for instance, mandatory cost cuts) is also making things tougher for hospitals, causing costs to rise faster than revenue.
In such an environment, hospitals must critically review their marketing strategies to stand out from the competition and gain a firm foothold on the market. To do so, they must be responsive to market needs and systematically focus on key target groups. A key role here is played by physicians in private practice: in their function as "sales agents", they are some of a hospital's most important stakeholders and make a considerable contribution to its financial success.
Professional referrals management means that hospitals continuously and systematically maintain contact to private physicians, i.e. potential "referrers". In doing so, it is important for quality assurance and public relations staff to work closely with the doctors. The overall goal is to create a positive perception among the private practitioners and thereby sustainably increase the number of referred patients.
This think: act CONTENT on emerging markets highlights business model innovations from so-called developing countries that managers and decision-makers simply cannot ignore. Capitalizing on Roland Berger Strategy Consultants' vast global footprint, this issue is a product of the firm's continuing research on economic trends and opportunities in a rapidly changing world.
Emerging markets are the new laboratories of innovation, having given rise to low-cost engineering and infrastructure leapfrogging, among others. They are also home to a growing and powerful consumer force. Even the four billion people at the bottom of the economic pyramid collectively spend USD 5 trillion on goods and services. Managers are discovering that it is no longer sufficient to simply reengineer products, as with the popular practice of "glocalization"; business models themselves have to be rethought if companies want to succeed and stay competitive.
This think: act CONTENT puts forward business models that could revolutionize the industrialized world, from frugal engineering to government-led social programs. It also outlines the strategies companies should adopt to keep in step with change, echoing the words of World Bank president Jim Yong Kim: "We have to realize that it may be that it's the most financially constrained areas where the greatest social innovations come from."
Oliver Knapp,Michael Zollenkop
Product value management
Some companies have begun paying much more attention to what their customers want in their product development process. Roland Berger Strategy Consultants has drawn on its cross-sector experience in optimizing products, product costs (i.e. cost of goods sold, COGS) and value chains to develop a new concept called "Product Value Management" (PVM). This concept is also the subject of an academic study carried out at the Brandenburg University of Technology in Cottbus.
Perhaps most important of all, Product Value Management is not an optimization tool with a limited shelf life. It won't be replaced when the next new methodology comes along. Instead, it is a philosophy that needs to be rooted deep in the consciousness of the company. The core of the concept is the idea that every detail of the product can be improved – primary or secondary function, core or complementary product – by switching between a customer perspective and a cost-oriented company perspective. Applied consistently, PVM brings together two things that truly belong together: happy customers and profitable products. Improved sales and revenue are the next logical result.
Lean management in the financial sector
Lower costs and additional revenue prove that modern efficiency programs that have long been standard in other industries are now having an effect in the financial sector as well.
The lean management project taken on by the service subsidiaries in Deutsche Bank's retail banking business and Roland Berger Strategy Consultants demonstrated that it involves more than just cost efficiency. The time saved can be utilized to boost productivity for acquiring new business or improving quality of existing business. The financial expenses that efficiency programs involve is fairly limited, at least if the improvement of processes does not require the purchase of costly IT solutions.
In the present case, around two-thirds of the identified productivity potential was achievable without any IT expenses at all. A large part of the savings can be summarized as "the art of leaving things out." Around 10% of the efficiency gain was achieved simply by dispensing with activities that were not really needed. Avoiding duplication and sending work back and forth achieved a further 10% of savings. Simplifying processes resulted in 25% of the total time saved and 10% came from standardizing processes within or across teams, while identifying best practices and transferring them from one site to another.
The remainder was due to workplace adjustments or the net effect of transferring tasks. Even though no employees were laid off, over 80% of the time saved had a direct, positive effect on the budget.
What the customer really wants
Sooner or later, bricks and mortar will be replaced by online shopping. Online, price is the only thing that matters. Offline retail is degenerating into a showroom for online retailers. Young people have already been lost to brick-and-mortar retail. … Or so they say!
Roland Berger Strategy Consultants and ECE have surveyed approx. 42,000 consumers, and looked deep into 2,000 consumers' shopping bags for a month to establish a clear picture of the retail situation. Online shopping is becoming ever more important: In Germany, although only 7% of transactions are done online, Internet shopping accounts for 16% of sales revenues – and rising. But brick-and-mortar retailers should not despair in the face of online competition. Conventional shopping is still most Germans' favorite way of shopping – regardless of online price wars or the new generation of digital natives with their high affinity for the Internet.
In a comprehensive analysis, they determined seven buyer segments, each with distinctive shopping behaviors. To sum up: German brick-and-mortar retail can meet customers' needs in ways that online shopping cannot or will never be able to do. However, companies must better understand their customers' wishes and shopping needs, in order to tailor offers to them and let them discover the opportunities of the digital world. A targeted click-and-mortar multichannel strategy will create better offerings for consumers and open up new horizons for retailers. But only if they know how to give different customers what they want.
"The battle is still raging between online and offline retail," says Prof. Björn Bloching, Partner at Roland Berger Strategy Consultants. "If traditional retailers recognize their strengths and expand their range to include suitable online offerings, they will be able to keep consumers loyal in the long term."
The Chinese water market is growing at a rapid pace. Experts from Roland Berger predict that the market will grow by 30% by 2015, especially in the commercial segment. This segment offers very good prospects for international players as well. By contrast, the municipal water sector remains the preserve of established players. However, despite the good development prospects, the business environment will remain tough for water utilities in China. Water tariffs are currently too low to cover utilities' operating costs and fund crucial infrastructure improvements.
These are the key findings of "Pouring Profits", the latest study in the think:act series of publications.
The Chinese market offers both domestic and international players considerable potential. As the country urbanizes, urban residential water usage is expected to increase by 3% annually. Water tariffs are also on the rise, which mainly benefits private-sector players in the municipal market.
There is also a lot of potential in the industrial segment, with water treatment processes increasingly being outsourced. In addition, the Chinese government's 12th Five Year Plan stipulates investment of RMB 700 billion in sewage treatment between now and 2016.
Europe's Hidden Potential
In a period where the EU has been inundated with harsh criticism and negative sentiments, a new book strikes a rather different note by offering a bold and positive message: Europe has all the ingredients required to become a new beacon for a global economy. Entitled "Europe's hidden potential: How the 'old continent' could turn into a new superpower," the book outlines why Europe has all it needs to lead the way, both in terms of politics and management principles. The book is being released by Bloomsbury Publishing in partnership with the Roland Berger School of Strategy and Economics.
"During my career at Roland Berger Strategy Consulting, first as a consultant and Partner, later as CEO and today as Chairman, I have had the opportunity to experience how business and politics are done all over the world," says author Burkhard Schwenker. "While I recognize the value of many principles used in America or Asia, I have increasingly come to appreciate the massive potential Europe has – a potential that could fully blossom once the right course is taken." Co-author Thomas Clark, an Austrian who has lived and worked in Britain, Belgium, Switzerland, Germany and the US, adds: "Burkhard and I challenged our positive approach toward Europe's future in numerous discussions, as we wanted to make sure that our message is not just wishful thinking but has a strong footing in reality. We worked hard to substantiate our theses with practical examples and compelling statistics, and I hope we succeeded in conveying our message in a convincing way."
Carsten Rossbach,Marc Winterhoff
Connected Mobility 2025
Personal mobility is key to the success and prosperity of every country's economy. But the growing population in the world's largest conurbations and the increasing amount of traffic are leading to paralysis. In the world's 30 biggest megacities, paralyzed traffic flows generate annual costs of more than USD 266 billion. The answer to how to get a grip on the problem of increasing passenger transportation lies with networked mobility. By intelligently linking transportation data and modes of transportation, people can quickly and easily use different mobility models as needed to get where they're going. Integrated offers and a comprehensive management function ("mobility manager") will play a central role by bundling various options and offering services from one platform. These are the key findings of a recent think: act study entitled "Connected Mobility 2025" by Roland Berger Strategy Consultants. The consultancy's experts defined five critical factors that will put smart mobility on the road to success.
"Although we live in an increasingly networked world, individual mobility remains mostly fragmented: At the critical moment, we lack the information on how to best get from A to B," explains Carsten Rossbach, Partner at Roland Berger Strategy Consultants. "Integrated offers for the networked consumer will have a major effect on our mobility habits."
How to reach emerging market consumers with new strategies
By 2030, developing countries and emerging markets will be home to an estimated 80% of the world's middle class. And rising incomes, progressive urbanization and better availability of goods are fundamentally changing consumption habits.
Experts thus predict that consumer spending in these regions will rise to USD 22 trillion by 2020. However, to best leverage these new growth opportunities, companies should analyze trends and market changes to better understand consumer needs. This is the only way they can develop suitable products and marketing and sales strategies for each market.
Those are the key findings of the new publication "Consumers – How to reach emerging market consumers with new strategies", the latest study in the "8 Billion Business Opportunities" series.
Issue 18 - 2012
Our client magazine think: act #18 puts a spotlight on success stories of companies, entrepreneurs and countries that managed to return to the winners' podium after a failure.
"Comeback" takes a close look at real-life stories, analyzes strategies and gives advice on how to successfully achieve a turnaround. For example, Federico Ghizzoni, CEO of UniCredit, describes in an exclusive interview how he got one of Europe's most influential banks back on track, and what still lies ahead. Bestselling author Tim Harford explains why there is no success without failure and why and in what circumstances failure may actually be positive. Also, in an essay on the new method of restructuring, readers can find out how ABB managed to come back even stronger.
It's not just companies or entrepreneurs that manage to return to the winners' podium after a setback: History has shown that entire countries can have comeback potential. Stanford historian Ian Morris analyzes how empires rise and fall, from the Babylonian and Roman empires to today's potential shift of power from the West to the East.
The magazine is available for iPad in our Roland Berger Kiosk app. Search for "Roland Berger" in the App Store. To download the Roland Berger Kiosk app, click the "Free" button. You may have to sign in with your personal iTunes account.
From challenges to opportunities
In the course of our research for the GLOBAL TOPICS initiative we have encountered many extraordinary personalities. In this issue we talk to five of them about perspectives on what will come.
Katrin Jakobsdóttir, Iceland’s minister of education, science and culture, tells us how her country is overcoming Europe’s first serious political and economic crisis. Robert Collymore, CEO of Safaricom, explains how one company can accelerate the pace of change in an entire region of Africa. Ellana Lee, vice president and managing editor at CNN International Asia Pacific, lists the major issues that affected Asia in 2012, and describes how these are likely to develop in 2013. Kurt Bock, chairman of the board of executive directors at BASF SE, tells us how his company’s innovations are helping to provide a growing global population with food and energy. Bill Richardson is one of the few US politicians with Latin American roots. He, more than most, is aware that today’s minorities are tomorrow’s majorities. As a former governor of New Mexico, US ambassador to the United Nations, and energy secretary under Bill Clinton, he is widely tipped as a presidential candidate for the 2016 elections.
For the near future our interviews indicate: while there will be fewer elections in 2013, there will be just as much change. In the words of Barack Obama, the best is yet to come.
Multichannel management meets the needs of the new generation of wealth management clients
Personal, face-to-face advice is still the most important sales channel. Yet tomorrow's clients already take the mobile internet for granted today. Thus, banks must decide to what extent they want to meet the needs of digital natives in order to intensify their customer relationships.
The success of social networks such as Facebook and LinkedIn is rooted in the understanding that communication is the permanent exchange of explicit and implicit information. In the long term, the finance industry can literally capitalize on this finding, too. If wealth managers succeed in rerouting some of their client activities to new channels such as their website or smartphone apps, they will gain completely new insight into their clients' habits.
How long do clients spend looking up information on the website? On what topics? At what times of day do they prefer to use online offerings? This kind of information lays a firm foundation for effective client advisory sessions, because the advisor already knows what interests the client and can respond by presenting suitable products. Those banks that best understand the needs of their clients are, logically, the ones that can provide the best service.
Client centricity in retail banking
Client centricity and retail banking are not incompatible. Know what moves your clients and you will win new ones. You will also make existing clients more profitable.
No two clients are alike. And, from the cradle to the grave, no two clients place the same demands on their bank. The more precisely banks understand who they are dealing with, the more accurately they can tailor solutions to each and every client. That is why, when you are talking about high-margin private banking business with high-net-worth individuals, it is certainly worth undertaking huge efforts to segment the relevant client groups.
But in the retail business? Current accounts, overnight money and fund-based savings plans do not bring in sufficient returns to warrant spending heavily to gain a detailed knowledge of each client. On the other hand, knowing clients better is useful to help banks succeed even in this mature market segment.
Klaus Juchem,Dominik Löber
German regional development banks are facing major changes: Key areas of business such as the construction of public housing are becoming less important, while at the same time federal and regional funds for such projects are shrinking. Other traditional sources of revenue are also coming under more and more pressure.
Development banks urgently need to rethink their business models and adapt to the new reality. Interesting investment opportunities are emerging in areas such as modernizing buildings to reduce energy consumption and funding startups, for example. Germany's decision to phase out nuclear power will also generate an investment need of approximately EUR 200 billion over the next eight years.
Development banks should work in partnership with commercial banks. This requires a more professional approach on the part of development banks. Specifically, development banks need to review their internal structures and processes with an eye to efficiency.
These are the findings of a new study in the think:act Content series entitled "Development banks must reinvent themselves".
In the course of carve-outs, an array of organizational, contractual and company law issues must be dealt with to prepare the carved-out unit for independence. Only when these issues have been completely disentangled the newly crafted unit can be removed from the parent as a separate entity. The next step is to determine the way the carved- out unit is transferred: Is the entity to be floated on the stock exchange or a spin-off? Is it to be sold to a financial investor or a strategic buyer?
All carve-out programs – without exception – lead to both one-time and recurring transaction costs. They also keep the wider organization well occupied with the process of separation for a period of time. Such "distractions" can keep many employees from doing what they are supposed to be doing, such as focusing on product or market developments.Carve-outs are by no means rare in practice, and there are plenty of examples in which management has successfully accomplished this gargantuan task. On the other hand, the parties to such transactions often make the same avoidable seven mistakes again and again.
Traditionally many banks have taken care of their core applications in-house. For a long time, standard software was unable to map out the complex requirements. As a result, often obsolete systems had to be increasingly adjusted to comply with new legal stipulations.
This became more and more complex and expensive over time. In addition, many banks are tied to their IT employees' know-how – which is hardly a future-proof model, not to mention a risky strategy in light of aging developers. To compound matters, the remaining specialists, in additional to their normal daily business, are generally not in a position to implement regulatory requirements in good time.
Providers of standard software are currently trying to exploit this situation to acquire banks as new customers. However, it's not possible to apply amended laws or processes at the push of a button, even using standard applications – they must meet the requirements of various organizations and are accordingly comprehensive. Simply introducing standard software is not enough for banks to meet regulatory requirements in full. With projects of this scale, they must analyze and optimize their entire IT architecture and the interplay with the different departments in the organization at the same time.
Benno van Dongen
Public-Private Partnerships for Innovation
Public-private partnership is not a new concept, nor idea: it has been widely used for many years in different sectors, in different forms and for different purposes. But its widespread use for innovation, the scope of this publication, is a relatively new phenomenon.
In tomorrow’s world, the distinction between the public and private domains becomes almost meaningless. Government may provide, but increasingly needs private enterprise to deliver. And private companies can only capture economic value by creating social value first. The reason is simple: a product, service or process must actually be used to relieve or resolve a social challenge to have a value that can be appropriated by companies that (help) develop and deliver it. This typically involves approval and regulation by public authorities, delivery over public infrastructure, and payment at least in part from the public coffers.
There is another reason why public and private parties need each other: the world’s problems can only be solved through innovation. We cannot meet tomorrow's food demand, which is double what it is today, with today’s agricultural practices. We will have to think of new ways to grow tougher crops with higher yields in arid conditions. Similarly, we cannot hope to meet steadily growing energy demand, curb carbon emissions or preserve the quality of air, soil and water without breakthrough new technologies. Not only that, we will also need new business models to pay for their use – through public and private contributions. Such innovation is beyond the skill, scope, scale and resources of a single company, NGO, university or government. It is the stuff of public-private partnership.
The market for green banking has strong growth potential, especially in Germany. At present, three million bank customers are taking advantage of green or social banking products.
This number could increase to six million by 2015, as a growing number of bank customers want to know more about how their money is invested. With average annual growth of about 5%, the investment volume for sustainable financial products is expected to reach EUR 100 billion by 2015. Low-risk savings products could be the main drivers of this growth.
However, traditional banks have quite some catching up to do when it comes to such products. Above all, banks must gain the trust of their customers by ensuring that funds are invested in a transparent manner. Small specialist banks and the food sector have been pioneers in the area of sustainability, as shown in this study. Entitled "Green banking: Significant growth potential for banks", the study is part of the think: act CONTENT series.
IT outsourcing involves more than IT. It takes management skills, strategic foresight and a capable organization both at the provider and at the client
IT outsourcing often feels like lottery where you are always drawing the wrong number. While it should be a guaranteed win, more often than not you turn out to be the loser. That is why many managers who outsource IT operations feel deceived. Often they are right. Worse still, to a large extent they only have themselves to blame.
Can it be true that a fourth of all such deals fall apart? It is hard to estimate the exact number of IT outsourcing deals that fail. Even so, we know from experience that only around half of all outsourcing contracts ultimately meet expectations. Often savings are never as high as anticipated, innovation is limited and efficiency tails off. Many firms, frustrated with results, wait out the end of their contracts, giving up hope that outsourcing non-strategic IT functions will benefit their organization.
But there is a better way to make sure that firms can get what they want.
Charles-Edouard Bouée,George Ren
Chinese Consumer Report 2012
Since 2009 Roland Berger has closely observed the buying habits and trends of Chinese consumers and has published a comprehensive and systematic study annually since then. The survey this year covers 20 Chinese cities, ranging from first-tier through to fourth-tier cities. Some 10,000 consumers with different spending levels were surveyed to monitor their consumer habits in clothing, skin care products, mobile phones, automobiles and luxury goods.
As such, the survey provides an up-to-date synopsis for companies that focus on meeting the specific needs of Chinese consumers.
We observed four significant trends relevant to the Chinese consumer market this year. These trends provide both tantalizing opportunities and challenges for consumer goods companies.
Charles-Edouard Bouée,George Ren
Chinese Consumer Report - Luxury
China is close to becoming the second largest luxury market in the world and it is increasingly attracting the attention of major luxury brand producers worldwide. In view of this, Roland Berger conducted a study on the behavior of Chinese consumers when buying luxury goods and their choice of brands. The aim of the study was to offer those companies that wish to engage in this prestigious and lucrative market with valuable insights about their target consumers.
To achieve this goal the study looks at the key factors influencing and determining the purchasing behavior of Chinese consumers: broadly their social characteristics as well as psychological and behavioral traits.
Our experts further segmented the entire consumer population into six archetypes, which we call Era Leaders, Wealthy Second Generation, Ambitious Elites, Savvy Investors, Stylish White Collars and Gift Buyers.
Makers of luxury goods need to have a well-defined and focused strategy, particularly when investing resources.
Wilfried Aulbur,Benno van Dongen,Per Ingemar Nilsson,Michael Zollenkop
Innovation in emerging markets
Competition in emerging markets is growing ever fiercer. Local companies are increasingly investing in R&D and launching competitive products. China and India are the biggest engines driving innovation, together responsible for 20% of global investment in R&D. Simple, cost-effective items – "frugal products" – are particularly successful in the lower and middle market segments. Often these products can later be exported to Western markets, a process known as "reverse innovation".
Western companies looking to exploit the great innovation potential in emerging markets should carry out key value-creation activities locally, from development and production to sales. They must focus more on modular products based on standard components.
These are the key findings of the study "Emerging markets are changing the global innovation agenda" in the series "8 Billion Business Opportunities". This study forms part of the GLOBAL TOPICS initiative at Roland Berger.
Changing the Game - Social Media
As social media become increasingly central to daily communication, classic corporate marketing is facing a radical upheaval. Companies are having to find new ways to communicate with their customers more effectively. After all, some 1.4 billion users a day are now visiting the top 15 social networking sites. And a million new accounts are being opened each day on Twitter.
This represents enormous potential that businesses cannot afford to ignore – as three out of four top managers testify. It is clear that social media channels have a major influence on consumers. Opinions communicated here often determine the success or failure of a product. The development of appropriate corporate strategies in the age of social networking was the central focus of the Social Media Think:Lab Thought Leader's Summit. Held in Munich, the summit was jointly organized by Roland Berger Strategy Consultants and the University of Münster's Department of Marketing & Media.
The question of how companies can best prepare themselves for social media marketing and effectively align their business model is addressed in this publication. Entitled "Changing the game", the study appears in the think:act CONTENT series.
Alexander Belderok,Regina Schmidt
Western European Retailers
Western European retail has always been a booming growth market, with sales growing significantly. Differing concepts and formats in individual countries ensure constant new and faster growth and there are some dominant retail models in Western Europe: supermarkets in the Netherlands and Belgium, discounters in Germany and shopping centers in France.
But shrinking population growth, price decreases and the loss of purchasing power since the financial crisis have meant sales are stagnating or even falling. This means retailers face a major challenge in coming up with new growth strategies for both existing and new markets. Our new study entitled "Western European Retailers – At cross-roads between revolution or evolution" from the think:act CONTENT publication series highlights four growth strategies for retailers.
The popularity of online casual games is skyrocketing: one in four of the world's population regularly accesses games on the Internet; in the US alone there are 145 million users. In Europe, too, the market for casual gaming will almost double in the coming years: by 2016, experts at Roland Berger anticipate that the German market will grow to almost USD 785 million, while the French market will rocket to more than USD 1.2 billion.
The development of the online market is the biggest driver of growth in the industry. But the growing spread of mobile devices like smartphones and tablet PCs is also instrumental. If the makers of casual games are to make the most of the immense market potential, they need to install professional business models, continually offer innovative and high-quality products and discover new channels through which to sell their products. These are the findings of this publication from the think:act CONTENT series, "Casual Gaming".
Small and mid-size enterprises still serve as the backbone of the European economy. In 2010, the European Union boasted about 21 million SMEs, which created 85% of all new jobs in the EU between 2002 and 2010. But as lending policies were made stricter in the wake of Basel III, banks have become a lot stingier with financing for SMEs.
This limits the growth for Europe's SMEs as well as its financial institutions. For this reason, banks should adapt their product portfolios to meet the needs of SMEs.
These are the results of a this study for our think: act CONTENT publication series. Based on the study, our experts have identified four ways to breathe new life into the SME financing market: develop individual cash products, sell products that tie up less equity, set up partnerships with other investors and offer SME loan securitization.
Dealing with financial crisis and public debt - a global challenge
In this think: act STUDY, we focus on the GLOBAL TOPIC public debt. In the case of the economy, public debt is either an urgent and thorny dispute or a window of opportunity – depending on which country you ask.
In either case, public debt is a major force behind many of today's most pressing national discussions. It is both an obstacle to progress and its vehicle. Through Project 2012, Roland Berger Strategy Consultants has mapped out the way forward by illuminating the intersections between economic fact and political tenor. With our six recommendations, leaders can take the reins of public debt and steer progress forward.
Shifting sands: Ideas from the desert
No other region in the world is experiencing such economic and cultural upheaval as the Arabian Peninsula. The region faces a historic opportunity: oil has made it wealthy, yet all good things come to an end. The challenge for the coming decades will be to sustain the boom.
Governments are investing billions of dollars in training and research to reduce their dependence on raw materials and guarantee long-term prosperity. Societies in Arabia have already begun adapting new forms of human resources management, top-class universities for women, spectacular architecture, increased opportunities for young artists, and the construction of the world’s biggest airport. The region has begun a quest for the new source of wealth of the twenty-first century.
The transformation of Arabia offers huge potential for foreign investors. Vast amounts of money are pouring into the region, even though some construction projects have been placed on hold until the economy improves. More than 800 projects were planned for 2011, worth nearly USD 450 bn. The region is also experiencing a population explosion; 102 million people will live in Arabia by 2030, an increase of 34% over today’s numbers.
Roland Berger Strategy Consultants has had a presence in the Arabian Peninsula for many years. Our offices in the UAE, Saudi Arabia, Bahrain, and Lebanon serve the entire Gulf region and maintain relationships with key local decision makers.
This think: act Special describes the region’s vision of a new era in which it is no longer dependent on oil and gas. Our reporters have recorded their own first-hand impressions, and local experts have shared exclusive analysis with us.
think: act STUDY "Social Systems"
As part of the GLOBAL TOPICS initiative, Roland Berger has released an international comparison of social systems in France and Belgium, China, Russia and the US in six categories, including the level of social expenditure, healthcare costs and pensions.
The result: mature economies spend a third of their GDP on social systems – but to successfully transform social systems, mature economies need to cut costs, fight the increasing burden of NCDs and increase the worker-to-pensioner ratio. In emerging economies such as China and Russia, average expenditure on social systems is still very low (5-12%) and perceived fraud and corruption, quality of care and coverage gaps are issues to be tackled.
Charles-Edouard Bouée,Hakim El-Karoui
Profit through progress
Emerging and developing nations need modern, efficient infrastructure to keep growing. Whether for water or electricity supply, telecommunications or transportation: there are 145 countries with low to moderate gross national incomes that need to invest USD 851 billion annually to bring their infrastructure up to date. That's the only way their local economies can keep growing. For this reason, some countries today are only half as productive as they actually could be.
Private international investors in particular could help, and boost their own businesses into the bargain, but they're holding back because of the risks. This fear is often unfounded, though, and is based on prejudice and failing to see the market properly: a misperception of local risks that is costing these countries a fortune and putting the brakes on their economic expansion. Africa alone lost around USD 9 billion as a result in 2011, for example.
Private investors need to assess the risks involved more realistically to profit more from these countries' growth. These are the findings of this publication in the think: act CONTENT series, "Profit through progress", which was presented exclusively at the G20 summit in Mexico.
Pricing in wealth management
Times in wealth management have been difficult since the recent developments in the financial markets. Many clients are unsettled and are taking a long, hard look at what services their wealth managers provide – another reason to think about implementing a systematic pricing strategy based on the added value for clients.
Many wealth managers are following the current developments of the financial markets with concern. Not so much because they are running out of investment ideas in the wake of the resurging financial crisis. Rather, they are worried about whether the recent turbulences in the international financial markets will strangle the recovery in wealth management. From 2010 to 2011, managed assets dropped 2.6% to EU R 26.9 trillion. This had a major impact on the earnings of wealth managers, since most pricing models continue to be volume-driven.
One way to alleviate the competitive and market pressure is to employ a consistent pricing strategy. This not only gives you the edge over your competitors, it also improves your potential earnings by a considerable amount. Roland Berger's data indicates that implementing a systematic pricing system generates a 5-15% increase in earnings, depending on how competitive your existing price list is and to what extent you allow discounts.
Christophe Angoulvant,Mathieu Sébastien
A world without agents?
Imagine a world without insurance agents
It is hard to picture, but some in the European insurance market believe that maturing markets will negate the need for human contact to sell insurance products in coming years. They see other competitors such as banks and direct sellers and technology such as smart phones and comparison websites as making both salaried and self-employed insurance agents obsolete.
We at Roland Berger believe that while these trends are real, the need for agents will continue to exist. Insurance is much more than a simple commodity. Selling it requires a level of trust and support that only an agent can provide. While technology is certainly a game changer in the industry, companies that can combine the human touch with cutting edge applications will be best poised to capture market share in future. Customers need a higher level of service getting advice from agents who understand their daily lives and can help them sort through the ever growing options of complex insurance products.
To better understand trends in the industry, Roland Berger in cooperation with EFMA collaborated with insurers from France, Germany, Italy, Portugal, Spain and Switzerland. These are representative markets where salaried and self-employed agents, both of which share common characteristics, remain key distribution players. The experience of these companies reveals how major industry players are navigating coming trends.
Carolin Griese-Michels,Fabian Huhle,Tim Zimmermann
think: act STUDY "HR goes global – Emerging markets change the HR agenda"
Globalization is changing the distribution of world jobs to reflect stronger emerging market economic growth and new business opportunities. In 2010, one in three new jobs was already created in either China or India. European companies will also need to develop global HR strategies to compensate for European demographic trends. Western Europe must add 46 million workers to sustain average economic growth over the next twenty years.
How companies recruit, retain and manage people across the entire organization will often determine their success or failure in emerging countries. That's why this chapter will look at some of the most important "people" and organizational issues for European companies to compete successfully in emerging markets.
Part one profiles major current and future HR trends in Western and emerging markets.
Part two suggests why people issues, such as improving diversity & inclusion and cultural IQ, will become critical to successful global competition.
Part three looks at why integrating emerging countries and personnel into global organizations will quicken the rise of virtual headquarters and create more flexible headquarters-subsidiary relationships.
Part four summarizes eight practical steps to help companies strengthen their emerging market performance.
Delivery Model 2.0 - vision for the future business model
Telcos are under intense pressure. Merely to react to new competitors, to growing complexity, and to increasingly exacting customer requirements is not to answer the fundamental question, which is where and how they aim to earn money in the future. A reorientation of the entire company is required.
This reorientation toward a successful Delivery Model 2.0 is a two-stage process that first requires a clear idea of where the focal points of business are to be in the future. Core issues in this regard are:
- How is the market environment going to change – user behavior, complexity of offers, competitive structures?
- What part is the company to play in the future communication-information-entertainment complex?
- Which key changes will prevail on the product and/or service side?
- What are the company's core competences? What added value is it to deliver?
- How is it to set itself apart from the rest of the market?
The answers to these questions will provide a clear idea of the future shape of the company that will have a decisive influence on its appearance and success in the years to come.
So a great deal is at stake en route to a Delivery Model 2.0 that is comprehensively geared to what the customer has in mind. It is no less than the entire corporate organization, including all in-house processes and all areas in which the customer interacts specifically with the company. And even if all areas collaborate smoothly, that alone is still no guarantee of success. Even a lean and efficient company absolutely needs a visionary view of which target groups are to be addressed by which services and where the focal points of business activity are to lie in the future.
Production Systems 2020
There is a growing demand for high-value consumer goods in emerging markets. This leads engineering companies in the developed economies to shift from "High-End" to "Mid-End" products. The European and, in particular, German engineering sector will see some radical changes going forward. The real challenge is not how to ride out the next crisis but how to expand into the global "Mid-End" segment. To achieve success here, companies must continue to regularly challenge and adjust their business models and structures.
Our study shows that most European machine and plant makers belong to the largest category of companies we call "the followers". This can prove a successful strategy, but only if they make some smart moves.
Wolfgang Hach,Carsten Schmidt-Jochmann
Shared Service Centers for Insurers
Insurers have a lot of catching up to do in the efficiency of their internal organization. This need is especially striking in the Shared Service Center (SSC) area.
Mergers of organizational units that perform comparable tasks into a central, group-wide unit, an SSC, are fairly uncommon in the insurance world. Only around 28% of insurers have bundled their finance and accounting activities in a single unit; the comparable figure across all industries is well over 60%. That is, basically, an incomprehensible state of affairs, given that centralized units can operate at high levels of efficiency. That is a fact of which even insurers themselves are aware. In the Roland Berger study ("Shared Service and Competence Centers for Insurers") European insurance groups themselves said that SSCs can achieve cost savings of between 10% and 16%.
Standardization and consolidation of services in a central, newly established unit also has an effect that goes beyond the mere cost factor. Standardized and therefore at the same time more transparent processes also make a more focused control and allocation of services within a group possible. Personnel department services such as further training courses are a case in point. They can be charged more accurately in terms of their users and the amount of use that is made of them rather than, as in the past, on the basis of a fixed allocation key. An improvement in internal processes can also have positive external effects, such as a better product quality.
Client-centric wealth management
Values, desires and ideals are just as important as age and wealth in shaping the behavior of well-heeled bank clients. Conventional approaches to client segmentation are not enough: a psychographic approach is needed too. Roland Berger has proven tools for precisely this purpose.
Conventional means of client categorization – based on sociodemographic data (age, marital status) and financial criteria (income, wealth) – must at least be complemented by value-based or psychographic segmentation as a secondary or even as primary filter.
Today's wealth management clients are very demanding and play a more active role. They seek out advice more frequently, know more about finance and want to be more involved in the management of their wealth. As a result, banks must deliver on their client-centric value proposition time and again if they are to keep increasingly critical clients from jumping ship. A values-based approach allows wealth managers to reach clients by valuing them more as individuals. Ideally, matching "value types" will create an "emotional agreement" between advisors and their clients.
Fundraising - Potential for hospitals
Together with the Deutscher Fundraising Verband, Roland Berger Strategy Consultants conducted a study on "Fundraising in German hospitals". The objective was to determine whether fundraising can help with financing, and what conditions have to be met for it to succeed. The study interviewed hospital managers, fundraisers, associations and others in the industry to glean best practices from their experiences. The result is that even in Germany, investing in fundraising pays off: German hospitals that professionally pursue fundraising generate EUR 0.5-3.0 million in donations every year. These may be small figures compared to the overall budget, but they make a big difference for certain projects. Financing medical "trailblazers", construction projects and innovative ideas, or providing "feel-good" elements for patients and family members, are precisely where the funds can create a competitive edge.
Fundraising works only when a specific foundation has been laid. The top two components are visible support from the board and embedding fundraising in the overall strategy. In addition, organizations need a dedicated fundraising strategy (targets!) and a separate department. This department needs to work closely with the communication department in publicizing fundraising targets and actions both externally and internally (employees and managers).
For more information, please refer to our think: act CONTENT and other materials. We would be happy to discuss with you how you can tap this potential in your region.
Strategic HR in China
Talent is hard to find and keep in China. HR practices need to be upgraded. It's time to reorient HR as a strategic function.
In the coming years, analysts will be looking particularly at China's labor market to assess the country's ability to sustain its growth and achieve the objectives set out in its 12th five-year plan. A highly-skilled labor force is crucial for this transformation, but on this front China faces an acute shortage. Talent is hard to come by, and companies struggle to attract and retain those who are qualified and available. Wage wars run rampant, and wage increases often outplace labor productivity – a frustrating oxymoron for Chinese companies, and an obstacle in the economy's transition to value-added production.
These trends underscore the importance of intelligent and proactive human resource (HR) management, expanding the function beyond the administrative task that is most common in China today. Modern HR management practice, with its tools to tackle today's particular challenges, needs to be further implemented and developed in China if the country is to make the transition.
think: act STUDY "Inside Africa"
Reforms, demography and an entrepreneurial spirit palpable everywhere have transformed the continent into a land of opportunity. This think:act STUDY, developed as part of the "Inside Africa" GLOBAL TOPICS initiative, presents top decision-makers and investors with an outline of the key factors behind the continent's economic renaissance. The study identifies the most dynamic sectors and details two of them: Energy and Financial Services.
The African continent represents the opportunities of tomorrow, and we at Roland Berger see historic business opportunities being created by Africa's growing economic strength. Mining this unprecedented potential requires sound knowledge and a thorough understanding of the market.
That is why Roland Berger is embarking on Inside Africa. Our work on the continent in collaboration with strategic and local partners, including many of the continent's emerging champions, has given us an inside perspective on the opportunities there. "Inside Africa" is aimed at top decision-makers and investors. Its main goal is to promote sustainable growth across the continent, and at the same time help companies in industrialized countries benefit from and contribute to this growth.
8 Billion Business Opportunities
8 Billion Business Opportunities is a publication series looking at how population growth will improve economic prospects. By 2030, the world's population will increase by one-fifth, or double Europe's current population, to reach 8.3 billion. 95% of this growth won't be in the industrialized nations, but in emerging markets.
In less than two decades, the emerging markets will account for more than half of global GDP. Their average GDP is growing by almost 7% a year, nearly three times faster than in developed countries. Twenty of these markets – our Focus 20 countries – are expected to offer the most attractive growth opportunities, as they represent two-thirds of the total emerging market growth. European companies should plan now to tap into the powerful demographic and economic trends changing our world.
8 Billion Business Opportunities will explore rapidly evolving emerging markets, highlight sectors that could see disrupted or new value chains, and review promising competitive strategies to enter and expand in the most important emerging markets.
Klaus Juchem,Pierre Reboul,Edoardo Demarchi,Dominik Löber
European corporate banking
Corporate business is back in focus as a part of strategic realignment by European banks. Lasting success requires precise risk management and a strong refinancing capability. And new relationship management that is efficient, transparent, and international.
When it comes to European banks' corporate business, you can't help thinking of the tale of the ugly duckling that promptly changed into a proud swan. In the heyday of investment banking before the financial market crisis, corporate business was at best of interest for filling various capital market vehicles with attractive loan assets.
Corporate banking today is the focal point in the realignment of many credit institutions. Corporate business is attractive because it earns above-average profits in times of economic upturn. For Germany, Roland Berger estimates that its earnings potential is growing considerably faster than the gross domestic product. That isn't to say that it has grown easier as a result – quite the opposite. In the course of economic recovery in many European countries, enterprises have acquired capital and liquidity cushions, thereby gradually reducing their dependence on banks.
At the same time, large firms especially have further professionalized their financial management, making use of alternative financing and comparing terms and conditions on an international scale. The requirements placed on banks with respect to loan facilities, stability, safety, or access to the capital market are correspondingly exacting.
Customers in the countryside are different. They need unique offerings. Wireless network operators have to rethink their approach. Suitable strategies are already available.
Today mobile communication is so commonplace that the markets of the industrialized world are thought to have reached saturation point. Mobility players find it hard to achieve even meager growth rates in these markets. Things look totally different in emerging and developing countries, where mobile phones are less widespread.
But this is changing fast. The demand for mobile communication in these countries is high, as the growth rates in several key emerging markets show. However, these new customers are not all city dwellers, as you might think. There is considerable demand for mobile communication among the rural population too.
"Metropolitan" business models do not work in the countryside. Unfortunately, this demand does not automatically translate into big profits. Product design, sales and marketing models established in the cities cannot simply be transferred to the countryside. Equipping sparsely populated areas with the technical infrastructure needed for comprehensive mobile coverage does not come cheap: in fact, the costs increase as one penetrates more remote markets. At the same time, since the rural population has a low average income, the Average Revenue Per User (ARPU) tends to reduce with remoteness.
Among companies who have entered the rural market, the successful ones are those who see their rural customers as a separate customer group that has to be addressed with specially tailored concepts. Companies who simply transfer the concepts they have established in big cities to the countryside, are destined to fail.
End-to-end supply chain
When it comes to delivering the right product in the right quantity and quality, at the right time and at an attractive price for consumers, retailers and manufacturers alike face an enormous challenge. They can only succeed by working closely together.
Roland Berger Strategy Consultants, in close cooperation with leading German retailers and selected manufacturers of consumer goods, has developed an innovative approach that considers both the market perspective and logistics costs. In it, we systematically examine logistics costs along the entire value chain – process costs, the cost of stock-outs and write-downs, the cost of tying up capital in inventory.
We then quantify the relevant drivers and optimize them, using this as a basis to derive new strategies for delivery routes. The result is a tool for successful E2E optimization of retail logistics. It gives quick answers to the critical logistics questions facing every retailer:
- What is the total cost of my supply chain?
- What delivery route is best for each supplier?
- How much warehouse space do I need?
- How much potential lies in having less write-downs, fewer stock-outs and less inventory?
The E2E approach describes the relationships between internal store processes and supply processes, quantifies them and makes them a basis for further decisions. For the sake of clarity, we divide the functions into three sub-models: warehouse/ distribution costs, store KPIs, and store processes. We can use the overall model to calculate the exact costs for each supplier, store and product group, right down to the level of individual articles in a consignment.
Asset management in emerging markets
Emerging markets around the world are showing themselves to be more than simply investment opportunities for asset managers. With global inflows on the rise, asset managers are turning to emerging markets to tap distribution and sales options and to source new money. The doors for asset managers are opening not just in BRIC countries and the Next Eleven, but also in regions like the Middle East with their impressive growth rates.
The Middle East is one of several attractive and emerging markets that asset managers can tap for expansion opportunities. As with any market entry, success relies on well-defined go-to-market strategies that address local specifics. The flux of these emerging markets, especially given their lack of proprietary distribution channels for foreign entrants, demands airtight alignment between the targeted segments and the asset manager’s own distribution channels and product offerings.
With properly aligned business models and entry strategies, asset managers can seize the new distribution and sales opportunities arising in these emerging economies. The Middle East is an apt model for asset managers looking at expansion, especially beyond the traditional asset geographies.
Occupational health is high on the agenda of employers, health insurance funds and governments. Employers must keep their ageing workforces healthy and start to view health programs as a way to improve their attractiveness as employers. For health insurance funds and governments, the workplace is an important channel for promoting preventive health and healthy lifestyles. While there is a general consensus that occupational health is important, few companies do something about it. So far, only a minority of companies have such programs in place. Our think:act CONTENT analyzes the main hurdles on the way to occupational health and highlights a seven-step program to overcome them.
The study draws on our experience with HR managers, chief medical officers, health ministries and health insurance funds. It shows how companies can identify and address the most important target groups, find the right partners and firmly embed the concept in their organization.
Effective corporate health management reduces sick leave by up to 40%
Due to demographic change and the higher retirement age, the average age of people working in German companies is on the rise. Common illnesses occur ever more often in professional life, and absence from work for health reasons is increasing accordingly. Days lost through sick leave already cost German companies around EUR 60 billion, and this figure is rising. To counteract this phenomenon, companies should have their own corporate health management. Better, lower-stress working conditions and the right preventative healthcare can reduce staff absenteeism by up to 40%. Around 80% of German companies have recognized the benefits, and yet only one-third (36%) of them take their own sickness prevention action.
Corporate health management also requires the support of the top management: Only when the executive level of a company sees a sense of well-being among its employees as a priority can programs be realized to promote staff health.
Video-Endgame - The battle for the future
It's quite certain that television as we know it today will no longer exist in 2020. Technology, players, content – all will change dramatically, moving toward a networked world of experience made up of linear TV content, video, communities, Internet and user-(gene)rated content.
By 2010, the TV market had already changed enormously, mainly as a result of new usage formats. Media centers like Hulu/Netflix or the BBC's iPlayer were making international premium content globally available, leading the way to the business model of the future: the station/broadcaster as a "content store". The interactive standard Hybrid Broadcast Broadband made it possible to use web and TV content simultaneously on one platform. Linear and non-linear content were becoming increasingly mixed.
By 2020, the balance of power will have shifted further. Global OTTs will have become perfectly normal players in the TV industry and will include networks such as Facebook or Google+ and portals such as Apple TV/iTunes, YouTube, Netflix and Hulu. They will compete with traditional broadcasters, former network operators and pay channels.
The future of Offshore Wind Energy
The global wind power boom is slowly tailing off – especially in Europe. After double-digit growth in recent years, the onshore and offshore wind power market will grow by only around 5% annually between now and 2015. In Europe, the onshore segment in particular is flat. By contrast, China shows the biggest growth potential: between now and 2020, installed wind power output will rise to 20 GW a year. But markets like the US, India, Canada, Brazil, Australia and Africa will also be buoyant in the next few years.
However, growing competition from Asian players in the global market and the desired grid parity for wind power are forcing OEMs to cut costs by 25-40%. A large wave of consolidation in the wind power industry is therefore likely.
Alexander Belderok,Alexander Keller
A different world - Chemicals 2030
“The past is a foreign country: they do things differently there,” wrote L.P. Hartley. The same may be said of the future. For chemicals, at least, the future is a different world. Looking ahead is never easy and perhaps chemical markets defy prediction more than most. They develop in complex and diverse ways, with shifting demands and large differences between segments and regions. And the last two years of dramatically increased volatility make predictions even trickier.
How do you assess a market so dynamic as this? In our “Chemicals 2030” study, Roland Berger Strategy Consultants develops both a qualitative and quantitative outlook on the industry trends, demand shifts and rival strategies that drive future growth and profits.
The industry will continue to grow. In fact, the market will more than double in the next 20 years, even if for every five-year period the pace of that growth will decline – especially in North America and Europe, where growth at 2% per annum is expected to be just below GDP. Over the next two decades, the center of gravity of the chemical industry will shift inexorably east as China surpasses Europe and North America as the largest chemical market in the world. But India and other Asian countries are also promising. These areas will see growth rates of 5-7% per annum (consider that the industry as a whole has never grown by more than 5% over the last decade). Attractive, high-growth opportunities remain – especially in plastics and specialty chemicals in Asia. Commodity plastics, for example, will grow by more than 8% per year in the short term and 6% in the long term. For paints and coatings we foresee long-term growth rates in excess of 6.5% per year. In emerging markets, growth will be even higher, well above GDP, as demand for better tasting foods and home decoration increase with consumers’ disposable incomes. In these and other segments, there is a lot to play for.
Thomas Rinn,Oliver Knapp
Post Merger Integration
The global volume of mergers and acquisitions in the first half of 2011 was put at around EUR 900 billion. Yet the failure rate seems almost as high as the takeover rate. The biggest stumbling block is going about integration and synergy management the wrong way.
Google ingests Motorola Mobility. Beer giant SABMiller launches a hostile takeover bid for Australia's number one beer brand Foster's. Fiat acquires a majority stake in Chrysler. US pharmaceuticals service provider Express Scripts swallows rival Medco Health Solutions. Microsoft buys Skype. And Volkswagen seeks to make a big splash on the international commercial vehicle market by snapping up MAN. Browse through the business press and it seems companies are acquiring and merging like there is no tomorrow.
Not a trace of a hangover from the crisis, then. Thomson Financial puts the global volume of mergers and acquisitions (M&As) in the first half of 2011 at around EUR 900 billion, not including transactions in the private equity sector. That is a year-on-year increase of 50%. Yet the failure rate seems almost as high as the takeover rate.
The biggest stumbling block is going about integration and synergy management the wrong way. According to the Roland Berger study, this is the one factor to which 80% of the respondent experts primarily attribute the failure of acquisitions. Other reasons are also cited, but play a far less significant role. They include culture shocks that drain all the energy from the new entity, exorbitant acquisition prices and the egos of the chief executives involved. All these factors can leave a merged or merging enterprise unable to exploit its new opportunities.
New rules in wealth management
New rules in wealth management require a new form of banking. Providers must align value propositions to client needs and regain trust. Standing out from the competition via a systematic approach.
What value do wealth managers add for me? What sets one apart from the others? Can I trust them on their promises? What services is the provider selling and what do they include? Banks must provide compelling answers to the questions clients are asking. Aligning their value propositions clearly and concisely with what clients really need is essential to successful wealth management under the new conditions.
As Roland Berger's own project experience shows, some wealth managers began honing their value propositions months ago. Even though the process is far from complete in most cases, those players that have moved swiftly have stolen a march on their competitors. The latter have either been caught off-guard by the speed and scope of the transformation in process or, even worse, have not yet woken up to the need to adapt. Roland Berger's discussions with a representative group of senior experts in Europe show that even top managers sometimes have a hard time expressing their own value propositions in simple terms – especially the bits that set their institutions apart from competitors. Thus, it must be all the more difficult for clients to recognize a clear profile.
Is Brazil a car paradise?
The demand for cars is exploding. And the market is known for being dynamic. It offers enormous opportunities. But buyers are demanding more. The auto industry must adapt. But how?
Once the world's biggest debtor and close to bankruptcy in 2002, Brazil has long been a growth driver of the global economy together with Russia, India and China (BRIC).
With rising prosperity, more and more Brazilians want individual mobility – and are buying more and better cars. The car symbolizes a step up in society – so the demand for cool design and visible extras is rising. Established premium OEMs benefit from the rising purchasing power, as do producers of the latest hip low-price models and innovative suppliers who encourage customers to upgrade their vehicles. For Chinese and Indian OEMs, Brazil is another territory to be conquered in their global campaigns – by the end of this decade, they could achieve a market share of around 10%.
According to calculations by Roland Berger Strategy Consultants, car sales in Brazil could double between 2010 and 2020 to 6.6 million vehicles; production may rise by 3.6 million cars (2010) to 5.5 million. As early as 2015, Brazil could overtake Japan to become the world's third largest car market after China and the US. Growth of 8% per year in commercial vehicles between now and 2018 is also possible.
think: act - Size Matters
The division of labor in the world economy continues apace. Small, agile, networked entities are increasingly successful, but big industrial giants are also profiting from the de-linking of the supply chain.
In many sectors, clearly defined interfaces make cooperation with suppliers and service providers much easier than it used to be. The age of business ecosystems has begun. It is an age of collaboration between companies of very different sizes, and resurrecting one of the oldest questions in business: "How big should my company be?"
There is no one-size-fits-all solution; rather, there are many different approaches to answering it.
Telematics in auto insurance
Telematics is by no means a “self-starter” in auto insurance. The cost of the technology is just as much a potential hurdle as its operational complexity. One of the biggest obstacles is likely to be data protection, however. The technology will only be able to come into its own if it fulfills data protection requirements exactly and no doubts as to their fulfillment arise. One option could be to separate the service provider and the insurance provider.
The insurer must guarantee total transparency as to which data is essential for insurance purposes and which is not. Customers ought also to be able to check which data they are providing and to have given their express consent to its use beforehand. Looking at the bigger picture, however, these issues pale in significance when they are compared with the opportunities that telematics offers and the opportunities that would be missed if the technology were ignored.
With the effects outlined above, telematics can not only take an auto insurer's business model forward but can revolutionize it, especially as genuine innovations have been rare in this area in recent years. The groundwork for telematics-based auto insurance has already been laid, and consumer interest also exists. German insurers must now take care not to miss the boat. They must think ahead, consider the effects on their own business models, and develop a strategic position of their own on this issue and its major long-term potential for market change.
think: act SPECIAL on cloud economy
Everyone is talking about the cloud. The latest issue of our think: act SPECIAL magazine reveals the business models behind it.
The cloud economy uses the technology of Web 2.0, social networks and cloud computing to map social and commercial activities in a logical way. Cloud computing means providing IT services in which private and corporate customers can flexibly pay for what they actually use instead of a flat rate. In this system, the data to be processed resides with a third-party provider somewhere in the data center, and the user accesses it through a website.
Buzzword or the next big thing?
There are several reasons to believe that the cloud economy represents a totally new form of value creation – the next step after the digital economy. The numbers are impressive. Here are a few examples:
- 680 million users are registered on Facebook
- Video-sharing website YouTube receives about 92 billion clicks each month
- By 2013, companies will spend USD 2.6 billion on Web 2.0 applications
In the pages
In our think: act SPECIAL, we have compiled the most important facts about the cloud economy and charted the universe of terms, networks and platforms. We also examine what strategies companies can now pursue with the help of the cloud. For example, Roland Berger Partner Björn Bloching explains how companies can leverage web-based customer data.
In addition, we look at how companies can use the cloud for their market research, innovation activities and marketing.
Alain Le Couédic
Innovation in China's Financial Services Industry
For several systemic reasons the study puts forth, innovation in financial institutions pales in comparison to the level of innovative activity in other industries. And if there are innovative approaches, they are usually most likely to originate from large institutions such as Goldman Sachs, JP Morgan Chase or Deutsche Bank. In China, however, some small to mid-size financial institutions are also quite active (and successful) in innovation, as the study shows.
The authors assessed the innovation performance of Chinese financial institutions along four dimensions: product innovation, channel innovation, marketing innovation, and management innovation. As an alternative to isolated or haphazard attempts at innovation they recommend the innovation factory model as full-blown innovation system. Since companies using this model put innovation at the core of their competitiveness, the innovation factory model is still most widely pursued by digital and internet companies.
The whitepaper explains how to build an innovation model in a systematic manner and provides insights and examples of how businesses embrace an innovation culture. "There is already a significant level of innovation happening at Chinese financial institutions," says Alain Le Couédic. "But there is also much more to do: innovation is clearly seen by domestic players as a key success factor in China's financial services landscape, where competition is getting fiercer and differentiation remains a challenge."
The increase in managed assets underlines the appeal of the industry – although market recovery is still fragile.
Wealth management has regained momentum faster than some market observers were expecting. Even though uncertainty remains as to how the market may develop, the increase in managed assets underscores just how attractive the segment is. Yet, for many providers, margins are being eroded by price cuts and the increased complexity of services on offer. Measures to boost efficiency have only partly offset this trend.
In the current environment, providers should be concentrating on increasing earnings and cutting costs to bring their profitability back to pre-crisis levels. Offshore banking has been the subject of debate, but interest continues to focus on the established financial centers, including Switzerland, Luxembourg and Liechtenstein. A Roland Berger survey of 180 wealth management clients found that first-class advice and an international product range are key success factors.
Successful wealth managers put their clients – and their clients' values and expectations – at the heart of their service approach, aligning their advisory processes accordingly. Specifically, this can mean developing target client segments based on the values of particular client groups, managing the sales channels preferred by clients, and customizing pricing.
"New reality" in banking
Retail banking has reached a crossroad. After an unprecedented market panic followed by large-scale government bailouts and other support measures, banks face various challenges. In a study of 35 banks, mostly in Europe, Roland Berger analyzed disparities in the Return on Equity (ROE) of the worst- and best-positioned players during the financial crisis.
While there is no silver bullet for facing challenges that have emerged in European retail banking, it is clear that going forward the main areas of focus will be funding, restructuring and investment opportunities.
The winning banks will have solid funding, a lean structure with a fully integrated multichannel model and will be capable of grasping and leveraging investment opportunity in a systematic way. Generally speaking, even the best players are expected to experience a reduced level of profitability going forward.
However, there are some clear strategic priorities in order to limit the degree of ROE compression. These are capital and funding structures, cost effectiveness, customer service models and expansion strategies.
Learn from the pioneers
Many foreign companies regard China as homogenous and assume that, as they migrate westward in search of new markets, they will encounter the same China they have become familiar with in the more highly developed eastern coastal regions. They will not.
The 12 provinces of Western China ("the West") comprise two-thirds of China's land mass but barely a quarter of its population. But that's still 365 million people, more than the population of the 17 countries of the eurozone. Recent consumer purchasing power statistics suggest the West as a whole is about six years behind Eastern China ("the East") in its economic development. It is unlikely to follow the same growth trajectory as the East, but the statistics and the government's commitment to raising the region's living standards create a favorable environment for both industrial and consumer enterprises.
It is almost virgin territory for foreign companies. Only 6% of the 260,000 registered foreign enterprises in China are based in the West. Real opportunities exist for some industries in the West, but many risks and challenges await.
A recent Roland Berger study on behalf of the German Ministry of Commerce asked experts and the China CEOs of major European companies about the importance of various factors when deciding where to locate operations.
Continuous improvement in growth phases
Following on from an unprecedented collapse in 2009, the German economy has, since mid-2010, been enjoying an unbridled boom. And that despite Europe's alarming debt crisis. But companies could – almost literally – end up choking on their new-found exuberance. Uncontrolled growth that happens too fast can pose just as stiff a challenge as a sudden crisis.
Having only just got out of the mire of costcutting and restructuring, shifting into top gear can be a real shock to the system. So how are companies handling the surprisingly robust upswing? How do they rigorously shift up from the crisis, cost-cutting and short-time work to an aggressive policy of investment and recruitment without forgetting that the next downturn is never far away?
Markets have to be developed relentlessly. Investment planning must be sustainable. Operations need to be expanded, but only as much as necessary. New recruits should be added prudently, motivated and enabled to unfold their full potential. Such truisms – the stuff of any run-of-the-mill management seminar – may not sound very spectacular. In actual fact, however, they are essential to the high art of managing growth.
The challenge? Not letting low costs stifle innovation, impair quality or hinder employee development.
The solution? A new kind of continuous improvement (CI) that brings together what belongs together – and gets you in shape for growth. In practice, the ideal, made-to-measure continuous improvement model will always be a blend of different approaches.
Bearing this in mind, Roland Berger Strategy Consultants has developed a nine-point strategy that facilitates tailor-made solutions and accommodates the specific needs of the individual company. Read more about it in our latest think: act CONTENT.
Young Global Leaders
What do Venezuela's opposition leader María Corina Machado, Wikipedia founder Jimmy Wales, former SAP board member Shai Agassi and Crown Prince Haakon of Norway have in common?
They are/were all Young Global Leaders (YGL) of the World Economic Forum. Roland Berger Strategy Consultants have actively supported this network for over four years.
A powerful network
The 43-year-old Machado is a remarkable woman whose work will have a lasting impact on her country. She and around 750 other truly outstanding individuals like her make up the "Young Global Leaders". Seven years after it was founded at the World Economic Forum (WEF) in Davos, the Young Global Leaders (YGL) have established themselves as a powerful network, working to bring about change for a better world.
Prominent members of the circle include Shai Agassi, software engineer and founder/CEO of Better Place, Crown Prince Haakon of Norway, Jimmy Wales, the founder of Wikipedia, or John Hope Bryant, Vice-Chairman of the US President's Council on Financial Literacy.
This distinguished group of role models has now been honored with a publication of their own – the first-ever special edition of our think: act client magazine.
Find more information about the impressive individuals we support at the new YGL website
Upheaval in the Arab world - Scenario-Update
After the protests and changes of government in Tunisia and Egypt, the situation is being repeated in almost a dozen Arab countries – Libya is currently only the most dramatic example. But where is this all going? The region's future does not depend so much on the consequences of the "Day of Rage" protests in Tunisia, Egypt, Libya, Morocco, Algeria, Syria, Bahrain and Yemen and the new power structures that emerge. Instead, the critical question is what will happen in Saudi Arabia, the region's resource-giant. Will there be increasing Islamization? And what new political and economic freedoms will emerge – if any? The latter is particularly relevant to us Europeans, as a neighboring region, and may be an opportunity for Europe.
We are not attempting to paint a comprehensive (political) picture of the situation in the Arab world here. Instead, we are focusing on the economic impact. That is why we have conducted a survey among 100 German managers over the past few days that shows what fallout German companies are currently dealing with, what they expect over the next few months and what long-term strategic challenges they face.
WHAT COULD HAPPEN IN THE REGION – OUR THREE MENA SCENARIOS
Together with colleagues from our MENA offices, we have developed three scenarios that could help with assessing the long-term prospects. The core questions are: How long will the crisis last? How many countries in the region are affected? And how comprehensive and long-lasting are the upheavals? We first analyzed the underlying strengths and weaknesses of the MENA region, and then evaluated the consequences of global trends on the area. Lastly, we analyzed the impact of the crisis: is the crisis-hit country itself affected first and foremost, such as by declining numbers of tourists or a brain drain? In what cases will the crisis affect not just the countries themselves but also their trading partners (as we can see from the examples of German companies)? And finally: What will be the consequences of the upheaval in the MENA states on the global economy, for example via the oil price, refugee flows or terrorism?
Banking in Africa – the way forward
What is needed is neither more conventional branch banking nor more small-scale microcredit initiatives. What it will take are integrated, large-scale strategies launched by commercial banks – strategies that offer affordable savings, payments and loan products and make them accessible to low-income customers based on cost-effective multi-channel models.
Need to quickly pay a bill online or at your nearby bank branch between two appointments on a busy day? The reality of the banking sector in sub-Saharan Africa could scarcely be more different. Busy and thriving retailers have to find an hour and a half to drive to the nearest bank branch, and then wait in line for another hour merely to deposit money in their account. And then there are the village teachers who have to cancel classes because it takes them a whole day to walk to the bank and get their salary payment. Or consider the farmers who, despite a good harvest, have to sell everything all at once at knock-down prices because they were unable to reserve storage space in the local granary after the money collector went off with their savings.
Online Reputation Management
Networks and forums ensure that negative content spreads in no time at all – multiplied by search engines and aggregators, such content is virtually forced down users' throats.
As a result, reputations stand to suffer, both online and offline, which can subsequently have a substantial impact on commercial success. The results of a recent study suggest that insurers should view this as a long-term phenomenon and develop strategies for dealing with social media.
Quickly voiced criticism can cause long-term damage. Social networks and consumer portals are full of negative comments about insurance companies and their products. "I've never had such a bad insurance policy. Steer clear of ..." "I don't recommend .... at all. If damages actually occur, they use all sorts of tricks to get out of paying. Happened to me with my renter's insurance and my personal liability insurance." Customers who search for a particular company's insurance products online are presented with comments of this kind.
Basel III – Well-engineered regulation?
The ink was hardly dry on the main features of the Basel III Accord agreed by the heads of state of the 20 most important countries in November 2010 at the Convention & Exhibition Center in Seoul, Korea, when people began crunching the numbers. The CEO of a leading universal bank is quoted as claiming that the new rules would halve the return on equity to a level lower than the cost of capital.
Another Managing Director noted that the equity capital required as cover for credit was being increased fourfold, making an increase in the cost and a reduction in the scope of lending to private and commercial customers inevitable. That, the International Institute of Finance forecasts, will reduce international growth by 3%, and because banks around the world need additional capital to meet the new requirements, analysts are busy transferring the present capital ratios to a "what would apply if Basel III were already in force" scenario as a yardstick of capital requirements and dividend potential in the years ahead.
Furthermore, regulatory bodies have given very little navigational assistance until recently, and yet set ever stricter speed limits.
The main reason so many banks are shaky and don't keep their eyes fully open when it comes to liquidity management is the truism that says you can only manage efficiently what you are able to measure. But on the whole, banks are not equipped to disconnect the liquidity and interest rates of an individual position and manage them separately. The internal pricing and allocation of liquidity is therefore also blurred – and there are only limited opportunities for increasing the potential profit from liquidity maturity transformation while also complying with regulatory requirements.
Furthermore, liquidity risk management has not evolved at the same pace as the other risk types included in the calculation of counterbalancing capacity. More often than not, risk managers make do with keeping track of the net liquidity available in various time buckets and systematically disregard the close ties with strategic planning – sometimes with serious consequences. When a bank only has the risk of insolvency under control, it can misjudge the serious effect that cash outflows can have on the earnings position – not to mention downgrades, reputation damage, and loss of market share.
think: act - Rethinking growth
Growth is one of the main concerns of managers around the world. But, although many economists think we might have overcome the financial crisis by now, the “new normal” does not provide a sound basis for business plans: Will we be facing inflation or will we have to fight deflation? Is the “real economy” on the rebound or will we see the “knowledge economy” rising again, soon? Are we threatened by an era of trade wars or will coordinated crisis management lead to stronger global cooperation?
We have made “Rethinking growth” the main topic of this issue to reflect on how these questions define the solution options for sustainable and profitable development. We present new concepts, reveal a “map of intellectual capital” as a driving force behind growth and provide practical answers by successful entrepreneurs such as Ratan Tata, who lays out his plans for global expansion. We would also like to introduce you to our “Trend Compendium 2030,” which shows the megatrends that will drive the economic development of the coming decades. The “Trend Compendium 2030” is a new version of the edition produced in 2007 with the “Young Global Leaders” of the World Economic Forum.
These outstanding individuals combine extraordinary talent, impressive careers and the will to contribute to the common good. You will find the first of a series of portraits of these distinguished people in this issue.
Three times three - Scenario update
In our scenarios for the past economic crisis, Roland Berger forecast a V-shaped recession early on, in other words a quick recovery in the world economy in 2010 (see think:act Content Scenario Update 2/2010). And that is exactly what happened. At the time, our experts were much more optimistic than many other pundits.
Three times three
The authors of the latest think:act CONTENT scenario update keep up this positive attitude. They propose an optimistic 3x3% scenario, countering the forecasters' 3-2-1 prediction. Following the actual growth of 3.6% in 2010, they expect at least 3% for 2011 and 2012 too. Quote: "We do not see why the German economy's upturn should slow down so much, as in the 3-2-1 forecast. … We believe in a sustainable, dynamic recovery."
Lessons of the past
Germany has proven many times that a 3x3 scenario is feasible. The country achieved this feat in 2000, 2006 and 2010. And the restructuring of the German economy in the years up to 2005, accompanied by wage restraint and major structural reforms, really boosted Germany's long-term competitiveness. The authors of the scenario update also point to the German business model which – with its strong focus on key and particularly value-adding, system-head functions – is now often viewed as a role model for other countries.
The latest think:act CONTENT shows that things look good for 2011 and 2012. The authors analyze the factors that can guarantee sustainable growth in Germany: our most important export markets on the one hand, and the domestic market, on the other. At the same time, they explore which factors could reverse the scenario. Finally, they highlight actions the government could take to create ideal conditions for strong growth, even after 2011.
According to our Roland Berger experts, there are many reasons to believe in the German 3x3 scenario – provided the country approaches the remainder of 2011 with optimism and self-confidence. And they conclude by quoting an American saying: Future is "the time when you regret that you didn't do what you could have done."
Björn Bloching,Tijo J. G. Collot d'Escury,Carolin Griese-Michels
Diversity and Inclusion
Diversity & Inclusion is a strategic issue that belongs on the CEO’s agenda. Diverse and inclusive companies clearly outperform their competitors on the hard financials.
As CEO, surely you could be forgiven for seeing Diversity & Inclusion as a bit of a soft issue, more political correctness than business concern, and, if anything, a topic for HR.
Well, no. In fact, you would be neglecting a topic that drives tangible financial results and is a strong indicator of management and leadership performance.
What changed in 2010?... What's next in 2011?
Our think:act mini takes a look on what changed in 2010 and what´s coming up next in 2011. The magazine includes an essay on strategy by Martin C. Wittig. Other stories focus on the new Chinese management model as well as Green Business, and what strategic implications these developments have on corporate policies and strategies.
In our view, next year will mean redefining entrepreneurial strategies, paying close attention to megatrends and understanding revolutions.
In this think: act mini, Dr. Martin C. Wittig, CEO of Roland Berger Strategy Consultants, discusses why a functioning strategy must always be based on a company's specific characteristics, or "DNA". The article on the Chinese management revolution picks up on this idea, explaining a kind of "cultural DNA". China's business elite, as our experience working in China for over a quarter of a century suggests, are reflecting more and more on their own values and strengths. They are then combining them with the traditional management strategies they learned at Western business schools. But even the Chinese success model will reach its limits if it cannot grow sustainably. The restructuring of the global economy, as it moves away from climate-damaging resource exploitation toward sustainable, environmentally friendly production, is the megatrend of our time. Our consultants have analyzed the economic growth potential this development may provide.
We wish you exciting, useful and stimulating reading!
Companies need a solid financing basis giving them sufficient room for maneuver to exploit market opportunities and set their sights firmly back on expansion. In the aftermath of the crisis, companies – particularly small and mediumsized enterprises (SMEs) – find themselves in a tricky position.
They must reckon on facing greater limitations with regard to financing in the coming period. For current and future refinancing projects, the level of permissible debt will be lower than before the crisis. Financing and collateral structures have become more complex and a need for refinancing has arisen – for example as mezzanine programs have come to an end.
Securing a solid financing basis is more important – and more complex – than ever before. It is a central decision-making area for companies and must be placed at the top of the agenda. Businesses need to find the best possible solutions to the inescapable challenges. To choose the right financing instruments, they need to understand the specific situation they find themselves in.
To answer these questions, a new Roland Berger study investigates the financial position of German SMEs after the crisis and what they can do to meet their future financing needs in a smart, sustainable manner.
In this edition of think: act CONTENT we present the key findings of the study and our recommendations for action.
China's Management Revolution
A new chinese management model is already in place, which fits today's fast-paced volatile business world. It's still in its infancy, but it could change the way we do business.
Providing deep insight into China's new management thinking and style, Charles-Edouard Bouée's book on "China's Management Revolution" offers invaluable advice for all parties doing business with and in China.
China will trigger the next management revolution
The recent global economic crisis has called into question the way business is done. Governments and business leaders the world over are asking how they can make their economies and companies more sustainable and more resilient in the face of sudden and unexpected shocks, financial or otherwise. In the past they would have looked to the great business schools in the US for a lead. Now, eyes are turning elsewhere.
One possibility identified by Roland Berger Strategy Consultants is a management approach being developed in China that could prove influential throughout the world. It is still early days, but our experience working in China for over a quarter of a century suggests that this new approach is emerging from China's growing disenchantment with the American management model.
This issue of think: act CONTENT describes the main elements of the new Chinese management model to give you an idea about what is happening in China and at the same time provide you with food for thought about possible new solutions to your own problems.
Green Growth, Green Profit
Sustainability is more than just a buzzword – it's shaking up the business world as did the Industrial Revolution centuries before. Just like all revolutions, the green revolution will crush companies and wipe out industries that miss or ignore the signals. Those that fail to offer transformative products and services will miss valuable opportunities for new growth and jeopardize their business.
The book "Green Growth, Green Profit – How Green Transformation Boosts Business" brings together the profound knowledge and broad practical experience of experts from Roland Berger Strategy Consultants, a global strategy consultancy with unprecedented green technology know-how.
It looks at the megatrends driving this revolutionary transformation of the business world and examines how population increase, demographic change, climate change and urbanization are accelerating this shift. It examines the business models in the most important green business segments and regions, and explains how these are likely to develop over the next decade.
Supply Chain Management
Organizing Supply chains is the high art of management. Not to mention a strategic competitive advantage. This is the somewhat unexpected result of an exclusive study by Roland Berger, the WHU Otto Beisheim School of Management, ETH Zurich and Stanford University in California: Supply Chain Management, the former cost killer is becoming a profit driver.
Best-practice companies that rigorously segment their supply chains and align them with product features are outperforming their rivals. The return on assets (ROA) at these companies is twice that of firms that pay no attention to the supply chain fit – a method devised by Roland Berger Strategy Consultants to align supply chains perfectly with a company's business model.
Please read more on the results of our study in our new think:act CONTENT on Supply Chain Management.
As the economic crisis draws to an end, companies in the industrialized world find themselves facing a twofold challenge. On the one hand, it is hoped that restructuring and cost-cutting programs will shore up their survival and growth in the short term. On the other hand, the corporate sector is itself a key driver of the long-term transformation of our economic and social system.
True, financial, economic and national crises are shaping the course of events right now. Not even profound economic turmoil does anything to change the fundamental challenges that confront today's world, however. Pollution of the environment, the population explosion, the growing scarcity of resources even as emerging economies demand more and more raw materials, the resultant rise in the prices of raw materials, dwindling biological diversity, the spread of urbanization and demographic change are all rapidly accelerating the transition in industry. The efficient use of energy and raw materials in particular is emerging as a pivotal issue in the battle to preserve prosperity and keep business locations competitive.
Charles-Edouard Bouée,Alain Le Couédic,Wu Qi
Brands and Buzz: understanding how to reach today's Chinese consumers
think: act STUDY
Following our Consumer Report 2009, we have intensified our cooperation this year with CIC, China's leading "Internet Word of Mouth" (IWOM) research firm, to bring you timely trends and insights to help you successfully tackle the Chinese consumer landscape. The Internet is one channel that can't be ignored within China's vast and growing community of Internet users and e-commerce is taking off in China. Proportionally, Chinese consumers rely on the Internet in making purchase decisions much more than their counterparts in the West. Online information and interaction hubs such as blogs, microblogs and BBS are treasure mines of information on consumer preferences and trends as well as channels for companies to reach out to and build rapport with consumers.
Our market knowledge paired with CIC's first-hand research demonstrates vividly the power of the Internet on Chinese consumer behavior and how it can build up or, conversely, damage brands. Through a deep look into the online habits and preferences of Chinese consumers, we offer insights on how to actively participate and capitalize on valuable opportunities in the online realm.
We have also analyzed the Chinese consumer population with our unique Roland Berger branding tool, the RB profiler, and developed clusters defined by consumers' values and personalities. We offer you an in-depth look at what makes each type of consumer tick so that you can tailor your messages, define your road-to-market strategy and take actions to drive the most impact.
The race to keep up with developments of the Chinese consumer is a complex one. We hope that this report and its insights will assist you in seeing both the big picture and the way forward in addressing China's consumers effectively.
In recent months, companies around the world have been experiencing significant changes in how they manage their procurement. As a direct consequence of the global financial crisis, prices for materials and services fell across the board. Just a short time later, prices for raw materials shot up again, taking us all by surprise.
What are we to make of these developments? One thing is sure: the volatility of the past months is here to stay. Companies need to rethink how they manage their procurement activities. Now is the right time for them to turn the opportunities that have appeared in recent months into long-term benefits.
This edition of think:act CONTENT summarizes our view of how companies can best go about this and presents our recommendations for action.
Automation – Time to find your true north
The aim of this study is to provide automation managers with practical guidelines and advicemon how to best meet the challenges that lie ahead. Customer requirements are changing hard and fast, business is shifting to new geographic regions, and the way automation companies conduct their business is changing too.
To remain competitive, companies must look beyond incremental opportunities and closely examine systemic and structural changes that have much greater potential to improve competitiveness.
Based on our decades-long experience, extensive research and 120 interviews with manufacturers, customers and industry organizations from Europe, the United States, Japan and China, we’ve compiled a long list of strategic actions that can help automation companies establish a sustainable business model.
We believe companies in each business model – standard components, complex components, problem solvers and system suppliers – need to redirect their attention back to their core strengths. Only when companies know where their true north is, can they know how to proceed forward. It’s this intimate knowledge that will enable them to select the best growth options for their business.
The economic crisis appears to be slowly dissipating. But one problem remains, namely the lack of qualified people. As a consultancy, we have found that many executives initially assign HR issues a key role in the company's strategy, but often fail to follow through.
The threat of an acute shortage of skilled workers is a structural challenge. Managing your human resources in a sustainable manner – from recruiting to retaining – makes or breaks corporate competitiveness. This means talent management is indeed a strategic issue for top management.
think: act - Mastering complexity
If we want to generate sustainable growth for the future, we need to successfully connect the major challenges in the world—such as climate change and demography—with growth. In this effort, industrial expertise plays a decisive role. Why? Because both the green technologies that can help us address climate change, and the productivity gains that can enable us to generate growth with fewer employees, are based on superior industrial know-how.
The crisis has been a good reminder that the real economy—namely industry and highly-specialized services, especially in combination — plays a crucial role in the economic structure. That puts our priorities right back in order! And it places continental Europe, with its high industrial density, in a leading position.
However, the crisis has also revealed clearly that the Asian national economies saved us from crashing into a depression—and that they will remain the growth drivers for the next few years, with China as the model for successful Asian economic development. However, a growing number of people are beginning to ask just how long can China walk the tightrope between communism and capitalism? India, for example, is pursuing alternate roads to growth and prosperity. In this dossier we present our perspective on how real the opportunities for India as a boom region truly are. One of India’s strengths is diversity, which can be advantageous for competition and progress. Yet one region in the world has potential for an even more stimulating environment: Europe. Nowhere else can you find more languages, cultures and countries in a smaller geographic area. This unique mix has led European businesses to develop a special outlook on management—a topic we present indepth in many studies and books.
For this issue, in an exclusive interview, we spoke with BASF CEO Jürgen Hambrecht for his insights on the opportunities inherent in a “European way of management.”
Charles-Edouard Bouée,Alain Le Couédic
China banking industry
The global financial crisis broke out in late 2008. Thanks to a relatively insulated banking system, Chinese banks have largely avoided the global turmoil and have achieved fast asset growth and sound profitability in 2009. However, uncertainty remains.
What will be the impact of 2009 credit growth (as a result of the government's RMB 4 trillion stimulus package)? Will NPLs soar in the next 2-3 years? Will capital markets have a large enough appetite to satisfy Chinese banks' RMB 400-500 (1) bn additional capital raising needs? Will the new mortgage policies hinder Chinese banks' retail loan growth? How should banks further restructure and transform to stand out from intensifying competition?
To better understand Chinese banks' development themes and future prospects, Roland Berger has conducted research on 12 listed banks in China(2) , reviewed the development path of these major Chinese banks since 2005, identified major current trends and will formulate its views on the future outlook of China's banking industry.
Kai Engelmann,Christian Krys,Burkhard Schwenker
Trend shifts have become the norm. Traditional strategic planning has reached its limits. The new edition of think:act content on "Scenario Planning" finds answers on how to build strategies in increasingly complex environments.
Though we appear to have weathered the worst financial and economic crisis in the post-war era, recent months have taught us a valuable lesson: We can no longer trust forecasts. Nor are there any reliable trends that might give us clearer orientation and relieve us of the responsibility to take our own decisions. What we need, therefore, are new tools and methods to support the task of strategic corporate management. One example is a new approach to using scenarios.
We have therefore developed our own more modern approach to scenario planning and put it through its paces in a series of successful projects for major companies. The model is tailored to the needs of top management. It delivers outcomes that are rooted in solid business sense (and data) and takes account of the individual perspective and experience of each company. It also permits unambiguous statements to be made about which scenarios are probable and whether a particular trend is changing direction.
Kai Engelmann,Christian Krys,Burkhard Schwenker
Crisis scenario update
Many signs indicate that the global economy's V-shaped recovery will continue, and that the outlook for Germany and Europe is bright. The stock markets at least have already anticipated a sharp upturn: from the depths plumbed last year, the DAX and EuroStoxx have rebounded by 60%. Upbeat expectations are buoyed by the forecasts of leading research institutions and organizations, according to which Germany's economy will grow by 1.8% and the USA's by 2.9%. In the view of the OECD, China's output will jump by 10.2%. The IWF expects global growth of 3.9%, thereby adjusting its forecast upward by 0.8 points.
We could see all this as welcome confirmation. After all, the first two scenarios we posited for economic development in Europe and Germany saw the V-curve as the probable outcome – contrary to the majority of professional prophets. Yes, our November 2008 publication also underestimated the depth of the recession. On the other hand, our very first scenario got it right about what would fuel the recovery. In April 2009, we analyzed three possible scenarios in detail – the V-, U- and L-curves. Even then, we estimated that the
V-curve was most likely with a probability of 70%. The U-curve had 25% probability and the L-curve just 2% – and we have nothing new to add to these predictions.
Evolution of medicine
Healthcare is causing serious headaches all over the world. The health market has developed into a major growth industry, but is it even possible to make medical progress available to everyone?
Research continues into new diagnostic methods and therapies at unprecedented speed, but are we giving the same priority to developing healthcare and financing systems? And who will look after patients' interests with medicine becoming more and more complex? In addition, needs and standards vary hugely in different regions of the world. These are all issues we must address.
The first "World Health Summit" was held in Berlin in October 2009, bringing together physicians, health economists, industry representatives and health policymakers. For four days they discussed these and other issues, gaining a lot of new perspectives in the process. Roland Berger Strategy Consultants presents some of the ideas discussed in this issue of think:act CONTENT.
Jochen Gleisberg,Michael Zollenkop
Intelligence instead of fear
The instability of the international financial markets has led to an acute capital crunch in recent months. Companies around the world were forced to curb spending. The consequences for innovation management and R&D: companies have thought twice about investments, projects have been shelved, and market launches for new products postponed. But the crisis is also a time for rethinking and offers new opportunities for innovation. Roland Berger Strategy Consultants has identified eight keys to success for research and development management in the current climate.
Systematic innovation management that provides long-term stability must extend beyond short-term considerations during the financial crisis. Globalization and the growing competitive pressure from developing nations have drastically stepped up the pace of important decisions. Many companies are relocating R&D activities directly to target markets in order to accelerate product launches. Furthermore, the sheer numbers and diversity of new product features has increased exponentially. Product development is becoming increasingly complex due to shrinking development cycles and an ever-growing number of variations. Last but not least, laws are continually changing all over the world, forcing companies with global operations to constantly rethink their innovation strategy and react with flexibility. But external pressure, whether from capital markets, the competitive environment or perhaps patent laws, doesn't have to be counterproductive. A challenging environment can accelerate decision-making and even produce innovative solutions, if companies follow some central success factors.
Centralization. Is this all merely a reaction to the global financial crisis? It is tempting to take this view – tempting but wrong. Witness our recent study that investigated the role, structure and size of corporate headquarters.
The study is part of a series. Every three years since 1999, Roland Berger has quizzed large and medium-sized European companies about their management models, structural characteristics, the size and role of their corporate centers, and staff functions. The questionnaires on which the latest study is based were circulated in mid-2008; and the trend toward greater centralization was already in evidence before the financial markets imploded.
At the same time, no-one would dispute that the current economic crisis is indeed confronting CEOs around the globe with new challenges that can only be met by agile, effective organizations. The crisis is simply increasing the pressure that was already there, forcing companies to work more efficiently and (re)act more quickly to changes in their field.
Three questions on the crisis
In November 2008, we were bold enough to present three scenarios for the economic crisis and offer our assessment of how developments would unfold. We argued that the duration and intensity of the crisis depends on getting financial markets working again and on governments making effective interventions. Back in winter, it was not yet clear how hard individual industries would be hit by the downturn and how the BRIC states would react to the crisis.
Since then, the uncertainty has, if anything, grown. The economic analysts are coming up with widely different forecasts. For the German economy alone, predictions range from a moderate 1.5% decline to a severe 7% contraction. In the global picture, we are seeing political unrest spreading and a financial sector still a long way from safety. But on the positive side, a string of governments have acted quickly. And so far at least, there has not been a new wave of protectionism. Economic stimulus packages, like the Chinese program, do appear to be making an initial impact.
So we have decided to revisit our three scenarios from last year and bring them up to date.
We address three central questions:
- How deep will the downturn ultimately go?
- How long will the crisis last?
- How strongly will the upturn kick in?
The impact of the Chinese economic stimulus plan
Different industries are being impacted in various ways by the financial crisis and the RMB 20 trillion + economic stimulus plan in China. Roland Berger believes that there will be more challenges ahead when the financial crisis is over.
As the biggest U.S. debt holder and the second-largest economy in the world, China is facing a daunting reality. The World Bank forecasts that the nominal GDP growth of China in 2009 will hit a historical low of 7.5%, which also touches the bottom line of China's forecast for its GDP growth during the Eleventh "Five Year Plan". Considering the effects of inflation, the real GDP growth could be around just 5%.
Against this background, China’s national government launched China's Economic Stimulus Plan in 2008. The tone of the RMB 4 trillion investment plan is consistent with the Eleventh "Five Year Plan", with focuses on the construction, energy and manufacturing industries. Investment plans on the provincial level were launched shortly after the national plan, which sums up to a total economic stimulus package that exceeds RMB 20 trillion. Compared with the plans of the central government, the provincial level plans cover different industries based on the development status of each province.
Investments in the energy industry and agriculture are mainly financed by the national plan, while investments in the manufacturing, high-tech, environmental protection, education, health care and cultural industries are mainly covered by the provincial plans. Investments in the construction industry, the largest beneficiary among all industries, are contributed by both the national and provincial plans.
Roland Berger has studied the 13 industries that are in the spotlight of the national and provincial stimulus plans. We analyzed the impact of the economic crisis and the impact of the economic stimulus plan on these industries and identified three clusters of industries. We believe that companies in each
cluster should consider adopting different competitive strategies.
Innovating at the Top
Top CEOs from across the globe reveal their innovative approaches to new challenges and opportunities in their business.
More than ever, today's rapidly changing global markets increase the risks and rewards for innovations. But amidst rising uncertainties and greater competition, can CEOs improve their chances of successful innovation?
This book presents eye-opening interviews with CEOs from major international corporations to provide a fascinating insight into the minds of global leaders. CEOs from Research in Motion, 3M, SAP, Genentech, Infosys, Nokia, Unilever, Toyota and Bosch are included. When CEOs across three continents express many similar opinions about stimulating innovation, it is clear there are fundamental principles and methods that all CEOs should explore in order to maximise innovation and success.
Innovating at the Top recommends 10 Key Innovation Drivers based on CEO insights and advice. These innovation management practices will help every CEO to consider proven ways of sustaining stronger innovative performance.
And now? Are we on the brink of a recovery, recession or depression?
The current crisis on the international financial markets has in recent weeks led governments, central banks and businesses to take action that would have seemed unthinkable even a short while ago. What can we expect next? And what can and must businesses do now?
To give some guidance, we have condensed the wide range of possible developments into three scenarios. In scenario 1, the economy recovers quickly (we think this is quite possible). Scenario 2 assumes a recession is coming (which is how most people are currently thinking). Scenario 3 is a depression (which we think is not very likely).
Business needs to be prepared for all three scenarios. We show what businesses should do to deal with the crisis while at the same time leveraging the many opportunities the coming months will offer.
Apple, Bosch and Zara
Where do jobs have future?
In a globalized economy where wage disparities have seen jobs relocate from Berlin to Bangalore, many have lost faith in the future of employment in developed economies. Employers are constantly trying to internationalize to optimize their value chain and generate growth. But must this necessarily come at the expense of domestic employees? International market leaders like Apple, Nintendo and Bosch would disagree. For years they have invested in employment at their headquarters, and relocated only select jobs abroad. Their goal: Maximizing comparative advantage by keeping key jobs at home. Are they isolated examples? How do these companies design their value chains to avoid the downside of globalization? How do they protect themselves at home and stay ahead the global competition?
The system head approach
To answer this question, we examined the value chains of companies in Germany, the world's number one exporter. With the Federation of German Industry (BDI), we surveyed thousands of companies to identify the business functions they are keeping and developing at home to create more jobs. In a second step, we transferred our findings to the international stage, only to find that the same rules applied on a larger playing field.
As the global analysis shows, know-how in developed industrial countries is less mobile than most people think. It's precisely the high-value, knowledge-intensive tasks and functions which leading companies worldwide keep close to home. Around 43% of the staff at the companies we surveyed work in knowledge-intensive areas – R&D, production and sales management, marketing, branding and in high-value production. The future lies in these demanding functions: They are instrumental in controlling global production activities, maintaining the unique value of products and services (which guarantee higher prices) and safeguarding jobs at home.
These key knowledge-based functions give companies the edge. They are what we call "system head" functions: based on unique, intangible resources – know-how, competencies, fine-tuned processes and partnerships – competitors cannot imitate or replace them, at least not in the short term.
System head companies invest disproportionately in research and development: 70% of all system head companies are active in these areas, compared to only 57% of non-system head firms. In system heads, 23% of all staff work in R&D, design and construction. It comes as no surprise that one euro out of four is earned with unique products, whereas comparable businesses generate just 18% of their sales with unique products.
As a result, these businesses have a vested interest in hiring and training people locally for these key competitive areas and promoting them within the company.
System heads: The path toward growth and jobs
Many of the world's leading companies operate as system heads, resisting pressure to cut jobs or outsource key areas completely. System head companies don't only invest in sustainable jobs at home, they excel in other areas as well: Their international expansion is carefully planned to maximize comparative advantage. They build strong national and international networks (with research institutions and partner companies) and know what their customers want. This calibrated strategy promises greater success than simply outsourcing costs to low-wage countries. They have realized that they need to develop and maintain those activities that are vital to their products' USPs at home.
The art of corporate recovery
In the current Standard & Poor’s 500, only 86 of the firms from the original list, compiled 50 years ago, are still in the index. Moreover, when the list was started, a firm that was added to the index could reckon that, statistically speaking, it would remain on the list for 65 years. Today the expected tenure is closer to 10. Change is much more than just a consultant’s buzzword.
It’s a constant of contemporary business, and failing to change in time is a good way to go under. How to prepare a company for rapid change and how to emerge stronger from a crisis are two key topics of our dossier, “The art of corporate recovery.” Change always offers opportunities. This issue of think:act highlights businesspeople and top managers who have transformed opportunities into business.
André Bergen and Rafal Juszczak, for example, were quick to recognize opportunities in central and eastern Europe, and to set their banks’ priorities accordingly. Vern Raburn’s very light jets are on their way to creating a whole new market for business travel. Ghazanfar Ali and Wiqar Ali Khan are bringing MTV, music television, to Pakistan. Excellent examples of successful and consistent mastery of change can be seen in the winners of our “Best of European Business” competition, whose results we summarize in this issue. They demonstrate how strong and competitive European businesses are today. It is no accident that 23 of the world’s 50 largest companies have their headquarters in Europe.
Recently, think:act has been not just a magazine to read, but one to listen to, and this time one to watch as well. This issue’s CD contains a short film with impressions from the “Best of European Business.” Enjoy your reading—and listening and watching!
Achieving operational excellence is an important endeavor for all companies – it is the "holy grail" that leads to increased value over the long term. It is one of the essential strategic differentiation factors that gives answers to company growth, efficiency, cost and profitability issues. Companies that have a functional operational strategy and are prepared to make sometimes difficult changes to improve their business are the "best-in-class". The first edition of think act: International Management Knowledge named "Operations Excellence – Smart Solutions for Business Success" critically examines their strategies and pinpoints approaches that will enable companies to achieve Operations Excellence.
The first edition deals with Operations Excellence. Smart Solutions for Business Success. In four chapters 26 experts from seven countries write on several management issues. In part I approaches and cases from the area of R&D are introduced and debated. Part II is dedicated to trends and approaches in the area of sourcing and purchasing. Part III examines developments in the field of manufacturing. Part IV deals with improving supply chain management, covering aspects such as comprehensive process optimization, reducing complexity and improving working capital.
Learning from the "best-in-class"
The book is dealing with the following questions: What value should a company create itself and what should be achieved by external parties? Where are company's production sites and which key technologies and products take center-stage? How and where does a company manage and support innovation? Where is a company's supplier base mainly located and how can the supply chain be steered to achieve maximum effects?
Operations Excellence takes up these questions. The authors provide answers based on their extensive consulting experience, gained while working with leading industrial sectors over many years. They keep two things in mind: What do leading companies do? And what can be learnt from their approach? Axel Schmidt, head of Operations Strategy at Roland Berger Strategy consultants, says: "This book provides many helpful suggestions that enable managers to achieve operations excellence within their own company."
Three levels of excellence
"There are three levels of operations excellence", explains Roland Schwientek, one of the editors and partner at Roland Berger Strategy Consultants. The first level –strategy-provides companies with information on how they should travel their own path to best practice and the milestones they should see on their medium – and long-term- horizons. The second level is that of performance improvement. It provides answers to questions such as: Which service level must my company reach in order to be competitive and leading edge? What requirements should my company expect from asset productivity and what should be the cap for our various cost types? The third level concerns enablers. This level answers questions about the correct organizational form, best processes, most appropriate human resources and key performance indicators, as well as infrastructure excellence fields such as IT.
Act – don't react!
No time to be idle – Restructuring must remain high on the corporate agenda
It seems as if the bad news never stops: As central banks inject billions into the markets to offset a liquidity crisis, banking giants are facing daily depreciations. Although the impact of the perceived crisis is seen differently in the United States and Europe, the markets' interdependency is fueling uncertainty among companies and consumers alike. Already, the dangerous 'R'- word – recession – is no longer a whisper. US Federal Reserve Chairman, Ben Bernanke, admits the signals are not good. Consumer trust is strained at best. Exporting companies in Europe remain dependent on US market developments. They are watching their revenues dwindle due to the weak US dollar, but still face high Euro-based factor costs. Until now, analysts have drawn a positive economic outlook for Europe's export-oriented countries. But can it last? It is high time for companies to increase their flexibility to ensure that they can respond. True champions don't sit back and wait: They start restructuring measures even when they are still experiencing profitable growth. But many companies still have a lot of groundwork to cover in this area, according to an exclusive Roland Berger survey.
Our analysis revealed that around 8% of Europe's large companies exhibit all the classic symptoms of a strategic crisis. Their competitive position has gradually deteriorated for one of two reasons. Either they have held onto unprofitable businesses for too long, or they have been too slow in responding to major changes in patterns of demand.
Nearly 20% of the companies examined are in fact already struggling with acute earnings or liquidity crises. Fewer and fewer entrepreneurial options are still open to the management. Creditors, suppliers and customers want more than just regular information: In a volatile environment, they want guarantees. In some cases, companies are having to make extensive concessions and having to submit to the terms of strict covenants.
In other words, over a quarter of the companies examined are mired in a crisis of some sort. For many of them, thorough and painful restructuring is the only way out. Our study didn't examine the behavior of niche players. We investigated a thousand large, publicly traded companies that each generate annual sales of more than EUR 500 million – the very heart of Europe's economy. In recent years, the best of these key players have significantly improved revenues, productivity and profitability. They have also nearly doubled free cash flow and are now much better placed to service debts. At first glance, even the worst of the lot do not appear to have done too badly for themselves, boosting their revenues by almost one fifth. But don't be fooled by outward appearances. A closer look reveals glaring discrepancies: Profits are stagnating, cash flows have dropped by nearly 10% and servicing debt has become a serious problem. The alarm bells are ringing loud and clear.
Chasing a moving target
Value creation is a global enterprise. If "low cost" were still the only factor driving the process, then Burkina Faso and Burundi would rank high on the list of most attractive places to do business. Neither country is known for its exports or for attracting direct investment. The interdependence of factors influencing business success today makes many managers uncomfortable. Globalization is driven by highly differentiated factors, adding to the existing complexities of doing business around the world. Managers are thus wondering what will drive value creation tomorrow and in the future.
Can the internationalization of value creation:
- Make a valuable contribution to the core business?
- Mitigate and spread out current financial, currency and product risks?
- Achieve sustainable tax advantages over the long term?
- Produce sustainable capital and labor cost advantages?
- Help the company tap into current and future innovation and knowledge potential?
To be effective, managers must create a roadmap that integrates global value creation and sustainability programs into the overall business strategy. They can thus direct their capital and talent toward the most profitable and sustainable growth opportunities.
The return of diversification
In this issue of think:act, we introduce you to some of the driving forces that are behind the increasing complexity that companies have to deal with: climate change, cities competing internationally as business locations, and the emergence of the BRIC countries (Brazil, Russia, India and China). And we show you how these forces can be transformed into advantages for your company.
For example, the topic of diversification is currently making a comeback. More and more companies are seeking a broader base in order to tap new growth opportunities. Our report gives you an overview of this new “old” trend. In Europe, globalization is generally considered a threat. For example, will we be able to keep jobs in Germany over the long term?
The answer is yes—if companies are able to create centralized management units bundling activities that create high value. This is confirmed by a study that we conducted together with the BDI (Federation of German Industries), and the results of which we now present in this issue. In an exclusive interview, Josef Ackermann explains how his company, Deutsche Bank, makes use of the centralized management approach. We also discuss trends that will prevail around the world until 2030. They were identified in an analysis we performed jointly with the Young Global Leaders at the World Economic Forum.
In addition, we can tell you which industries are generating new growth thanks to climate protection, and we profile promising companies based in Russia, China and Latin America. We hope you enjoy the read.
New opportunities if you act now!
Due to the financial crisis of the last few months, the overheated acquisitions market has cooled off markedly. The good news in all this is that acquisition premiums are falling, and strategic investors are enjoying new flexibility. Thanks to these developments, mergers and acquisitions do have a firm place in the growth strategies of companies again. That’s why, in this edition of think:act, we introduce to you the success requirements for mergers and acquisitions, present to you appropriate strategies and show you the “best practices” in M&A.
As usual, decision-makers and researchers have their say in this edition of think:act as well. Sam Palmisano, CEO of IBM, introduces his model of a globally integrated company in an essay. In an interview, former soccer star Franz Beckenbauer reveals insights into his philosophy. And the professor of business economics André Schmidt introduces a “map of protectionism” drawn up especially for this magazine.
This is the concept that won think:act the Best of Corporate Publishing Award—the top prize for corporate magazines in Europe—this year for the third time running. For us, this recognition is an incentive to continue producing exciting and outstanding magazines. In this edition you will therefore find a few changes. We have designed the layout more clearly. We also have created the new rubric “Work in Progress,” with insights into the ongoing activities of our think tanks. And on page 63 you will find another innovation: a CD with selected contributions from this edition in audio format. Many of you have asked us for this particular service as a convenience for use during your car and air travel.
New opportunities for strategic acquisitions
Mergers & Acquisitions: Europe gains ground
Following the US financial crisis, the once overheated M&A market is cooling off. The good news? Acquisition premiums are falling and are creating new opportunities for strategic investors. Mergers and acquisitions are making a successful comeback and have become a key element of corporate growth strategies. And in recent years, European companies have emerged as increasingly strong players in the global M&A market. There are many reasons for this development. While Europe is currently experiencing a robust economic growth phase, its figures are nowhere near the rate of expansion in the world's boom regions. Organic growth alone can thus not meet investors' expectations. In addition, many companies responded to the 2000/2001 economic crisis by cutting costs, refocusing on their core activities and cleaning up their balance sheets. The successful implementation of these measures has now left them with assets to spare – and in many cases made them strong enough to enter he M&A arena as true global players. Their renewed strength also allows them to deliver expected returns and successfully defend themselves against takeover bids.
European companies have developed an excellent feel for how to select, acquire and integrate other firms. This is undoubtedly linked – at least in part – to the challenges they have long faced, situated as they are in such a fragmented geographic and cultural context. They have become singularly adept at buying and merging with the "right" companies. In 2006, the volume of M&A transactions actually overtook that of the USA. Merger and acquisition deals worth a total of USD 1.59 trillion were closed in Europe, against USD 1.54 trillion on the other side of the Atlantic.
Within the framework of our pan-European "Best of European Business" (BEB) competition, we closely examined the performance of 8,000 European companies. We analyzed five factors that are instrumental to the success of leading European M&A players. They have learned to turn their own domestic market into a strategic advantage in the context of cross-border, intra-European mergers. The findings of the BEB competition correlate closely with Roland Berger's experience over the past four decades, during which we supported countless companies through the acquisition and integration phases.
"The whole is more than just the sum of its parts." (Aristoteles)
Brand management and marketing strategy are particularly successful when the strategy is integrated and practical. Each step must be designed in the same "language" and should be from one source.
This publication shows how "brandmark", the new strategy-toolbox by Roland Berger Strategy Consultants and Burda Community Network can help you do realize exactly this.
Inside, the reader will find information about:
- brandmarks' methodological background and its underlying assumptions
- its various possibilities for branding, market segmentation and marketing strategy as well as implementation
- the new, brandmark-based study on the German automotive market
What is the worlds' most successful region?
What factors turn an economic region into a success story? Around the globe, this question occupies the minds of policy-makers and entrepreneurs—and nowhere is there a greater diversity of opinion than in Europe. How is the Continent positioned economically? How good are its companies, and which ones are the very best? And is there anything that business executives can learn from the “Old World”?
In this special edition of think:act, we want to deliver some answers. In cooperation with leading personalities from the worlds of business and academia, we analyzed 8000 companies in Europe and then selected the “Best of European Business” in the strongest economic regions. The examples of the winners and nominees, and the stories behind their success, are cause for optimism. The winning companies set worldwide standards for growth and profitability.
Our special “Corporate Social Responsibility” award demonstrates that companies taking their social responsibility seriously can even develop new business opportunities from it. Manuel Barroso, President of the European Commission, in his essay for think:act, says that this is where one of Europe’s strengths could lie. Other exclusive articles for this Europe issue come from Jorma Ollila, who calls for more innovation in Europe, and from Timothy Garton Ash, who is looking for Europe’s identity. George Clooney, Zaha Hadid and Rupert Murdoch share their vivid memories of Europe with us.
A matter of life or death
Your hand is accepted anywhere in the world as a bona fide credit card. BMW calls itself a software company. Even industrial espionage agents cannot crack your documents. The people at IT smile benignly when asked where the server room is. When a company is taken over in the morning, its systems are fully integrated before everyone goes home in the evening.
A distant future vision? Not really. In essence, some of the above statements are already present reality. Others are well on the way. The daily routine is going digital – just look at Web 2.0 and “Second Life” – and business processes are changing radically as it does so. Information and content that you used to be able to sell for good money now becomes freely available overnight. Suppliers, partners and customers can and must be integrated more deeply in the value chain. Huge volumes of data, and hence large swathes of functions that used to be strictly internal, can be outsourced at will.
Hitherto distinct markets are converging relentlessly. All kinds of things are being “networked”, with all the opportunities and risks that this entails. In this frighteningly fast-paced environment, quickly spotting the strategic importance of developments in the IT industry is quite literally a matter of corporate life or death. In numerous studies and strategy projects, we have applied ourselves to answering two pivotal questions: What technology trends will have the greatest impact on enterprises in the years ahead? And how will these trends change processes, business models and markets? We would like to share with you what we have found: five strategic dimensions of growth whose profound importance cuts straight across every industry and market.
Successful in Japan
In the fast lane
"What happens in Tokyo will happen elsewhere in the world tomorrow. It’s home to the most sophisticated customers in the world." Yves Carcelle, President of Louis Vuitton
Luxury brand Gucci's largest flagship store is not in Milan, New York or Paris. The eight-story "Gucci Ginza" with its three purse departments, café and sky lounge opened its doors in early November 2006 in Tokyo. The building was erected in one of the world’s most expensive locations, where the price per square meter of land is an estimated USD 140,000. Gucci's reasons are clear: Japan is quite simply its most important market. More than 22% of its worldwide sales in 2005 were generated in Japan. For its competitor Louis Vuitton, the figure was around 30%.
Japan is the world's second largest economy. Its 130 million citizens enjoy enormous purchasing power. This makes it a highly attractive market – and not just for producers of luxury goods. In many respects Japan's economy sets the trends. Some 60% of new animated movies and around three-quarters of industrial robots are developed and produced there. And the fate of new mobile telephone applications and digital cameras lies – literally – in Japanese hands.
And yet Japan's potential is still often underestimated. The fact that Toyota will soon be the world’s biggest automaker is evidence of the West's arrogance. Likewise in consumer electronics, traditional European brands are being swept off the market – today nearly three-quarters of all digital came