annie-spratt-1283174-unsplash
The changing tides of facing complexity.
Peter Sebisch

Peter Sebisch

For a long time, the con­sumer goods sec­tor was regard­ed as absolute­ly cri­sis-proof. For 40 years, con­sis­tent growth fig­ures of over 15% were typ­i­cal for the com­pa­ny giants in this sec­tor. But times have changed, growth has been slow­ing down, con­sumer loy­al­ty is decreas­ing and entry bar­ri­ers are crum­bling. The reac­tion has been Merg­ers and Acqui­si­tions. Nev­er­the­less, the fig­ures for these large com­pa­nies are stag­nat­ing. 
Now the ques­tion aris­es — why?

To under­stand “the why” one first must have a basic under­stand­ing of the indus­try and the mar­ket.

FMCG market snapshot

 

Key behav­iors:
– Brand and prod­uct devel­op­ment are opti­mized for the mass mar­ket.
– Part­ner­ships with large retail chains are very close to gain pref­er­en­tial access to con­sumers.
– Ear­ly expan­sion into emerg­ing mar­kets.
– Glob­al syn­er­gies through strong cen­tral­iza­tion, cost con­trol and func­tion­al excel­lence.
– Merg­ers & Acqui­si­tions to achieve the for­mer.

Addi­tion­al­ly, one must rec­og­nize that times have changed, and var­i­ous new trends are affect­ing the indus­try. To name a few major trends, see the fol­low­ing list:

New Gen­er­a­tions show dif­fer­ent con­sumer behav­ior

Like the gen­er­a­tions before, the new gen­er­a­tion has deeply impact­ed the con­sumer behav­ior. They val­ue oth­er things such as an emo­tion­al bond to the pre­ferred brand and whether, for exam­ple, the prod­uct has not been test­ed on ani­mals.

Changes in mar­ket­ing

New chan­nels for mar­ket­ing (e.g. Twit­ter, Snapchat) are tak­ing over and supercede clas­sic chan­nels like TV and radio. Not to men­tion the 1.5 mil­lion cos­met­ic videos uploaded month­ly to YouTube alone show a fun­da­men­tal change in mar­ket­ing chan­nels. Espe­cial­ly since most of the videos are uploaded inde­pen­dent­ly by the con­tent cre­ators and serve a con­stant­ly grow­ing num­ber of users.

The suc­cess of small­er com­pa­nies

High mar­gins attract many new com­peti­tors into the sat­u­rat­ed mar­ket. Small com­pa­nies have iden­ti­fied new­ly emerg­ing nich­es as their mar­kets, using the trends described above and their fast deci­sion mak­ing to their advan­tage. Addi­tion­al­ly, they have already achieved a mar­ket share of 10% in the beau­ty cos­met­ics mar­ket.

The E‑commerce pow­er­hous­es have become strong com­peti­tors

Ama­zon and Aliba­ba are dom­i­nat­ing the E‑commerce mar­ket on a glob­al scale. Their influ­ence on prices is increas­ing by the day, and if their inter­ests are not matched, they can eas­i­ly cre­ate their own pri­vate labels as com­pe­ti­tion.

The list of trends could be end­less — there­fore it is impor­tant for us not to rec­og­nize every sin­gle trend but to rec­og­nize that the trends emerge from very dif­fer­ent roots. How­ev­er, they have one thing in com­mon: they all describe a new envi­ron­ment estab­lished orga­ni­za­tions find them­selves in.

To give a cur­rent exam­ple, put your­self in the shoes of an employ­ee at L’Oréal, Coty, Inc or Estée Laud­er: It is the year 2016 and you are sit­ting at your desk at one of the biggest cos­met­ics com­pa­nies in the world and get a notice that a new com­peti­tor has entered the mar­ket. The name? Kylie Cos­met­ics. Launched by Kylie Jen­ner, she is offer­ing a match­ing set of lip­stick and a lip lin­er — the “lip kit” for $29.

Sounds nice? Maybe this is what you were think­ing back then: “Just anoth­er one of these small com­peti­tors enter­ing the mar­ket, only to dis­ap­pear again in the same breath. No threat to us at all.”

Two years later

You sit at the same desk and stare again and again at the Forbes mag­a­zine from August 2018. The cov­er shows Kylie Jen­ner aka the “Cos­met­ics Queen”. And you keep ask­ing your­self one cru­cial ques­tion: “How the hell could this hap­pen?” There was a detailed plan, you had a bud­get and every­thing seemed like busi­ness as usu­al two years back.

 
© https://www.forbes.com/sites/forbesdigitalcovers/2018/07/11/how-20-year-old-kylie-jenner-built-a-900-million-fortune-in-less-than-3-years/

A brief insight into how this became reality

With­in two years, Kylie Jen­ner trans­formed Kylie Cos­met­ics into “One of the Hottest Make­up Com­pa­nies Ever”. As of now, the com­pa­ny has sold more than $630 mil­lion worth of make­up and Forbes val­ues it at near­ly $800 mil­lion. And she built up the com­pa­ny with employ­ing only 7 peo­ple.

How did she do it? Through out­sourc­ing.

Man­u­fac­tur­ing and pack­ag­ing is done by Seed Beau­ty ( a pri­vate-label pro­duc­er in Cal­i­for­nia); Sales & Ful­fill­ment is done by the online out­let Shopi­fy; Finance and PR is man­aged by her moth­er. What Kylie brings to the table is the sheer insane num­ber of peo­ple fol­low­ing her on social media. Insta­gram? Over 110 mil­lion fol­low­ers! Nuff said.

The moral of the sto­ry: any­body can become your com­peti­tor; a 7‑employee busi­ness can become the com­peti­tor of a 82.000-employee bil­lion-dol­lar orga­ni­za­tion.

Here’s a story for you…

Com­plex­i­ty that com­pa­nies face due to chang­ing envi­ron­ments and mar­kets has become immense. The word “com­plex”(Impor­tant! Not to be con­fused with “com­pli­cat­ed”) describes a state of the dif­fer­ent­ly inter­con­nect­ed rela­tion­ships with­in a sys­tem. It refus­es sim­pli­fi­ca­tion and always remains mul­ti-lay­ered. Depend­ing on the depth of lay­ers, deci­sions tak­ing process­es are dif­fi­cult to struc­ture and there­fore require a new approach. From his­to­ry we know, a sim­pli­fied approach to a prob­lem has a high prob­a­bil­i­ty to gen­er­ate even worse prob­lems. There­fore, the sys­tem to find the solu­tion must be at least as com­plex as the sys­tem that gen­er­at­ed the ques­tion in the first place.

To make it less the­o­ret­i­cal, here’s an exam­ple for bet­ter illus­tra­tion:

When the British Empire was rul­ing half of the world, they were fac­ing a cobra plague in British India. To solve the prob­lem, the local gov­er­nor took a sim­ple approach — he decid­ed to pay a boun­ty per dead cobra, with­out eval­u­at­ing the under­ly­ing incen­tives that were cre­at­ed. The result was the cre­ation of a new indus­try, as local entre­pre­neurs start­ed to breed cobras just for the sake of killing them and col­lect­ing the boun­ty after­wards.

Once the British noticed what was hap­pen­ing, they sim­ply reversed their deci­sion, which led to the death of the new indus­try because the cobras became kind of worth­less. Instead of now killing the cobras, the breed­ers released them. The result was a larg­er cobra pop­u­la­tion than ever before.

What hap­pened?

A sim­ple solu­tion to a com­plex ques­tion hap­pened. The British did not under­stand the com­plex­i­ty of the sys­tem. They came up with a sim­ple solu­tion that even­tu­al­ly destroyed the sys­tem.

The way com­pa­nies have been struc­tured over the past decades has been ide­al for a com­pet­i­tive envi­ron­ment char­ac­ter­ized by pre­dictabil­i­ty and con­tin­u­ous opti­miza­tion. How­ev­er, the ten­sions between these two and an increas­ing­ly notice­able unpre­dictabil­i­ty have reached a break­ing point.

The big ques­tion we ask our­selves at 1789 is: “How can com­pa­nies respond to the ever faster pace of change and acquire the flex­i­bil­i­ty nec­es­sary for a com­plete­ly new com­pet­i­tive envi­ron­ment?” A lit­tle fur­ther up in the arti­cle, the answer is already men­tioned: com­plex­i­ty on the mar­ket side can only be tack­led with ade­quate orga­ni­za­tion­al com­plex­i­ty.

But how can a com­pa­ny do that?

We at 1789 believe that com­pa­nies must take the next rev­o­lu­tion­ary step, because clas­sic lin­ear orga­ni­za­tions are not designed to reflect com­plex­i­ty.

What is need­ed are adap­tive and fast-react­ing struc­tures, what we call “Respon­sive Orga­ni­za­tions” — Orga­ni­za­tions that are geared towards enabling a rapid flow of infor­ma­tion, pro­mot­ing holis­tic learn­ing, adapt­ing deci­sion-mak­ing process­es to social real­i­ty and thus defin­ing dai­ly work in orga­ni­za­tions as a col­lab­o­ra­tive net­work.

Examples? Here you go.

Infor­ma­tion flow
Due to an ever faster flow of infor­ma­tion, the gen­er­al con­di­tions on the mar­kets can change with­in min­utes. The sheer amount of infor­ma­tion avail­able has made it impos­si­ble to pre­dict which infor­ma­tion will be use­ful and which will not. In an increas­ing­ly inter­con­nect­ed world, the open exchange of infor­ma­tion is indis­pens­able for joint entre­pre­neur­ial suc­cess. This goes hand in hand with a high degree of trust among the mem­bers of the orga­ni­za­tion in which infor­ma­tion is rel­e­vant for cor­re­spond­ing actions.

Deci­sion Mak­ing
The best insights and knowl­edge are not cen­tral­ized at the top of the hier­ar­chy but are with the peo­ple clos­est to the cus­tomer. Instead of putting them in the chains of process­es and hier­ar­chies, cut them loose and empower/ inspire them to work at their own dis­cre­tion strate­gi­cal­ly, struc­tural­ly and tac­ti­cal­ly. Intro­duce agile meth­ods, encour­age exper­i­men­ta­tion and con­tin­u­ous learn­ing to achieve bet­ter results.

Con­flict Res­o­lu­tion
If a con­flict exists in a com­pa­ny, it is usu­al­ly resolved by means of the usu­al esca­la­tion along the orga­ni­za­tion­al hier­ar­chy. How­ev­er, the ques­tion now aris­es as to whether this is still appro­pri­ate at all. Instead of hier­ar­chy- and ego-dri­ven con­flict solu­tions, mod­er­at­ed dia­logue for­mats are required that ide­al­ly take place on an inter­nal team lev­el.

Reflec­tion Spaces
Mak­ing deci­sions is risky, and it is impos­si­ble to make the right deci­sion every time, just as impos­si­ble as try­ing to iso­late your­self from all the risks in advance. Instead of des­per­ate­ly try­ing to pre­vent things from going wrong before­hand, it is nec­es­sary to give peo­ple the time and space to think about their deci­sions. This implies, in par­tic­u­lar, the pos­si­bil­i­ty of self-cor­rec­tion.

Com­mu­ni­ty Build­ing
Tech­nol­o­gy and con­nec­tiv­i­ty have enabled us to large­ly orga­nize and facil­i­tate our col­lab­o­ra­tion our­selves. Work­ing in a net­work enables us to react quick­ly and adap­tive­ly to exter­nal influ­ences. There­fore, it is time to enable employ­ees to build a com­mu­ni­ty and indi­vid­ual net­works in which con­nec­tions can be made based on the respec­tive infor­ma­tion needs, instead of want­i­ng to ensure this via hier­ar­chies.

At a time when employ­ees are expect­ed to be increas­ing­ly agile and inno­v­a­tive and at the same time iden­ti­fy more strong­ly with their work, com­pa­nies must rec­og­nize that their own orga­ni­za­tion­al frame­work must be changed for this to hap­pen. Final­ly, here’s your inspi­ra­tional quote of the day, cap­tur­ing the essence of the arti­cle:

“If we keep doing what we’re doing, we’re going to keep get­ting what we’re get­ting. One def­i­n­i­tion of insan­i­ty is to keep doing the same thing and expect dif­fer­ent results” [Stephen R. Cov­ey]

I am Peter, Part­ner at 1789 — Beyond Rev­o­lu­tion , a strate­gic con­sul­tan­cy with a focus on help­ing orga­ni­za­tions cre­ate new struc­tures and empow­er­ing teams. Do you agree or dis­agree with my thoughts? Do you want to share your sto­ry? Please leave a com­ment below!

Leave a Reply

© 2019 All rights Reserved. 1789 Innovations AG