‘Companies that will take bets all along, even big bets, but not bet-the-company bets will prevail’ Jeff Bezos
In our times of transition and acceleration, an increasing number of FMCG categories are being disrupted and are about to be disrupted (cf. FMCG CEOs: 7 Things You Must Know About Direct-To-Consumer, Why Not Acting Is Not Anymore An Option and How to Go About It ). The question is no longer whether your categories will be disrupted or when will it happen but rather which companies will ultimately prevail.
The question is no longer whether your categories will be disrupted or when will it happen but rather which companies will ultimately prevail
When FMCG leaders ask for advice, I often say that the starting point is humility and a sense of urgency. Humility because there is a diversity of strategic scenarios and all the scenarios need to be put on the table. A sense of urgency because there is no time left for contemplation or inaction.
It starts with humility and a sense of urgency. Humility because there is a diversity of strategic scenarios and all scenarios need to be put on the table. A sense of urgency because there is no time left for contemplation or inaction
We all well know how hard it is to drive (self)-disruption at pace and at scale. In 1997 already, Clayton Christensen in his famous book ‘The Innovator’s Dilemma’ explained this point well. Since then, many companies have dramatically failed:
More will come. This is only the beginning.
The future could have been dramatically different for these companies if their CEOs had taken different decisions. In retrospect it is easy to blame those CEOs. Most likely if we would have been in their shoes, we would have taken similar decisions based on the information available at that time. But what is left for us now is to learn from them.
Most likely if we would have been in their shoes at Kodak, Blockbuster, Yahoo…, we would have taken similar decisions based on the information available at that time. But what is left for us now is to learn from them
No one can be always 100% right, it is impossible. The issue is, in the digital disruption age, an error of judgement on a critical point can literally cost you the survival of your company and an error on just one important point can cost you billions. This is the challenge of the current landscape, one which is governed by exponential dynamics and is why it is so important to hedge your bets. Here is how:
In the digital disruption age, an error of judgement on a critical point can cost you literally the survival of your company
Great leaders do not have answers to all questions but they know how to identify the right questions. Those questions that will drive the survival or the death of their companies. That’s what I call the Survival Questions. Here are few examples:
It starts with connecting the dots of exponential dynamics (ecommerce, social media, artificial intelligence, 3D printing, block-chain…) and identifying those Survival Questions.
The question is: Is your company equipped to identify those Survival Questions? To lead the required change at pace and at scale?
The question is: Is your company equipped to identify those Survival Questions? To lead the required change at pace and at scale?
Most FMCG companies have now set-up business model innovation groups to drive (self)-disruption. They are sometimes at the edge of the organization like in Pernod-Ricard (Breakthrough Innovation Group) and in Unilever (The Hatch House) or at the center or outside through partnering with incubators (L’Oreal Founders incubator). They are fantastic tools to innovate, overcome organizational inertia and ‘anti-bodies’, to instill a culture of experimentation, trial new business models, incubate and scale-up acquired Exponential Organizations, etc…
But such teams often operate with a ‘brief’; they are sometimes not 100% free to operate the way they want. If they want to entirely disrupt the mother company (I am not talking about incremental changes like just adding a direct-to-consumer channel there) and trial a radical business model that may well destroy 100% of the mother company’s source of profit, very often they cannot.
Additionally, such teams may be composed of your brightest and most entrepreneurial talents but at the end of the day, most have spent their entire careers in your company and they might not have all the skills to address those radical challenges alone. Many in private admit that they could do with some help to structure and steer their efforts. Many recognize that business model innovation is uncharted territory.
This is precisely why when CEOs face Survival Questions and they cannot afford to be wrong, they tend to hedge their bets, identify multiple scenarios, involve external experts and bet on all of them at the same time. That is what Cisco has been doing.
This is precisely why when CEOs face Survival Questions and they cannot afford to be wrong, they tend to hedge their bets, identify multiple scenarios, involve external experts and bet on all of them at the same time. That is what Cisco has been doing.
Technological companies have always operated in an environment of unpredictable standards, one in which the market can suddenly tip from one technology standard to another. At such most technological companies have been systematically hedging their strategies as Cisco has done.
As Salim Ismail explained in ‘Exponential Organizations: Why new organizations are ten times better, faster, cheaper than yours’, Cisco has always pursued a Hedging Strategy. Cisco funds new internal businesses focused on the current standard that Cisco prefers. At the same time, Sequoia Capital, its original venture capital vehicle, finances an outside team – one often staffed by former Cisco employees – which is dedicated to pursuing the competing standard. (The alternative firm has a pre-agreed-upon purchase price from Cisco in case the market tips in the other direction). In this way, Cisco covers both of its bases and maintains its agility in an uncertain marketplace.
At a time when FMCG companies are becoming increasingly like technological companies and are experiencing exponential changes in their business, having a thorough Hedging Strategy is no longer optional .
At a time when FMCG companies are becoming increasingly like technological companies and experience exponential changes in their business, having a thorough Hedging Strategy is no longer optional
When CEOs face Survival Questions and there is not enough evidence to take a risk-free decision, the best option is to hire a Black Ops team to hedge the decision.
This is an extreme case but when CEOs face Survival Questions and there is not enough evidence to take a risk-free decision, the best option is to hire a Black Ops team to hedge the decision.
The traditional definition of a Black Ops team is a covert, disruptive organization that is clandestine and not attributable to the organization carrying it out. The objective becomes to explore the non-pursued decisions and to build a business with the objective to disrupt the mother company. Some companies hire a Black Ops team to complete an assessment and a war-gaming exercise. Some other companies that are on the cusp for disruption are using them to build another independent company from scratch in order to hedge their bets.
Although there is no one-size-fits-all, companies tend to hire Black Ops team when:
The bigger is the problem, the higher the sense of the urgency is and the lower the availability of the right skills and resources is, the more suited is the use of a Black Ops team.
The bigger is the problem, the higher the sense of the urgency is and the lower the availability of the right skills and resources is, the more suited is the use of a Black Ops team.
When CEOs face Survival Questions or even Multi-Billion profit questions, they usually set-up not only an internal team (Blue Team) to drive (self)-disruption but also an external team (Red Team) to challenge the internal team’s work. In this way, two perspectives are brought to the table and bets are hedged.
In this way, two perspectives are brought to the table and bets are hedged
We still see too many Business Model Innovation Groups or internal Blue Teams struggling to reach their objectives. The reason is often because of a lack of skills and ineffective governance. The best-in-class Business Model Innovation Groups have the following in common:
Over the last 18 months, we have been assembling a team of FMCG experts, former entrepreneurs and business model innovation experts in our Zurich hub, with the objective of co-creating the future of the FMCG industry. We have been extensively interacting with leading FMCG companies.
What we see is that there are very few Business Model Innovation Groups that display the above characteristics. As we have seen from the above, the consequences of not having the right people and of not asking the right questions can be disastrous for large FMCG companies, especially for the companies with categories on the cusp for disruption: beauty, personal care, some household segments, consumer health, nutrition…
There are very few Business Model Innovation Groups that display the above characteristics. Consequences can be disastrous
What is left for us FMCG leaders is to learn from those companies (Blockbuster, Kodak, etc…) and from those categories that have been disrupted (blades & razors). It starts with displaying humility, putting all the scenarios on the table and acting with a sense of emergency as inaction and contemplation are no longer an option.
What is left for us FMCG leaders is to learn from those companies (Blockbuster, Kodak, etc…) and from those categories that have been disrupted (blades & razors). It starts with displaying humility, putting all the scenarios on the table and acting with a sense of emergency as inaction and contemplation are not anymore an option
The real question is: Do we want to be remembered in the next decade as the next Blockbuster, Kodak or Yahoo leaders or as the leaders that have successfully adapted and built new business models in the FMCG industry? It is our exciting challenge for the years to come.
The real question is: Do we want to be remembered in the next decade as the next Blockbuster, Kodak or Yahoo leaders or as the leaders that have successfully adapted and built new business models in the FMCG industry? It is our exciting challenge
As often I will close this article with the opening quote:
‘Companies that will take bets all along, even big bets, but not bet-the-company bets will prevail’ Jeff Bezos
Frederic Fernandez
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If you are interested in discussing more on the above, you can reach out at:
frederic@fredericfernandezassociates.com
Frederic Fernandez does not own any stocks or financial instruments of any FMCG companies or companies mentioned in the above article. All the above information are public information.
About the author:
Frederic Fernandez is an expert and thought leader in the FMCG industry. He is the Managing Director and Partner of Frederic Fernandez & Associates a bespoke Strategy Consulting Firm exclusively focused on the FMCG industry. His focus areas are mainly in growth and profit turnaround, corporate strategy, direct-to-consumer and business model innovation in the FMCG industry. His passion is to help FMCG leaders co-creating the future of the industry and to develop, achieve and exceed the potential of their business. He spends his time advising Fortune 500 FMCG senior leaders globally. He is based in Zurich, Switzerland. He is also a sought-after speaker and speaks across the globe at trade associations and for corporate clients (CEO strategy meeting, yearly strategic reviews, senior management events) about the FMCG industry. Before joining the world of management consulting, he worked with Fortune 500 companies like Procter & Gamble, Reckitt Benckiser, PriceWaterhouseCoopers and Societe Generale in leadership positions across Europe (France, UK, Nordics, Germany, Switzerland, Austria), Central Africa and India.