At Bullant we make sure we know our place in the world of business transformation. This is an article that helps us to focus our attention and we reckon it is a good resource for our clients as well.
We’ve distilled business transformation into 10 types and we’d love to know if you have any others.
Here are our 10 types of business transformation in order of impact;
1 Mergers and Acquisitions
One of the best known mergers and acquisitions in the process industry occurred when Heinz (owned by 3G Capital) merged with Kraft. The Kraft Heinz merger by 3G Capital, and supported by Warren Buffet (Warren Buffet is actually the biggest shareholder), was huge and on the surface it looked like a typical private equity strategy of slashing costs. But 3G Capital seem to have a much more sophisticated strategy based on extraordinary, some would say aggressive, operating skills.
Critics say that the “buy, squeeze, repeat” pattern has flaws, particularly in relation to long term developments such as real product innovation. Also businesses can get so big that they start hitting anti-competition restrictions. This can be seen with their other high-profile investment, AB InBev.
2 Divestitures and Exits
Kraft was itself a divestiture made by Mondelez in 2011. This was a complicated process where Kraft Foods was split into two publicly traded companies; Mondelez International was set up to concentrate on snackfoods while Kraft Foods Group, specialising in grocery, was split off. Kraft Foods Group later merged with Heinz to become KraftHeinz.
Closer to home, this continuing strategic focus by Mondelez International motivated it’s divestiture of grocery brands, including Vegemite, to Bega Cheese Ltd in 2017. Mondelez International see their strategic growth plan as focused on core snacks categories and global power brands. Bega Cheese Ltd, on the other hand, see the addition of these grocery brands as an important part of their push towards becoming a more diversified FMCG business.
3 New products & innovation
Steve Job’s iPhone launch in 2007 is still one of the best market introductions ever. The iPhone was an iPod, a mobile phone and an internet “communicator” all bound up in a revolutionary touch screen device. At the time it was a game changer.
Steve Jobs also had some clear ideas on what constitutes true product innovation as can be seen in this interview from 2013. His ideas are a cautionary tale for large companies in the process industry as well as the technology industry.
4 New business models
Rolls Royce Plc, which manufactures aerospace parts and engines, moved from manufacturing jet engines to focusing on its field service operation. TotalCare, the company’s flagship service program, has three elements: operational support, repair and overhaul, and information management. This is all supported by a service model called “power by the hour”, in which Rolls Royce clients are guaranteed an engine and replacement service for a fixed sum per flying hour.
Today, over 80% of Rolls Royce engines include TotalCare and the package itself has overtaken new sales to account for over 60% of total revenues. On the strength of TotalCare, the company was able to move into new markets during the 2008 recession.
5 Different strategic focus
There are three general competitive strategies;
- Cost Leadership – A company using this strategy must ensure that it has well developed systems for monitoring and controlling costs, productivity and inventory levels.
- Differentiation – An organisation’s ability to provide a product that differs in some way from the competition. Includes customer service, lead times, quality, demand responsiveness/agility, short product life cycles.
- Market Segmentation – this segmentation could be based on a customer group, product line, geographical location.
6 Bottleneck liberation
There are 3 ways of relieving bottlenecks in supply chains:
- More customers
- More suppliers
- More capacity
Closer to home, Bega Cheese Ltd recently purchased the Peanut Company of Australia so it can work with local farmers to expand plantings and increase domestic supply of peanuts into its recently acquired peanut butter factory in Port Melbourne.
7 Network redesign
Several developments have propelled network redesign toward the top of the agenda, including heightened postmerger-integration activity, higher transportation costs, the desire for more efficient and more carrier-friendly routes to market, and the recognition that fast-growing new channels present vastly different operational and shipping challenges.
Logistics and storage costs savings are often quoted in the order of >10%. Simple network design can be done on a desktop using the linear programming tools in MS excel. More sophisticated, multifaceted modelling is better done with a more comprehensive 3rd party system such as the systems offered by Llamasoft.
8 Footprint consolidation
Declining volumes and cost pressures are often the drivers of footprint consolidation. It can include closing plants, consolidating production lines, and centralising regional volumes.
Soon after the KraftHeinz merger, 3G wasted little time in announcing they would close seven plants in North America and consolidate production in other locations, eliminating some 2,600 jobs.
9 Disaster recovery
Most of the disasters we see in the process industry cause extreme customer delivery performance issues. These disasters are usually caused by either a poorly executed project (capital, product or supply chain) or a force majeure.
10 Incremental improvement
Incremental improvements are usually motivated by a need for cost savings. Here’s a list:
- Human resource restructuring/headcount reduction
- Benchmarking (e.g. SCOR)
- New technology/capital
- Production and inventory flow improvement
- Logistics improvement
- Line and product extensions
- Factory performance
- Raw material and supplier development
- Yield improvement
- Waste reduction
- Market share increase
- Quality improvement
- Customer service improvement