CASE STUDY

Building trust in change A critical look at the status quo helped a global consumer electronics leader regain its competitive edge The client(3) Headquartered in Asia, the client is one of the worlds best-known names in consumer electronics. The situation The client had been steadily growing and profitable for decades. But despite its overall success, the company was dissatisfied with the performance of one of its core business units. The business unit had been losing money, and sales did not meet the companys aspirations. The outlook wasnt encouraging, either: The market was flat, and competitors were growing stronger. The client had previously sought help from other consulting groups, with lackluster results. Some managers were skeptical of another attempt. Contribution and Effects of Consulting Work 1. Global reach. We tapped into our global network to quickly develop and apply insights gathered from retailers and consumers in markets worldwide. 2. Local expertise. Our teama included people who understood the local culture and could forge strong relationships with the client while working onsite. 3. Manufacturing expertise. Our knowledge of manufacturing and supply chains enabled us to find ways to simplify processes and save costs. 4. Long-term relationships. The client trusted our knowledge of the company and its culture. This gave the company the confidence to overcome resistance to change and accept challengingbut necessaryrecommendations. Our close relationship with the CEO and the business unit assured that the recommendations would be implemented.

Impact

Although it will take up to three years to see the full effect of the study, the client has made significant progress in transforming its organization, with a 40 percent increase in profitability the first year. 1. Better product mix. Rather than offering all of its products in all of its markets, the client is committed to selling the right products in its best markets. It is cutting its product lines from six to three, and making more focused investments in R&D and marketing. 2. Lower costs. Companywide efficiencies and improvements will ultimately reduce the clients manufacturing and supply chain costs by 15 percent. The company is relocating a manufacturing plant, centralizing purchasing, improving management of design-to-cost, and making changes in product quality aimed at increasing customer satisfaction. 3. Stronger infrastructure. The client is increasing its marketing and sales staff, creating dedicated product and category managers, and adding a market intelligence group. The Problem The client was rooted in the past and averse to change. Its business unit still did things as it always had, and had never taken a hard look at its costs. What would it take to be more competitive? Where could costs be trimmed? How could its operations be simplified? Second, the clients marketing and sales efforts were fragmented and ineffective. It lacked deep insight into retailers and consumers. As a result, it wasnt responding to changes in what its retailers wanted or needed, and it hadnt taken advantage of its worldwide reach with a global marketing strategy. Finally, management wasnt aligned on what it would take to meet the companys growth goals. While the business unit was doing very well in its competitive home market, it was underperforming everywhere else. It was selling more than 100 products in over 15 markets around the world, but wasnt strong in any one market or any single product line. Which markets should it focus on? Should it eliminate unprofitable products? What were its best opportunities to increase profitability and promote long-term growth?

Staffing

The study relied on two teamsone focused on operations and the other on marketing. With members from Asia and North America, the teams worked independently across the globe and collaborated to develop their joint recommendations. The operations team worked in the clients corporate office and manufacturing plants in Asia. The team included specialists in R&D, purchasing, manufacturing, supplychain management, and finance. The marketing team concentrated on understanding the clients biggest opportunity: North America. They also investigated two other important regions: Europe and Asia. A study was conducted. Overall, 11 partners from seven offices and consultants from another five offices participated. To coordinate our work, we met by conference call at least once a week and in person twice. X was one of the partners in charge of the project. He helped manage the relationship with the client and helped the clients leaders reach agreement to move forward with our recommendations. Y, our leader in Asia, was the engagement director and advised the team. A served as engagement manager for the operations team based in Asia. It included specialists in all aspects of operations, from R&D to purchasing, manufacturing, and finance. B was the engagement manager for the U.S.based marketing team. Each team member became an expert in a particular appliance. C, a partner based in Detroit, advised the team.

Client

Initially, the people in the business unit were wary of what they saw as an auditing of their internal affairs. Our first priority was persuading the group that everyone wanted the best for the company and its people. Their participation would be critical to the success of the study. The operations team examined every facet of how the client developed, manufactured, and shipped its products to find ways to update and simplify processes and reduce costs. For example, it found that by applying best-practice strategic sourcing approaches, the client could save as much as $200 million a year. The marketing team crisscrossed the globe interviewing retailers, customers, and contractors. They studied the industry, assessed the competition, and analyzed market trends. And they examined how the clients products were performing, looking for underlying reasons for why certain products were unprofitable in certain markets. Their insights would help the clients marketing and sales organization better understand and respond to shifting market conditions.

After two months, the teams recommended a three-part strategic approach:

1. Focus on aligning products with the most profitable markets. 2. Reduce costs by improving the operations across product development, purchasing, manufacturing, and the supply chain. 3. Expand the clients sales and marketing organization and better equip it to serve the changing needs of retailers and consumers.

These were big changes that required a radical shift in the clients thinking and behavior. We knew the recommendations would succeed only if the client truly believed in them and owned their implementation. So we shared our ideas early on in our work to give ourselves a chance to understand and respond to senior managements questions and reactions. We asked what information they needed to be confident about our recommendations. Over the next month, we addressed their questions and built their confidence in the plan.

Discoveries

Performance reports from the business unit to the corporate organization often focused on the wrong information. Improved reporting systems would make it easier for top executives to identify which areas of operations or sales needed attention. In the early stages of product development, there was little communication between R&D, manufacturing, and marketing. We saw an opportunity to increase profitability by factoring costs and sales forecasts into the initial product planning stages. Although certain products did not sell well in certain countriesthe style and size of a product that did well in China wouldnt sell in France, for examplethere were far more similarities than differences across markets. An integrated global product strategy was not only feasible but likely to succeed. The companys management had to achieve change. Even though the client had helped develop the recommendations, there was some resistance within the organization to adopting them. After we addressed his questions, the CEO told the entire organization he planned to follow the recommendations. His personal example helped shift the organizations mindset, making widespread change possible.

Impact

The studys sponsor, the clients head of consumer marketing, talks about working with us: Our relationship with McKinsey has gone very well. Through the right kinds of conversations and McKinsey people understanding our needs, I think we've come a long way. First of all, we have made sure to involve the right functional expertisemarketing expertise from B, customer and supply chain expertise from C, to name just two people. But second, the piece that really is key is the engagement managers and teams who know our business. They customize the research and the consulting projects and really give us what we need. The depth of thinking has been very, very good. We have put together a very talented group of people to work on the business. When I say depth of thinking, I mean two areas: The first is not just things that are easy to say on paper, but thinking through what will actually happen in the marketplacethinking in terms of long-term strategic impact. The second thing is making sure that the recommendations are right for our organization. That kind of talent, expertise, the right people, understanding of our business, and the depth of thinking has been very, very helpful for us.

By the end of the study, the client decided to do the following:

1. Exit unprofitable product lines. 2. Invest heavily in R&D to strengthen its three remaining product lines. 3. Increase its marketing and sales force substantially. 4. Take measures to reduce the costs of its manufacturing and supply chain by 15 percent.

Highlights

It was quite a growth experience for me to manage a global team and a global client. I would try to understand whats going on by watching body language and listening to the translator. After a big meeting its customary to go out and drink with your colleagues. And there are three things you do in Asia: You eat, you drink, and you sing karaoke. We did all of those. I was amazed at the partners ability to rap. In one meeting I had to argue with a senior client member. I respectfully told him I could prove my point of view. I was worried I was making a mistake, but after the meeting my colleagues told me I had done a good job by showing confidence in that situation, and that is what that is expected from consultants. As we picked through numbers with the client, we changed our perspective in one week. It turned out every time they sold one particular product in the United States, they lost money. Just to get to that number was exciting.

Question

1. What do you think are the most important characteristics in managing computer systems in an organization?