The companies analyzed that have achieved the most growth and profitability, have one common variable: a focus on the market as one of the driving forces for their strategies.
What makes a company have greater growth and profitability than other companies within its sector?
That is the question we want to respond through an investigation that Sintec has been carrying out among the companies with the most growth and profitability in Latin America. This document presents partial results of this investigation, which is still underway.
In the first place, we comment on the methods and results of an investigation, conducted by Sintec, to identify the companies with the most growth and profitability, as well as to determine these companies’ degree of maturity and development toward the model for “Market-Driven Value Chain” (model developed by Sintec which allows the alignment of the entire company to fulfill the requirements and challenges of the market that concerns it, positively impacting the growth and profitability of the companies). In the second place, we discuss which actions and strategies are being followed by the companies that have the most growth and profitability in Latin America. Finally, we present the conclusions to date.
1.METHODS AND RESULTS OF THE STUDY
The study “Lessons from the Companies with the Most Growth and Profitability in Latin America” led by Sintec and developed together with the ITBAC (Technological Institute of Buenos Aires) and the Colombian School of Engineering Julio Gravito, includes 28 public companies in Mexico, Colombia and Argentina grouped into three large groups: B2B (Construction, Steel, Auto Parts, Chemicals), B2C (Food, Beverages, Personal Care) and Retail (Modern Chanel, Department Stores, Wholesale).
These companies were evaluated in two main dimensions (see image 1):
a) Quantitative Dimension (Economic Results).
- 4 indicators were evaluated and their results were normalized, with 0 indicating the lowest performance and 1 indicating the highest performance.
- These 4 indicators are: % sales growth, % net utility growth, returns on assets, inventory turnover.
b) Qualitative Dimension (Maturity toward the Market-Driven Value Chain model).
- Using information obtained from analysts, we evaluated 16 points grouped into 5 large families. A grade of 0 is considered to be the minimal level of alignment with the market while 5 is the maximum level of alignment with the market.
- These 5 large families are: market understanding, commercial strategy, supply strategy, commercial management and execution, and supply management and execution.
- There is a clear group of companies with high economic performance and a high level of maturity in their practices.
- The economic performance is not only in function of the maturity in their practices, there are other factors that have influence on these companies.
- There are no companies with high levels of practices and low economic performance.
2. COMPANY ACTIONS AND STRATE GIES
By examining the details about each of the 5 families that compose the qualitative dimension we can obtain valuable knowledge about what actions and strategies the leading companies in growth and profitability are following.
a) Understanding the market (commercial and operative intelligence).
- Development of areas of market intelligence and/or knowledge management to share information between different areas in the company.
- Generation of means and tools to obtain market information (internal and external sources).
- Collaboration, in terms of information and practices, with key clients and suppliers.
- Creation of a strategy for growth in alignment with the market.
- Definition of growth strategies by type of client/ product/ channel.
An example of best practices in this area is Grupo Nacional de Chocolates in Colombia. They have been able to develop new products, which represent
14% of their income, by understanding the needs of their consumers and perfecting their advertising campaigns toward their clients (Dinero Magazine, 08/06/2009).
b) Commercial strategy (consumer value proposition: product strategy, price, promotions, product launchings; value offers for the clients: figure of client attention, conditions of service).
The practices followed by the leading companies in this area are:
- Development of customer value propositions (portfolio, prices, launches, promotions) differentiated by segments.
- Differentiated client attention and service depending on client classification.
- Product delivery through different channels.
- Landing strategies for market understanding.
One example of a leading company in these practices is Wal-Mart, which uses multi-format models that allow them to differentiate their value
proposition in accordance with the needs, tastes and budgets of their buyers. (Dinero Magazine, June/2009 ).
c) Execution and Commercial Management (attracting orders, order management, commitments to the market, executing commercial development policies, and service offers).
The practices followed by leading companies in this area are:
- Being agile in defining growth strategies by client/product/ channel type.
- Clear mechanisms for attracting, follow-up and managing orders in accordance with segment/cost/needs.
- Fulfilling their commitments in quantity and time.
- Fluid and coordinated process from the time the order is taken/ received, until it is paid.
An example of best practices, in this sense, is OXXO with its system for automatic ordering on inventories in stores. (FEMSA, Annual report 2007).
d) Supply Strategy (strategies for inventories, storage facilities, distribution, supply assurance).
The practices followed by leading companies in this area are:
- Coordinated strategies for supply, production and distribution, always looking to reduce the total cost of the chain instead of the isolated cost of each link.
- Inventory strategy aligned with the strategy and the processes of the company’s supply chain.
- Location of the Distribution Center and inventory management depending on the main client groups.
An example of this is Wal-Mart, which has a precise inventory for each format, thus differentiating its management based on the type of store and consumer. This permits them to carry out better merchandise rotations. (Dinero Magazine, June/ 2009).
e) Execution and Supply Management (Distribution, Sales and operations planning, Production, Materials management/ Products management, Collaboration with suppliers).
The practices followed by leading companies in this area are:
- A distribution aligned with the strategies and processes of the supply chain.
- Visibility of the demand, throughout the chain, to the supplier of the raw materials.
- Close collaboration with suppliers (clear processes, service evaluations, feedback for improvements).
One example, in this sense, is Kimberly Clark, whose distribution centers have cutting-edge infrastructure supported with Warehouse Management System WMS. (Enfasis Logistica Magazine).
3. WHERE IS YOU COMPANY? WHERE WOULD YOU LIKE TO BE?
The question: What makes a company have greater growth and profitability than others within its sector?
CONCLUSION
The answer we found is that the difference is in their Business Model; specifically that they use models that begin with how to create value from the market and that emphasize the following aspects:
- Generation, dissemination, and use of information from clients and competitors.
- Relevant, segmented, and integral value propositions.
- Coordinated execution of interfunctional resources in order to execute value propositions in an impeccable and optimal manner.
As the companies accomplish the development of a model that allows them to differentiate themselves from the competition, they will be able to generate a competitive advantage that will allow them to strengthen their position on the market, enabling a sustained and profitable growth. The great challenge is to define which actions each particular company should to take, depending on the context surrounding it, and how to make these business directives become a reality that generates growth and profitability.
Easy to say but difficult to do.
Oscar Lozano, Sintec
oscar.lozano@sicweb.wpengine.com
About Sintec
Sintec is the leading consulting firm focused on generating profitable growth and developing competitive advantages through the design and execution of holistic and innovative Customer and Operations Strategies. Sintec provides a thorough and unique methodology for the development of organizational competencies, based on three key elements: Organization, Processes and IT. Furthermore, Sintec has successfully carried out more than 300 projects on Commercial Strategies, Operations and IT issues with more than 100 companies in 14 countries throughout Latin America. Our track record of more than 25 years makes Sintec the most experienced consulting firm in this area of expertise in the region.
Ciudad de México: +52 (55) 5002 5444
Monterrey: +52 (81) 1001 8570 / 01 800 112 8570
Bogotá: +57 (1) 379 4343
Sao Paulo: +55 11 3443 7433
informes@sicweb.wpengine.com
The results indicate the following:
• There is a clear group of companies with high economic
performance and a high level of maturity in their practices.
• The economic performance is not only in function of the maturity
in their practices, there are other factors that have influence on
these companies.
• There are no companies with high levels of practices and low
economic performance.