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Published: August 26, 2008

 
 

Design for Frugal Growth

The difficulty of this task and the critical role of the core executive team are often underestimated. Not every capability is a candidate for the core portfolio; some contribute strongly to growth while others lag. Corporate leaders must place bets on which business units will be most adept at using, learning from, and developing the company’s distinctive skills and technologies. These business units need aggressive funding; others should be more consciously managed for the bottom line, with a short-term focus on innovation.

Ability to Leverage Scale
As consumer products companies meet global demand, they bring capabilities along. Products and brands must be customized for new markets. A wide variety of retailers must be engaged as customers. And old practices must be adapted to new cultures and locales.

Leveraging of knowledge and capabilities on this global scale requires direct networking among business units, removing the bottleneck at the corporate core. Because Amberville had never built up those sorts of contacts, its leaders studied companies, like Johnson & Johnson, that had a good track record. J&J moves people among its business units frequently, encouraging employees to maintain their presence in informal networks with their former coworkers.

Amberville is now finding its own ways to foster global networking. For example, its Middle East business unit leads research and development in the frozen-drinks category, because several frozen-drink researchers are located there; the rest of the regions adapt the flavors that come out of their work.

Management fashion is full of stark choices: Centralize or decentralize? Global or local? Cost or growth? There’s a long-standing proverb in the system dynamics field: “You can have everything you want, but not all at once.” In the 1990s, many consumer products companies decided that they would give up growth in order to have the security of lower expenses. Now they are riding the pendulum back to growth. But in the end, those who succeed in growing their company will do so with all their frugality intact. With an organization design in place that balances the roles of the core, the business units, and the functional infrastructure, they should be able to have it all.

Reprint No. 08305

Author Profiles:


Jaya Pandrangi is a principal with Booz & Company in Cleveland. Her work focuses on strategy as well as sales and marketing effectiveness for consumer products companies.

Steffen Lauster is a partner with Booz & Company in Cleveland who focuses on strategy development and revenue management initiatives for consumer products clients in the U.S. and Europe.

Gary L. Neilson is a senior partner with Booz & Company in Chicago. He helps companies diagnose and solve problems associated with strategy implementation, organizational effectiveness, and efficiency.

Also contributing to this article was Booz & Company Partner Leslie Moeller.
 
 
 
 
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Resources

  1. Barry Jaruzelski and Kevin Dehoff, “The Customer Connection: The Global Innovation 1000,” s+b, Winter 2007: Study of R&D spending data shows that alignment with strategy and customer insight boosts the impact of innovation on performance.
  2. Andrew Martin, “In Live Bacteria, Food Makers See a Bonanza,” New York Times, January 22, 2007: Story behind the Danone launch of Activia yogurt.
  3. Gary L. Neilson, Karla L. Martin, and Elizabeth Powers, “The Secrets to Successful Strategy Execution,” Harvard Business Review, June 2008: Complements the suggestions in this article by showing why effective organizational redesigns start with decision rights and information flow.
  4. Sankaran Venkataraman, “PepsiCo: The Challenge of Growth through Innovation,” University of Virginia Working Paper No. UVA-S-0133, 2006: Compelling case study of Pepsi’s innovations and growth strategy, demonstrating many of the precepts in this article.
  5. For more thought leadership on innovation, sign up for s+b’s RSS feed.
 
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