Strategic tools for the practising manager

KIT

THIS WEEK: THE HEALTHCARE AND BEAUTY PRODUCTS MARKET IN INDIA

The market for health and beauty products currently stands at $24 billion.

Organised retail formats contribute to a mere 1-1.5 per cent of healthcare and beauty care product category sales, while the share of organised retail trade format in India is 3-4 per cent of total retail sales.

There has been a shift in consumer mindset from "curative" to "preventive" with 14 per cent of the healthcare spending on preventive healthcare.

The personal care and grooming industry is also growing, with 2.1 per cent share of total household wallet of Indian consumers going to personal care.

The category mix is also evolving with the pharmacy component decreasing from 80 to 50 per cent, and the health and beauty segment increasing.

Moreover, impulse purchase items mainly from the FMCG stack are becoming the drivers for improving bottom lines.

All India sales from chemist stores in 2010 is expected to be Rs 49,000 crore ($10 billion).

Selections from management journals
NUGGETS

Over the next 20 years, India will likely grow to become the world's fifth-largest consumer economy. A study by the McKinsey Global Institute suggests that if India can achieve 7.3 per cent annual growth "" a reasonable assumption if economic reforms continue "" consumer spending will quadruple, from about Rs 17 trillion ($372 billion) in 2005 to Rs 70 trillion in 2025.

The dramatic growth in India's middle class, from 50 million to 583 million people, will power this surge. Spending patterns will shift dramatically as expenditures grow rapidly on discretionary items ranging from personal products to consumer electronics.

Incumbents will have to fight to retain their market dominance, while attackers could find lucrative ways to exploit the evolving tastes of India's massive new middle class.

Tracking the growth of India's middle class
By Eric D Beinhocker, Diana Farrell and Adil S Zainulbhai
The McKinsey Quarterly
Number 3, 2007
Read the complete article at www.mckinseyquarterly.com

Many executives are surprised when previously successful leadership approaches fail in new situations, but different contexts call for different kinds of responses. Before addressing a situation, leaders need to recognise which context governs it "" and tailor their actions accordingly. Snowden and Boone have formed a new perspective on leadership and decision making that's based on complexity science.

The result is the Cynefin framework, which helps executives sort issues into various contexts. Simple contexts are characterised by stability and cause-and-effect relationships that are clear to everyone. Often, the right answer is self-evident.

In this realm of "known knowns," leaders must first assess the facts of a situation "" that is, "sense" it "" then categorise and respond to it. Complicated contexts may contain multiple right answers, and though there is a clear relationship between cause and effect, not everyone can see it. This is the realm of "known unknowns". Here, leaders must sense, analyse, and respond.

In a complex context, right answers can't be ferreted out at all; rather, instructive patterns emerge if the leader conducts experiments that can safely fail. This is the realm of "unknown unknowns," where much of contemporary business operates. Leaders in this context need to probe first, then sense, and then respond.

A leader's framework for decision making
By David J Snowden
and Mary E Boone
Harvard Business Review,
November 2007
Subscribe to this article at www.hbr.com

As the dust settles on the recent frenzy of private equity deals (including transactions topping $20 billion), what lessons can companies glean? Directors and executives of public companies may now be slightly less fearful of imminent takeover, yet the pressure remains: they face shareholders who wonder why they aren't getting private-equity-level returns. Rather than dismiss the value private equity has created as manipulated or aberrant, public company leaders should recognise the disciplined management that often underlies it.

Robert Pozen, a longtime leader in the financial services industry, finds that in the aftermath of buyouts, companies undergo five major thrusts of reform. These translate into five key questions that directors should pose to senior management: have we left too much cash on our balance sheet instead of raising our cash dividends or buying back shares?

Do we have the optimal capital structure, with the lowest weighted after-tax cost of total capital, including debt and equity? Do we have an operating plan that will significantly increase shareholder value, with specific metrics to monitor performance?

Are the compensation rewards for our top executives tied closely enough to increases in shareholder value, with real penalties for nonperformance? Finally, does our board have enough industry experts who have made the time commitments and been given the financial incentives necessary to maximise shareholder value?

Boards that ask these questions, and act on them, won't just beat the takeover artists to the punch. They will build stronger businesses.

If private equity sized up your business
By Robert C Pozen
Harvard Business Review,
November 2007
Read this article at www.hbr.com

Consolidation, cutbacks and competition from the web "" these are the headlines grabbing the attention of business journalists around the world. Concerns about the quality of reporting and information have risen steadily as the industry has undergone dramatic changes.

How has global expansion affected the standards of news organisations? What role does investigative journalism play in an age of around-the-clock cable news updates and shrinking budgets? Knowledge@ Wharton spoke with four news professionals from the US and abroad to discuss the state of business journalism.

'A fragmenting of the audience': The state of business journalism
Knowledge@Wharton
October 31, 2007
Read the complete article at http://knowledge.wharton.upenn.edu/

Entrepreneurs love to grumble about the roadblocks and delays created by bureaucrats. Government officials, they say, are slow, bumbling and concerned only about sticking to the rules and clocking out at 4:55 p.m.

But in a study of global entrepreneurship, Raffi Amit and Mauro Guillen, both Wharton management professors, have found that a simple, if smart, bureaucratic initiative mattered critically in determining a country's level of entrepreneurship.

In global entrepreneurship, one small initiative can make one huge difference
Knowledge@Wharton
October 31, 2007
Read the article at http://knowledge.wharton.upenn.edu/