StratChat: Winning Moves for 12 Industries

Wednesday, February 22, 2012

Winning Moves for 12 Industries - Booz & Company

Every industry faces its own challenges in 2012’s turbulent, uncertain economic environment. These capabilities systems could pave the way for business growth and development in a dozen key sectors.

In a prolonged period of economic weakness, it’s easy for business leaders to focus their attention on the external macro-level challenges facing them: political and regulatory uncertainty, skittish consumers, rising commodity prices, and slowing GDP growth in emerging economies. Each industry also has its own challenges and uncertainties. For example, pharmaceutical companies are contending with a dramatic wave of patent expirations on blockbuster drugs — at a time when overall growth is slowing and R&D productivity is slumping. The chemicals industry is changing dramatically because of the sudden boom in natural gas from shale rock, producing a surfeit of raw material for ethylene-based plastics. The retail banking industry is transitioning from a high-margin business to a lower-margin one. And in commercial aerospace, the Boeing–Airbus duopoly is eroding as new companies from China, Russia, and Canada enter the industry.

Yet it’s not enough to look externally; internal factors make all the difference. In good times and bad, some companies succeed while others fail. Success is determined in large part by the particular mix of capabilities — the combination of processes, tools, knowledge, skills, human capital, and organizational forms — that companies deploy. That’s why, particularly in difficult years like those we’ve experienced recently, every corporate leader should be asking, “Do we have the capabilities we need to win in our industry going forward?”

All companies need at least two types of capabilities. The first group of capabilities are prerequisites for entry into a sector. Kellogg School of Management professor Thomas Hubbard calls these “competitive necessities”; we at Booz & Company call them “table stakes.” For example, every consumer products company must manage a supply chain; every oil company must meet environmental and safety requirements; every telecom operator needs to develop and reliably maintain its network technology.

Distinctive capabilities make up the second group: They are unique to each company’s identity, linked to its strategy, and hard for competitors to copy. A company’s investment decisions, operating model, and product and services mix align to support and enhance these differentiating capabilities. In successful companies, these combine into a mutually reinforcing “capabilities system,” defining what the company does well, and are applied explicitly to everything it does: every product and service it offers, every market it enters, and every deal it makes (including M&A). (See “The Capabilities Premium in M&A,” by Gerald Adolph, Cesare Mainardi, and J. Neely, forthcoming in s+b.) Whether in aerospace, consumer products, or telecom, companies that succeed in building such a system are invariably better positioned to outperform competitors. Disney’s excellence at marketing to youth and Amazon’s proficiency with online retailing are two prominent examples.

Every year, Booz & Company industry teams take a step back to think broadly about the challenges and opportunities their client companies are likely to encounter in the months and years ahead. This year, these efforts included a concerted emphasis on identifying the capabilities and capabilities systems that are most likely to result in success in home markets and around the globe.

What follows is a sample of the thinking from these teams. For each of 12 industries, we’ve highlighted just one or two distinctive capabilities as intriguing sources of strength. (Links to longer, more comprehensive write-ups for each industry by the same authors are also provided.) Not surprisingly, some recurring themes emerge. Capabilities that enhance a company’s digital platform loom large in consumer packaged goods, retail, retail banking, and wealth management. In automotive, healthcare, and pharmaceuticals, capabilities that allow a company to operate more efficiently and effectively, rendering it “fit for growth” (in Booz & Company parlance), are of central importance.

We hope this collection of vignettes provides you with ideas and perspectives about what capabilities you can develop in any industry as your company sets forth to grow stronger.