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The road to economic recovery: 2010 and beyond Nuclear sector remains strong in crisis Telecommunications: an industry in flux Aerospace: increasing productivity in a down cycle Guideline: Communicating to ensure a smooth change
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Special focus: Fast Moving Consumer Goods
CELERANT C O N S U L T I N G
Contents Guideline: Communicating to ensure a smooth change Communicating well is about more than simply delivering reassuring messages.
p. 4 The road to economic recovery: global outlook for 2010 and beyond How far along are we, and what trends can we expect to see?
p. 6 No economic crisis for the nuclear sector
If employees understand how a change relates to them, they will become its greatest allies.
Increased global energy demand and the fight against greenhouse gases have strengthened nuclear’s position in the production of carbon-free energy.
p. 8 Special focus: Fast Moving Consumer Goods FMCG industry players are fighting off effects of the crisis through increased efficiency and customer focus.
p. 10 Telecommunications: an industry in flux “Closework® The Celerant Change Experience” is a magazine published by Celerant Publishing on behalf of Celerant Consulting. Issue no4 – April 2010 Director of publication: Thibaut Bataille Editor-in-chief: Sabrina Laborde Contributors: Lisa Smith, Sascha Grosskopf, Shane King Design/production: WordAppeal Printing: Imprimerie Edgar Photo credits for cover, p.2 and p.19: iStockphoto Reproduction is prohibited. The words, photos and images in this publication cannot be used without the express consent of the director of publication.
Companies must handle fundamental changes taking place now within the industry.
p. 14 Aerospace: increasing productivity in a down cycle The industry must continue to develop and advance in order to increase productivity.
Communicating to ensure a smooth change
held the position of Supply Chain Manager and
the expected impact on suppliers or subcontractors, for example.
answer questions and, on occasion, respond to employee concerns.
Once the project has been initiated, it’s important to communicate its progress in concrete terms. We have to do more than simply offer reassurance. We have to provide indisputable indicators, letting employees visualise them in charts, videos, etc. Messages like this speak volumes.
The challenge is to convince the parties in the field of the legitimacy of the process underway. If they understand how the change relates to them, they will become its greatest allies and will spontaneously communicate the project to others.”
Deployment Champion for five production units from the Industry division of S.K.F., the world leader in products, solutions, and services for the ball bearing and related product markets. Prior to his current position, he was Supply Chain Project Leader Six Sigma within S.K.F.’s Automotive division and Supply Chain Manager and Purchasing Manager for a production unit. Before joining S.K.F., he spent 15 years with Engelhard-Clal, the world leader in precious metals for finished and semi-finished products, as Supply Chain Manager of a production unit.
How should communication for a project be structured over the long term?
Photo courtesy of Régis Brachet
“When conducting a large-scale project, it’s essential to set out the steps and include them in a roadmap.
“Communicating well is about more than simply delivering reassuring messages. Above all, it means showing employees indisputable indicators of prog ress.” An interview with Régis Brachet, Supply Chain Manager at S.K.F.
Leading up to a project, communicating on its existence and end goal is crucial. At this stage, we have to provide a clear vision of the project and show that we know where we’re headed. We then present more details about the means employed to undertake the project, as well as
Once the change is complete, management prepares a report. At this point, we have to strive for transparency in relating any possible errors or deficiencies, by presenting them as learning opportunities. Of course, it’s important to applaud the commitment of teams and tie their efforts to the transformation project’s results.”
Who are the major players involved in communicating change? “This type of project requires the strong and total commitment of general management. It must address a clear and motivating message to managers, who will then transfer it to line managers, with the support of human resources. In this system, HR plays an important role, working with management to
What are the best practices for communicating change? “Communication must take place in the field, as near as possible to teams, meaning within the service or worksite in question, rather than in an anonymous meeting room. As a general rule, overly theoretical messages in which employees cannot see how the project relates to them should be avoided. On the contrary, a strategic message must be adapted to employee concerns. In international groups, this adaptation must take cultural differences into account. Whether in the United States, or in France or Italy, for example, the same words do not always have the same meaning or the same significance. To assess these differences and broadcast the right message, nothing beats local management.”
The Celerant Change Club Launched in 2008, the Celerant Change Club brings together change management professionals. The Club includes members from both multinationals and small and medium-sized French businesses. Régis Brachet is a founding member of the Celerant Change Club. He explains what he has learned from his participation in the Club:
“Above all, I think the Club provides a highly enriching opportunity for experience-sharing with other professionals facing similar situations. We also share our best practices concerning complex issues, which helps us to advance in our business. The Club broadens my vision of things, as it helps me take a step back from the day-to-day.”
The road to economic recovery:
global outlook Photo: iStockphoto
for 2010 and beyond
How far along are we, and what trends can we expect to see? Dr. Tim O’Neill, Founder and Principal of O’Neill Strategic Economics, offers his perspective on how governments and financial institutions are working toward an end to the global economic crisis.
Dr. Tim O’Neill
is currently a partner
in The Network Executive Team (TNET), and a Visiting Professor in the Fuqua Business School at Duke University, where he earned his Ph.D. Dr. O’Neill was the first H. Ian MacDonald Visiting Economist in the Ontario Ministry of Finance and the first Canadian economist to Photo courtesy of Tim O’Neill
be elected to the Board of Governors of the Washington, DC-based National Association for Business Economics (NABE).
“Still in repair mode, not recovery.” “The way out of the current crisis is through a double stimulus. On the fiscal front, the stimulus packages that many countries introduced in response to the recession will continue into 2010. On the monetary side, it doesn’t look like any central banks are going to raise interest rates aggressively this year. The financial sector is also improving, but we’re not out of the woods yet. The United States, the United Kingdom and certainly some of the smaller European countries are still in repair —not recovery—mode. Governments need to focus especially on improving transparency: for regulators and rating agencies regarding banks’ off balance sheet activities, and for customers concerning what they’re buying. Growth rates this year should be higher than forecasted. If that’s the case, job and asset markets will recover more quickly, consumer income and wealth will improve, and increased spending will follow.”
“Governments rolling out game plans.”
“A return to historical patterns will follow global growth pick-up.”
“Significant improvement in international trade.”
“In the bond market, we’re already seeing a bounce up in the yields required on some sovereign debt. Governments that have seen their deficit levels rise dramatically need to start rolling out game plans for getting back into balance, or at least reducing their deficit-to-GDP levels.
“The current phenomenon of Far East countries surpassing Western counterparts in levels of foreign direct investment is most likely a product of circumstance rather than a fundamental shift.
“The recession would have been more worrisome had there been a dramatic increase not only in protectionist sentiment but actual protectionist policy, but that largely hasn’t happened. A return to sustained 10%+ growth in trade that was the norm between 2004 and 2007 isn’t likely. Most economists would argue that the sustainable world economic growth rate—without creating inflationary pressures and bubbles—is probably closer to 4.00-4.25%. This implies trade growth below 10%.
There is certainly a risk that bond markets will turn against high-debt countries and demand higher yields, but more for smaller countries that have displayed weak fiscal discipline, like Greece, than large economies like the US or UK. However, if rating agencies are openly questioning whether the US debt rating should be downgraded, for instance, that’s an issue that needs to be addressed.”
Emerging economies like China, India and Brazil were already showing clear signs of stronger growth by the second quarter of 2009, when many large OECD countries were still in recession. Global growth should pick up in 2010-2011, resulting in a gradual return to historical patterns (i.e., foreign direct investment flowing predominantly among OECD countries and from Western countries to developing economies). Although some of these emerging markets in Asia and Latin America have large populations, they lag far behind OECD countries in output per capita and hence in fundamental economic strength. Domestic surpluses only go so far to meeting investment needs; for the rest, they rely on foreign capital.”
We are already seeing a significant improvement in the global growth of international trade: possibly growing 6% this year and 7% next year globally. That’s not 10%, but it’s a whole lot better than declining!”
No economic crisis for
the nuclear sector The financial crisis has had little effect on the nuclear sector, due to its longer activity cycle. Demand has remained high, notably supported by the energy needs of countries showing strong growth. Furthermore, the fight against greenhouse gases has strengthened the position of nuclear in the production of carbon-free energy. According to Claude Jaouen, Deputy Senior Vice President of the Reactors and Services Business Group at AREVA, the current context is favourable for the French nuclear group – the sector’s only pure player – which is poised to launch a second wave of EPRTM nuclear reactors. Claude Jaouen, a graduate of the École Centrale de Paris who also holds a PhD in Engineering, has been Deputy
“Investments have simply slipped back two or three years, a small figure for our sector.” “Our market is less sensitive than others to economic fluctuations, thanks to its long cycles: we sell equipment with an operational life of 60 years. It also requires a special regulatory environment and significant investments. For these reasons, demand was only slightly affected by the economic crisis. Of course, this observation must be adapted to each geographic zone and client type. For example, the nuclear market in the United States, which counts a large number of operators, has seen a general slowdown in projects. The situation is different in Europe. Operators like EDF, Enel, E.ON, GDF SUEZ, RWE, Iberdrola and Vattenfall are forming alliances and securing their positions. Investments have simply slipped back slightly to levels seen two or three years ago.
Senior Vice President of the Reactors and Services Business Group at AREVA since March 2010. Photo courtesy of Claude Jaouen
Beginning in 1980 with SGN, he joined AREVA’s site in La Hague in 1997, becoming its Assistant Site Director in 2000. He was then named Vice President, Information Systems, for the group in 2002. In 2003, he became Executive Vice President of AREVA NP, in charge of the Fuel Business Unit (BU). In 2006, he was named Executive Vice President of AREVA, in charge of organisational changes to group engineering activities. He was named Senior Executive Vice President of AREVA NP, in charge of the Plants BU, in 2008.
For countries with strong growth like China and India that already have nuclear plants, the political drive remains strong. In China, we’re seeing an extension of programmes. In addition to the two EPRTM reactors (high-capacity 1,600 MW nuclear reactors) in Taishan, we created a joint venture for the construction of Chinese-model reactors, with a capacity of about 1,000 MW.
In emerging countries, things are evolving rapidly. The United Arab Emirates has just signed a contract, and other countries (Vietnam, Turkey, South Africa, etc.) want to acquire this technology.”
“Nuclear has become a mainstay of carbon-free energy production.” “Looking ahead to the coming years, we can note, first of all, that nuclear policy will not be called into question. On the contrary, it has become a mainstay of carbon-free energy production. Renewable energies (wind, biomass, solar) are promising, but remain marginal in terms of volume. Consumption will continue to increase, but at a reasonable rate. In this respect, we are not counting on a massive development of electric vehicles for another several years. In this context, AREVA’s role is crucial. We must remain the primary supplier of innovative and reliable solutions. To achieve this, we’re relying on EPR TM reactors to spearhead our sales policy, as well as on an extensive portfolio of reactors that boast advances in terms of safety, cost and life cycle. Four EPR TM reactors are currently under construction. The next wave should involve the United Kingdom, France, the US and possibly India. In this market, which is not yet stabilised, we estimate a five-year lead over the competition. We expect the knowledge gained from these experiences to help us maintain our technological advantage.”
special focus: FMCG
Facing a tight economy with limited capital, demanding retailers and shrewd consumers, Fast Moving Consumer Goods (FMCG) companies are taking steps to learn to work more efficiently without taking the eye off customer needs. This means that having the right information at the right time is even more crucial. Cathy Johnson, Vice President, Celerant Consulting UK, offers her perspective.
Cash and cost control is essential for industry suppliers. Photo: Celerant Consulting UK
A recession-proof recipe for consumer success
Cathy Johnson Vice President, Celerant Consulting UK
Responding to consumers In any business, companies will not survive if they fail to supply what customers want. FMCG companies, therefore, must never take their eyes off the consumer. Companies need to ask themselves how they can satisfy—even surpass—consumer expectations and then structure their organisation and operations to achieve that result. Industry leaders go one step further by trying to anticipate what consumers will want in the future and then innovating a solution in a flexible and agile manner. A good approach is to align the supply chain to respond proactively to the market, which requires a real-time flow of information throughout the chain. Silos and barriers are unacceptable. As an example, in the UK, consumers are focusing more and more on the quality and environmental aspects of their food. They want to know, “How far has this product travelled to get to me, and is there a local alternative? What are the ecological consequences of this product’s packaging?” Smart businesses are looking for ways to offer their customers top products and services that address these concerns,
introducing fair trade products, limiting product packaging, and taking measures to reduce their ecological footprint. Innovative changes such as these require funding, not only for R&D but also for the corresponding implementation. A change in packaging will likely necessitate equipment upgrades or a reconfiguration of factory floor lines. On the human resources side, the level of skill demanded in terms of innovation is increasing. Businesses must make employee development a priority, even during a recession, and ensure that skills are being used efficiently within the organisation.
A lean operation In past boom years, credit was readily available and businesses weren’t stopping to ask themselves, “What is this capital actually costing us?” However, as a result of the current recession, capital is scarce, making innovation and project financing more challenging and more expensive. FMCG profit margins are generally tight, especially when compared to margins in something like the life sciences sector. That being said, certain branded goods within the FMCG sector tend to offer higher margins. Even in cases where margins are good, however, businesses must prepare for the possibility that their profits will not last forever.
FMCG suppliers—those within the food industry for example—cannot determine how much consumers will spend or dictate retailers’ demands. However, they can focus on what is within their control: cash and cost. Companies are exploring ways to use internal capital more efficiently through supply chain optimisation. This means casting a critical eye firstly on the amount of product sitting in the supply chain, whether in the form of purchases, semi-finished goods or finished goods. Secondly, it involves an efficiency review of the whole order-to-cash process: from the time between receiving an order, shipping the product out the door, and receiving payment. From a cost perspective, CFOs are more carefully examining the real return on acquisitions, as well as capacity management of previous investments. Finally, CFOs need to encourage their COOs to make the best use of existing and available capacity. Whether businesses are looking to optimise cash or cost, the key is putting the right information in the right hands at the right time. Managers need to be focused on the right key performance indicators (KPIs) and to reject “fair weather reporting” in favour of an accurate, data-based picture of reality. Providing this information is not just the role of an IT system but an integrated supply chain information flow from executive level to the shop floor.
special focus: FMCG
An interview with
The future of the FMCG industry lies in increasing gross margins.
“I see five areas that need attention:
Where does the industry stand, and what are its growth prospects in 2010?
Chairman at Babysam A/S and Sunset Boulevard A/S
“After years of global economic growth, the current downturn forces a ‘back to basics’ philosophy. In FMCG, we have to understand what’s making money today and how to create growth opportunities for tomorrow. The profitability of FMCG companies is built on both product and customer levels. An extended period of economic decline necessitates growth creation through new and existing channels, as well as new business models.
The Fast Moving Consumer Goods (FMCG) industry has suffered immensely during the global economic downturn. Sanna Suvanto-Harsaae
succeed in this challenging environment.
Photo: courtesy of Sanna Suvanto-Harsaae
explains what industry players must do to find growth and
What consumer needs and trends should FMCG companies target?
The future of the FMCG industry lies in increasing gross margins. This is especially true for companies that operate in a complex, multi-country business and/or have a stock-keeping unit range that tends to be very wide. The food industry is a good example. In these cases, understanding category gross margins across customer and channel profitability is the key to growth.”
How can FMCG companies achieve growth? “Right now, it’s essential that all players find alternative ways to grow. Life is getting tougher for FMCG companies, as retailers continue to squeeze out traditional FMCG categories with new introductions. Only those companies that are able to help retailers expand categories will emerge as preferred partners. Those that launch nearly ‘invisible’ consumer upgrades that are only relevant to their R&D departments will lose out. According to Darwin, it’s not the strongest of the species that survives or the most intelligent. It’s the one that’s most adaptable to change. Nowhere is this more accurate than in business. We are going to see more mergers and acquisitions, more companies selling or closing divisions to streamline business, more dedicated ‘niche’ strategies, and more support for the ‘good old brands’ instead of new marginal brands and/or line extensions.”
Sanna Suvanto-Harsaae is Chairman at Babysam A/S and Sunset Boulevard A/S and Member of the Board at Duni AB, Jetpak AB, Candyking AB, Paulig AB, Symrise AG and BTX AS. She previously held leading positions at Reckitt Benckiser, Synoptik and Procter & Gamble.
Price In flat, decreasing markets, retail trade is pushed even more. Retailers use attractive offers to increase store traffic and gain shoppers at the expense of FMCG companies. Convenience Although Scandinavian women have been working full-time for nearly 30 years now, the consumption of take-home and ready-made meals remains surprisingly low. The same is true for online retail sales. It’s a market with huge growth potential. Health A focus on health is fuelling demand for light and low-fat versions of products, functional foods, etc. Environment We’re seeing a move towards eco-efficient systems that help consumers choose products with the least environmental impact. Value for money It’s important to remember that ‘value for money’ is not an objective concept or price point—it’s perceived.”
The increased market pressure placed on single-purpose telecoms in terms of revenue and margin developments, coinciding with the rise of content developers’ business, has signalled a fundamental change that telecommunications companies must manage in the future. Rudolf Gröger shares his view about where the industry is headed and how businesses must adapt to secure a profitable spot in tomorrow’s market.
of Gröger Management GmbH and a member
Photo courtesy of Rudolph Gröger
an industry in flux
Rudolf Gröger is the founder of the Scientific and Technology Advisory Board to the Bavarian Government in Germany. He is the former Chief Executive Officer of O2 Germany GmbH, whose company value grew from €500 million to €10 billion under his leadership.
What are the key changes underway in the telecommunications industry? “Five years ago, certain telecom companies sold only mobile services, others sold only fixed lines and still others sold only cable TV. Today, these traditional lines of demarcation have become blurred. It’s no longer, ‘I can offer you the cheapest mobile voice minute.’ Instead it’s, ‘I’m the brand that can deliver everything you need to support your lifestyle today and tomorrow.’ All of the ‘go-to-market’ considerations—pricing, argumentation, advertising, etc.—have been turned on their heads, as telecoms compete to serve all of a customer’s telecommunications needs. At the same time, with the Googles and Apples of the world bypassing netcos and trying to win customers with applications, telecoms risk becoming simply a necessary conduit. Consumers are demanding fast, high-quality networks, but at all-inclusive, flat-rate prices that don’t allow providers to recoup their infrastructure investments. We have seen few price points that can be defended on innovation alone. What one business does today, its competitor will achieve in four weeks—at 50% of the price to the consumer.
There must be fundamental change in the long term. Everyone is building sports cars, but who is building the autobahn? Telecom and content providers must sit down to discuss new technologies, their bandwidth requirements and network demands, and a new pricing model that’s mutually agreeable.”
Which commercial model will be most successful in the future? “Right now, companies are operating on the premise that they must do everything for every customer. That model is totally changing. Companies need to identify what they’re best at and then focus on developing their brand and consumer awareness based on that competency. Those that fail to specialise run the risk of selling everything to everyone without making a profit. The key is identifying a competitive advantage, streamlining operations to maximise efficiency and then teaming up with the strongest partners before and/or behind you in the value chain. If anything, the biggest risk is that companies will underestimate the degree of change required.”
How can telecom companies grow and maintain their competitiveness? “At the moment, competitiveness can be found where broadband telco and content intersect. Companies need to closely monitor changes in consumer behaviour and interests to identify new opportunities and then align their organisations to capitalise on them. Companies can never afford to be satisfied with what they’ve achieved. The world around them is constantly changing, so the best thing a company can do is to focus on innovating every day. The biggest threat is if your employees are saying, ‘We tested this yesterday and it doesn’t work,’ and then tossing the idea aside. Whatever you failed at yesterday, your competitor will be doing tomorrow. Companies have to motivate their teams to ask the essential question, ‘What can we do better today?’”
Facing drastic volume drops in some markets, the aerospace industry must continue to develop and advance in order to increase productivity. According to Bruno Bernard, Vice President, Improvement Initiatives, for Safran, the company succeeded in responding to the economic crisis with agility by adapting its “plans for progress”. Safran managed to preserve its workforce and take advantage of external growth opportunities, while also preparing for the future, thanks to strengthened R&D.
“Safran constantly pursues productivity, and ‘plans for progress’ have been a part of our tradition for 20 years. This approach is perfectly integrated and implemented at all levels of management. These action plans helped us face the economic crisis, while strengthening our objectives and working methods. In terms of workforce, the crisis required us to greatly reduce new hiring and focus on essential technology skills. In some cases, we did see the need to reduce employees’ work time on production sites, but we managed to avoid layoffs. We also took advantage of several acquisition opportunities. The companies we absorbed are bringing us new markets or technologies in fields where we want to grow. This is particularly evident in the security sector, with personal identification and dangerous material detection technologies, for example.”
“We’re doing everything we can to help our suppliers get through the crisis.” “The crisis may lead certain industrial manufacturers to leave their traditional suppliers behind for competitors in low-cost countries. This is not Safran’s policy. On the contrary, we’re helping our suppliers get through
the recession in any way we can. In particular, we are sharing our methods for streamlining processes with them. At the same time, we support our suppliers when they seek to open locations in countries where Safran is present.”
fluctuations. Nevertheless, investments in France remain high, particularly in the key skills sector, as demonstrated by the scheduled launch of four new French plants in 2010.”
“The market is awaiting new products: as a result, we must optimise the return on our R&D.” “The crisis helped us refocus in order to better prepare for the future. In the next ten years, we must make extra efforts to respond to market expectations, especially through R&D. Our industry spends large amounts on R&D: typically more than 10% of turnover. The challenge is to manage these costs, without reducing our profitability. The solution involves optimising return on our R&D and identifying additional financial resources. To do this, we will reduce overhead, systematically apply improvement methods (e.g., Lean Six Sigma), reorganise support functions and more.
Photo courtesy of Bruno Bernard
increasing productivity in a down cycle
“Progress plans have been a part of Group tradition for years.”
Bruno Bernard, a graduate of the École Polytechnique and the École des Mines, and a Corps des Mines engineer, has been Vice President, Improvement Initiatives, for Safran since February 2008. In this
The pursuit of internationalisation also figures among the next decade’s key challenges. As an actor in the global market, Safran must make investments across the different geographic zones where its clients are located. The development of activities in emerging economies provides a source of competition, while activities based in the dollar zone constitute a buffer against exchange rate
position, he is responsible for all of the Group’s productivity and transformation initiatives. He first worked in the French Department of Industry, then in the cabinets of the Labour and Agriculture ministries, as well as the cabinet of the Prime Minister of France (1982-1993). He then joined Crédit Lyonnais, where he held several operational positions in France and Germany. Mr. Bernard is a Conseiller du Commerce Extérieur de la France (Advisor for French Business Abroad) and a Chevalier de l’Ordre du Mérite Agricole (French Knight of the National Order of Agricultural Merit).
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* Kennedy Information OM market trends 2009-2012 ** The Economist Intelligence Unit 2009 global survey *** Based on payment of client success fees