Following story was described to me by a client whom I was consulted later.
It was a strange coincidence. Last weekend, in one social get together someone asked me if the acronym for CFO is moving from Chief Financial Officer to Chief new Frontier Officer. The logic being that many CFOs are now being asked to explore new territories either to seek vendors or customers. Today, our CFO was asked to explore at least 2 emerging markets where we can start our business.
He should have expected this. It was at his pleading to the leadership team to think out of the box to seek growth. The pleading was based on some numbers that he had seen earlier.
Our growth in the current markets has stagnated despite increase in consumer spending.
Let me back up a bit and share more details.
We have many outlets of coffee & donut shops in North America. About 3 years back, we undertook a major expansion and opened at least 50 more stores in places where our brand was well known. We saw decent return on investment. Some of the new locations seem to be stagnating.
Another factor, which I am sure is playing on the CEO’s mind is that the dispensable income in the emerging market is growing significantly.
To me the 2 new economies that are growing well were India and China. Both countries are very populous. People have money to spend. Our product is not very expensive and does not take a very long time to develop taste for. There will be competition in the market but no very intense.
The obvious way to open outlets was through franchise model. It was practically impossible for us to open the outlets by ourselves.
This much was clear and did not require any analysis. Next part was more challenging.
Our business processes for everything are set up well for US markets but these 2 are new markets for us. Setting up operational process that included procurement, store management, preparation etc had to be done. Our Intellectual Properties (IPs) had to be protected. Sales & marketing, we would have to leave it up to the franchisee owner to decide. That is a local decision and left best to people on the ground.
I also decided to open the first outlets that used to have many American companies. That information was provided to me by the American embassies in respective countries.
From being involved in many mergers & acquisitions, one thing that I have learnt is that IT systems which have procedures embedded in them have to be provided in order for the model to work. Otherwise, you lose control of the business.
I decided to write procedures for procurement and store management using data from existing system.
I first started by cleaning the material master. Any material that was not used in last 6 month was removed. For any material that was not available in the local market, substitute material was identified. The recipe with alternate material was tried to ensure that our original product taste was maintained. Product for which material which was not available locally and there was no substitute, was dropped from the menu.
Taste of our products depended on the freshness of some of the ingredients. In US, we had developed process to ensure that fresh ingredients, were made available. Store racks were designed specially. Procedures were developed to ensure fresh ingredient usage. This was done after researching customer feedback. We did a detailed analysis and identified the root causes for low feedback. We realized that the customers noticed even smallest change in taste which is generally caused by the change in raw material.
For the new system, we implemented some measures that would tell us any time material, although still good and can be used, but does not meet our specification was not to be used. This was not an easy job. We had to look at the data closely to understand the patterns that would help us set up the control.
I worked with the IT team to set up reporting that would allow us to monitor the conformance of our procedures on a weekly basis. Systemic alerts would alert me if there were any violations.
In 6 weeks from the time my CEO told me to look for new markets, I had not only identified the markets & cities, I had set up procedures which would ensure that our brand name would not be risked. As a business, we were ready to look for the right business partner.
I think, this is what is called “Business @ the speed of thought”.