Transform and Thrive How to Win in China’s Era of Uncertainties

How to Win in China’s Era of Uncertainties

Companies Must Tackle Economic Slowdown, Trade Tensions, Technology Disruption and Other Challenges by Changing from Within, say BCG’s Latest Findings on Corporate Transformation

DALIAN—Corporate leaders should adopt the maxim “If it ain’t broken, fix it anyway,” according to a new working paper by BCG. The paper, “Transform and Thrive: How to Win in China’s Era of Uncertainties,” discusses the firm’s latest findings on preemptive transformation. It was released today at the World Economic Forum’s Annual Meeting of the New Champions 2019, also known as Summer Davos.  

With China going through a time of unprecedented changes, the way to survive and win is to constantly transform to new realities, say the authors. The firm defines transformation as “a fundamental reboot that enables a business to achieve a dramatic, sustainable improvement in performance and alter the trajectory of its future.” Key to a successful transformation in China today is anticipating changes and acting preemptively, rather than waiting to react to market forces.

“Whether they’re confronting market access issues, economic slowdown, changes in the supply chain, or technology disruption, companies operating in China have to be almost paranoid and open to new, more radical ways of thinking,” said Lars Faeste, the Managing Partner of BCG Greater China and coauthor of the working paper. “It’s time to focus on optimizing business and going for operational excellence, while at the same time growing and thinking expansively.”

Opportunities in Challenging Times

The challenges in China’s economy also present opportunities. Most leaders in China today face a situation in which parts of their business stand to lag behind amidst change while other parts hold massive potential. They need a dual approach, managing for operational excellence with the required details and discipline to improve day-to-day, while at the same time identifying the most attractive growth opportunities and aggressively executing on those.

Companies in sectors that are important to China’s GDP but vulnerable to change, including technology, electronics, and automotive manufacturing, are starting to recognize the urgency of taking action.

“In the past, companies became used to seeing their revenues grow by double digits each year,” said Fang Ruan, a BCG partner who co-authored the working paper with Mr. Faeste. “Now they have to identify how they can grow stronger and more resilient rather than just bigger.” The uncertainties in China today mean that companies must be preemptive, anticipating future scenarios and maximizing their operational excellence now. Then they must continue striving to optimize the business to fund the journey and produce cash flow that allows them to invest aggressively in new growth areas that are coming to the surface.

Rewards for Those Who Act Fast   

Based on the latest research and experience working with more than 750 corporate transformations across different industries over the past decade, BCG found that companies that transform preemptively showed a growth in value, reflected in total shareholder return (TSR) that, on average, was 6% higher over a three-year period than the TSR of companies that had transformed reactively. Furthermore, preemptive transformations were accomplished in 15% less time, at 20% lower costs, and with 20% fewer changes needed in the leadership.

“It pays to be paranoid, always questioning whether what you’re doing is good enough, even when your company is currently winning,” said Mr. Faeste.

Making Transformation Pay Off

BCG warns that simply cutting costs and reducing procurement is not a transformation. In an era when companies must adapt to a new environment, it’s particularly critical to view preemptive transformation as a strategy for continued growth. BCG says funding the journey requires a series of simultaneous measures that include cost reductions through tactics such as supply chain efficiencies; procurement excellence; boosting revenue through such means as revamped pricing models and improved customer targeting; streamlining the organization and improving capital efficiency.

BCG also identifies key ways to make the investment in transformation pay off in increased productivity and value, including:

  • Short term tactical moves to fund the journey e.g. from operational metrics such as procurement, supply chain, pricing, organizational simplification.
  • Long term orientation: significant investment into R&D, digital business models, talent acquisition, and marketing.
  • Acquisitions that harness the target company’s competencies to create more transformation.
  • Digital initiatives that enable cost efficiencies and expand service offerings.
  • A large-scale transformation program that factors in the entire company rather than a collection of smaller programs for each business unit.

A transformation is a complex undertaking, and the majority fall short of expectations for achieving their full target value, coming in on time or doing both. But the economic uncertainties in China today, especially when combined with the increasing pace of technological change and volatility, all point to a need for corporate leaders to be vigilant in determining what risks they might face in the next few years and acting preemptively. 
A copy of the working paper can be downloaded here.

To arrange an interview with one of the authors, please contact Vincent Wang at +86 138 1821 9004 or wang.vincent@bcg.com.

About Boston Consulting Group

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