Businesses looking to build their region portfolio must act with care to ensure expansion is resilient and sustainable. Here is five key lessons to successfully deliver growth.
The perfect picture for any business in a given region is to have mature, profitable and successful operations running in all key countries. But this cannot be achieved overnight. Regional growth is complex and fraught with risk.
For business leaders, region development is like a jigsaw. It’s a matter of finding the right pieces, including people hires and acquisitions, to fit at the right time. The wrong choices can lead to poor investment as well as commercial liabilities.
In achieving this we’ve sharing five factors that we believe can help businesses to choose the right pieces to build their own jigsaw to ensure resilient growth:
- Clients
- Competencies
- Culture
- Collaboration
- Commercials
A strong regional growth strategy starts with client demand.
It’s essential to understand the market appetite for your products and services within a given country and sector. Only then can you make informed decisions about how to cater to it.
Before you invest – whether it’s hiring staff or acquiring an existing company – you must have a clear picture of what your clients are looking for today, and what they’ll need in five years’ time. Both judgements may influence your decisions on the ground.
In the UK for example, BearingPoint has an ambition to win greater business in the telecoms and media sectors. With our practices in this sector thriving in other countries, we have an opportunity to leverage skills and expertise cross-border to take a stronger position in the UK. We expect that this regional approach to a local challenge will pay dividends, particularly when courting clients with multinational ownership.
Client demand heavily influences growth strategy, but once formulated, the strategy needs to be adhered to closely. It’s easy to be distracted by a prime opportunity, but if that opportunity lies in a sector that’s not aligned to your strategic ambitions, the temptation should be resisted.
Expansion in a key country depends on a thorough understanding of your existing local competencies.
A measure of realism is needed: a large-scale client demand can’t be serviced by a small team that has only a few of the competencies needed. If the gap between your current competencies and your ambition is great, an acquisition may be the answer.
Conversely, if client demand in a country is modest, investing in building knowledge and resources may not be the right move. Regional leaders often come under pressure from their national counterparts to expand regardless, but this pressure must be resisted if it won’t pay off over time.
Heatmaps can be valuable tools to show at a glance where your existing teams are strongest, and where they need augmenting. But you need to always be conscious that gaps only need to be filled where the client demand forecast is healthy.
In 2023 we’re looking closely at the sustainability consulting sector in the Nordics and Netherlands.
It’s a thriving market with strong demand. We could perhaps have built a team from scratch to cater for this growing need, but our acquisition of I Care in 2022 gives us a valuable opportunity to leverage our competency and learnings from the French market. The outcome will be the acquisition of a sustainability firm that will give us a much stronger consulting proposition in the region.
Sometimes, the scale of opportunity demands a complex hybrid strategy. You might choose to leverage both a strong existing presence in a third market, hiring and acquiring locally, but also combine this with nearshored competency elsewhere in your region.
Of all the factors to consider in growing a business regionally, culture is perhaps the most critical. Whether you’re hiring personnel or making an acquisition, the importance of cultural fit cannot be overstated.
A deal may look great on paper. It may align with client demand, expand your competencies and appear financially attractive. But if a new hire or acquisition will not fit with your group’s existing culture, it should be avoided.
High-performing region leaders are astute when it comes to judging this cultural fit. They understand both intuitively and from experience that you can’t have two competing cultures within the same organization.
Two exercises can help in avoiding cultural mismatches:
- Know your own group’s culture: understand your own organization, and define in detail the culture that actually exists, rather than an idealized picture. This assessment should be agreed widely across your leadership.
- Assess the target culture: human relationships and interaction are irreplaceable for this. After meeting extensively in person, ask yourself the question: will my current staff enjoy working with the potential hires? If you’re acquiring a company, understanding the leadership culture is the key.
Assessing culture takes time and effort, and you can frequently encounter cultures within cultures (for example, between sectors in the same market). But making sure an acquisition or hire will integrate successfully is as important a process as interrogating financials.
Even in times of record growth, not every project will be successful. In 2022, despite good financial results, the cultural mismatch resulting from one of our investments turned out to be insurmountable, and the integration didn’t align to our international competencies and focus. Faced with this, BearingPoint took swift action to end the project.
Region groups thrive when they act as one entity, not as disparate countries. Leaders must devote time and energy to fostering collaboration between countries and between sectors.
Collaboration must be both internal (within the group) and external (with partners, clients and stakeholders). It’s a question of knitting together a diverse network of countries, offerings and team members.
Whenever you make a key hire or an acquisition, it’s essential to ensure your new joiners are willing to collaborate, from day one, with the rest of your group.
It’s human nature that integration is a gradual rather than immediate process, but region leaders must accelerate this as much as possible to get collaboration under way rapidly.
Collaboration at a senior level within the group is equally important. This includes nurturing a pragmatic approach to expansion. Leaders collectively must be willing to say no to a hire or acquisition that is not aligned to the group’s strategy. Another vital aspect to collaboration within the leadership team is the willingness to build up a granular understanding of markets, segments within them and potential opportunities. This demands pain-staking research and investigation to achieve.
In the final equation, the purpose of expansion is to increase revenue. The commercial valuation of a hire or acquisition is the most commonly used criterion for success. Leaders must make clear-eyed, informed assessments of the value of a new hire or acquisition to the business.
The caveat here is that financial performance, both historic and forecast, can overshadow other considerations. The true value of a tactical expansion project can only be judged in time, once its impact on the group as a whole has been assessed.
For an acquisition, the commercial framework for onboarding should not be an automatic choice.
You need to incentivize commercial performance, but make your new talent feel integrated and part of the wider group, in quick time. Three-year earnouts are a standard model for incorporating a business, but this model can be flawed. BearingPoint also considers shorter earnout agreements that, while sometimes riskier, bring quicker integration, and senior leaders staying within our business for longer.
Managing expectations is critical when hiring or acquiring. Strong leaders ensure that their group and stakeholders are realistic about the financial results that will be achieved over three or five years. Leaders must also understand the constraints around growth: No organisation has an unlimited war chest, and an opportunity taken in haste may mean a better one missed.
Finally, scale of opportunity dictates that it may be worth several attempts to expand in a given market or sector. One failure does not mean that you should give up on an expansion ambition, if the potential rewards are great.
