| This week, we look at how telecom companies can make smart moves on capital expenditures and escalating costs. Plus, Impossible Foods goes after the “hard-core meat eater,” and Alexander Thiel, a McKinsey partner in Zürich, on what business can learn from professional football. |
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| It’s been a decade since the last financial downturn, and while few want to utter the “R” word out loud, telecom executives are asking themselves today how they can prepare for the uncertainty of tomorrow. |
| During the previous downturn, telecom operators were hit hard relative to other industries. In an intensely competitive environment, a growing number of customers were willing to cancel contracts in search of better deals. Companies’ profit margins were squeezed, total shareholder returns lagged, and overall revenues declined. |
| However, our analysis of North American and European telecom operators revealed that, in the decade following the downturn, some companies managed to increase revenue growth by 48 percent and economic profit by 17 percent over their more flat-footed peers. These telcos made strategic moves that enabled them to thrive even under challenging operating conditions. |
| In addition to focusing on operational efficiency and lowering costs during the downturn, these top performers reduced leverage, freed up cash to maintain investments in core infrastructure and assets, and, once in the recovery period, increased investments and acquisitions in long-term capabilities such as advanced analytics and sales automation. |
| While the countdown clock is ticking away on the economy, there’s a technology revolution on the horizon that will transform the competitive landscape once more: 5G, the next generation of wireless cellular technology, promises greater speed and increased bandwidth, and will fuel everything from smart cities to self-driving cars. |
| Although a more widespread rollout of 5G isn’t expected to take place until the early 2020s, upgrading the current networks is a massive undertaking, requiring heavy investments in infrastructure that could potentially double network costs from 2020 to 2025. |
| It’s unclear if the next recession will hit as hard as the last one. What is clear, though, is that increased capital expenditure will continue to put pressure on telecom operators, since ongoing investments are required in fiber and 5G and will increase with time. Along with that, continued competition for customers will limit operators’ ability to increase prices to compensate for escalating network and operating costs. However, by making smart moves now, telcos can position themselves to not just survive but thrive through the next downturn. |
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| OFF THE CHARTS |
| The dual imperatives of digital |
| To sustain growth in the face of disruptive threats from digital challengers, incumbent companies must overcome two challenges at the same time: innovating with new digital businesses while also digitizing core holdings. Companies that are more than 20 percent digital—and are launching new digital businesses while transforming the core—are twice as likely as traditional incumbents to experience organic-revenue growth of 25 percent or higher. |
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| INTERVIEW |
| A bold mission for Impossible Foods |
| Impossible Foods, the alternative-proteins brand, has had a whirlwind year. Its launch of the Impossible 2.0 burger—which looks and cooks (and, to many people, tastes) almost exactly like ground beef—led to a stratospheric rise in consumer demand that even the company didn’t anticipate. |
| David Lee, the company’s chief financial officer, is a self-described “hard-core meat eater,” just like the company’s target customer. But these days the “meat” he eats is coming from plants. “Meat eaters are in love with meat,” he told McKinsey. “They’re emotionally connected not just to the quality and the taste of the meat but also to the entire experience of meat eating. We believe that we can create that same craveability—but without using animals.” |
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| CHANCE ENCOUNTER
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| Alexander Thiel |
| Alexander Thiel, a partner in Zürich, is a leader in McKinsey’s European Consumer Goods Practice. He helps the retail, consumer-packaged-goods, and apparel, fashion, and luxury-goods sectors on topics involving business growth, organizational transformation, and digitization.
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| Although business leaders may not know the rush of building a championship professional sports team, the fundamentals of creating a winning corporate team aren’t so different. I confirmed that suspicion after bumping into a well-known manager who has years of championship-level experience in football (or soccer, for the Americans out there). Striking up a conversation in an otherwise empty airport lounge, we found remarkable parallels between talent management in professional football and in the corporate world. |
| Both require an organizational focus on leadership and a knack for blending skills throughout your team. Well-organized football clubs know their style of play and understand how the skills of each position player contribute to the overall strategy. And just as a football victory is often years in the making, business success, too, is the result of a long-term strategic vision. |
| Based on my airport-lounge conversation, here are four best practices critical to corporate success exemplified within a winning football club: |
| Define exact talent needs for each position. Just as there are dozens of successful business strategies, there are nearly limitless ways to play football, from FC Barcelona’s probing passing game to Liverpool’s aggressive, free-form attack. Yet great teams like FC Barcelona know their style and the requirements of each position and look for and train players to execute that vision. Similarly, companies must think about which positions are most critical for their value agenda, build the profile for each—and then find the right talent. |
| Align talent development with business needs. How to find and develop talent? In football, club-owned academies scout players from an early age and develop them to fit the team’s playing style, strategy, and requirements. By the time Lionel Messi joined FC Barcelona’s starting 11 in 2005, for example, he had been involved with the club since 2000—a relatively short time in professional football but long enough to understand the club vision and his role within it. Great corporations have systematic, transparent, and meritocratic talent-development pipelines, too. |
| Identify gaps early. Players retire. So do managers and executives. These exits are predictable—even if the specifics are unknown—and managers can prepare for them by developing a deep bench. Football teams like Bayern Munich have been successful for years in part because they have “the next man up” ready for a given position at all times. Corporations need a strong succession plan to prepare the next generation of leaders and avoid being surprised by talent gaps arising as role and skill needs evolve. |
| If gaps exist, reskill, upskill, and search externally. Sometimes the best talent must be bought, not developed. When Liverpool realized its pipeline lacked an elite center back with superior aerial skills, club executives scouted Dutch defender Virgil van Dijk and landed him from a competitor. He became a pillar of the team’s success this year and was awarded “Premier League Player of the Season.” In the business world, companies must also look externally if it becomes evident that internal candidates can’t step into a talent gap. If needs evolve, it may take reskilling and upskilling to develop talent at a large scale. |
| I can’t promise that success in business will be nearly as exhilarating as winning a football championship. But I can guarantee that organizations can stay competitive year after year with winning development strategies. |
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| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
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Copyright © 2019 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007
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