Southeast Asia’s tech superstars have excelled at scaling. They have built an enviable track record of going from zero to having some of the biggest customer bases in the world. From seed round to listing shares on the stock market, their top priority has been growth.
The era of outsized expansion was the result of companies’ laser-like focus on growth and making sure they had the correct product to fit the market. They had to build vast operations to consistently deliver high-quality products or services at massive scale to meet customer demands. These were remarkable achievements.
For a long time, that was what the market wanted. Investors rewarded breakneck expansion with rich valuations. In a few short years, Southeast Asia created companies worth US$100 billion ($132 billion) or more that proved to the world that this region could create true corporations that could compete with the likes of global giants such as Amazon, Uber and Alibaba.
But now, in the era of rising interest rates and consumer belt tightening, some of these regional superstars are asked to rethink their priorities.
Share prices have come sharply down as investors demand not just growing revenue but increasing profits and greater efficiency. In public and private markets, the mantra has shifted from growth at all costs to cutting at all costs.
Faced with this new environment, some companies have responded by announcing steep staff cuts to boost their flagging share price. In most cases, those cuts have been welcomed by the capital markets with higher share prices.
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Driving efficiency
But companies need to carefully consider driving efficiency when it involves choices such as headcount reduction. While still retaining their customer-centric mission, companies need to think deeply about efficiency. The solution is not to reduce the workforce, but to make deliberate choices on the organisational structure and higher efficiency in core functions of the company.
Such changes can include realigning internal reporting lines to improve accountability and decision-making, clarifying key performance metrics by defining objectives and key results, or by establishing centres of excellence. When required, adjusting headcount may still be an option.
To address this challenge, it is up to the C-suite to lay down clear guidelines that will help organise their troops. They must look closely at their operations and decide what works best for their performance:
• Should power rest with marketing, product or tech teams?
• Should decisions be centralised or localised?
• How will accountability be determined?
• What is the best process for achieving growth and customisation?
What, in short, is the best operational model to ensure success in today’s changing market environment?
Our decades of working with the world’s most mature brands, century-old companies that have continually evolved to stay competitive against new rivals, as well as our work with up-and-coming companies, have provided us with a wealth of insight and understanding into how the winners create their operating models, develop mature and robust corporate governance and decisionmaking.
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One example of how companies in this region need to think differently is in the travel industry. A big multinational may choose standardisation over localisation — for example, by unifying all payment platforms and excluding small local ones — as a way to cut costs even if it means serving fewer customers who may not have access to international credit cards or online payment platforms.
In our article “The operating model choices facing tech companies”, we saw how at one extreme, companies such as Facebook, Amazon, Uber and Twitter roll out the same products globally without a lot of customisation. Although they want a presence in many markets, they optimise only for key markets and are willing to lose in others.
Going hyper local
But regional players in the tech industry do not have that luxury. They cannot afford to operate at the extreme level of efficiency because that would mean excluding potential customers. Instead, they still need to invest the manpower to adapt to all the local online payment options, or other local needs, so they can stay agile and close to the market and make it as easy as possible for the most number of customers to sign on.
Going hyper local can work in countries such as India and Indonesia. “We strive to be as local as possible,” said a senior executive at a leading Asian super-app, “by adopting a highly country-centric approach to our commercial functions. We have a high conviction that the way to win is to be closest to what the specific market needs and solving its specific frictions.”
Companies will need help to re-formulate their organisations and make the right choices. In our work with dozens of leading companies, we have learned that to continually evolve their operating model, companies need to take three steps:
• Define strategic priorities
• Evaluate if they should centralise or localise key functions and businesses followed by corporate governance
• Adapt the most critical business processes accordingly.
Change is hard, and organisational and cultural changes are especially difficult. It takes strong commitment from leaders to keep pushing the company towards its goals against internal resistance. Start small with work that has low resistance but high impact. Do not get bogged down in details at the start. Cluster similar processes to create consistency. Show that change is necessary with real world examples. Involve all stakeholders in designing new systems. Run pilot programmes, do not be afraid to scrap ideas and start over.
Rolling out these complex structural changes will require careful thought and planning. Poorly implemented, these changes can backfire with more employee confusion and low morale, which will affect the companies’ ability to win the market and grow their positions against their competitors. Done properly, the rewards are long-term sustainable growth and increased efficiency that will bring benefits now and in the future.
Hanno Stegmann is a managing director and partner at BCG X. Hyeonmi Kim is a partner at Boston Consulting Group
