104THEMcKINSEYQUARTERLY1996NUMBER1
D
ISTRIBUTIONCHANNELStypicallyaccountfor15to
40percentoftheretailpriceofgoodsandservices
inanindustry(Exhibit1)andthereiseveryreason
toexpectthattheycouldrepresentacommensurate
opportunityforboostingprotsandcompetitiveness.
Indeed,thepotentialpayo?ffromthoughtfulandinnovative
managementofchannelscouldbeevengreater,giventhat
manyorganizationshavealreadylavishedattentiononthe
reengineeringofinternaloperations,whilechannelissues
tendtosu?ferfromneglect.
Thechallengesandopportunitiespresentedbychannel
managementarelikelytomultiplyoverthenextfewyears
CHANNELMANAGEMENT
WewouldliketothankTanujaRanderyandMollyNelsonfortheir
contributionstothisarticle.
THEMcKINSEYQUARTERLY1996NUMBER1105
ChristineBucklinisaprincipalinMcKinseysLosAngeleso?ce;Stephen
DeFalcoisaconsultantintheStamfordo?ce;JohnDeVincentisisa
partnerintheWashington,DCo?ce;andTripLevisisaconsultantinthe
Pittsburgho?ce.Copyright''1996McKinsey&Company.Allrights
reserved.
AREYOU
TOUGH
ENOUGH
TOMANAGE
YOUR
CHANNELS?
Tooo?tenemotiontriumphsoverreason
Someimprovements,likexingincentives,canbemadequickly
Butemergingchannelsarehardtospot
ChristineB.Bucklin
StephenP.DeFalco
JohnR.DeVincentis
JohnP.LevisIII
astechnologicaldevelopmentsacceleratechannelevolution.Datanetworks
arealreadyenablingenduserstobypasstraditionalchannelsanddeal
directlywithmanufacturersandserviceproviders.Theuseofonline
capabilitiesinsteadoftravelagentsinbookingairlinereservationsisone
exampleofthisdisintermediation.Inaddition,logisticsinnovationssuchas
reliableovernightdeliveryservices
orinformationsystemsthattrack
theinventoriesofallthedealersina
marketarebeginningtomakelocal
inventoriesofproductsorparts
obsolete,pavingthewayforthere-
structuringofdistributornetworks.
Atthesametime,newchannelsare
continuingtoemergeinindustry
a?terindustry,openingupoppor-
tunitiesforcompaniestocutcosts
orimprovetheire?fectivenessin
reachingspecicmarketsegments.
Mailorder,warehouseclubs,and
onlineorderingareallbecomingincreasinglyimportanttoconsumergoods
manufacturers.Inelectronicsandtelecommunications,value-added
resellers(VARs)arecapturingarisingshareofsurplus.Directresponse
marketersanddiscountoperatorsarebecomingformidableplayersin
personalnancialservices.
Despitethescaleandimportanceoftheseopportunities,fewcompanies
managetotakefulladvantageofthem.Foreverysuccessfulchannel
innovator,thereareadozencompaniesthateitherfailtorecognizean
opportunityintimeormakeabotchedattempttoimprovechannel
performance.Whydoesanareaofsuchstrategicandtacticalsignicance
havesuchapoormanagementtrackrecord?Twofactorsstandout:rst,
channelopportunitiesareextremelydi?culttoidentify;second,channel
decisionstendtobegovernednotbyreason,butbyemotion.
Opportunitieshardtospot
Thereareseveralreasonswhydetectingchannelopportunitiesisso
di?cult.Forone,consumerbuyinghabitsdonotchangeovernight;they
shi?tglaciallyovertime.Consumersinmostcountrieswereslowtoaccept
ATMsinbanking,forinstance,andthemovetopayingbillsbyphoneorPC
stilllooksuncertain.
Warehouseclubsnowrepresentover$25billionofUSspendingon
groceriesandpackagedgoods,butithastakenthemnearlytwodecadesto
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
106THEMcKINSEYQUARTERLY1996NUMBER1
1525283041
4065193033
4510534026
Channelvalue-added
PercentofretailpriceCR
(estimated)
ChannelCR
value-added
ManufacturerCR
value-added
Rawmaterials/CR
components
Au
tomob
i
le
s
So
f
t
w
a
r
e
Ga
s
o
line
La
s
e
rp
r
in
t
e
r
s
,CR
f
a
xm
a
c
h
ine
s
P
a
c
k
age
d
CR
f
ood
s
Source:FoodCostReview;Lundberg;Platts;EconomistIntelligenceUnit;CR
McKinseyanalysis
Exhibit1
reachthislevel.Thefewmanufacturersthatspottedtheirpotentialearly
wereabletocapturetensofmillionsofdollarsofincrementalrevenue
withoutcannibalizingmoreprotablebusinessfromtraditionalchannels.
Industrialconsumerschangetheirhabitsequallyslowly.Buyinggroupsare
evolvingonlygraduallyamonghospitals,forexample,despitetheenormous
pressuresonhealthcarecosts.
Otherfactorscompoundtheintrinsicdi?cultyofrecognizingmarketshi?ts.
Sincecompaniesthatuseexternalchannelslackcontactwithendusers,
theyo?tenhavetorelyonthesechannelstofeedtheminformationabout
themarket.Thismakesthemdependentontheirintermediariessensitivity
toemergingconsumertrends.Aconictofinterestsmayarise,with
channelsunderstandablyreluctanttoshare
informationaboutmarketdevelopments
thatdonotfavorthem.
Forcompaniesseekingacomprehensive,
detailed,andup-to-dateunderstandingof
marketdevelopments,thereisnosubstitute
fordirectconsumercontact.Evenwhenexecutivesarecustomersfortheir
owncompanysproductsandservices,theirexperiencesseldomresemble
thoseofordinaryconsumers.Takeautomotiveexecutives:sincetheyenjoy
theprivilegeofspecialpurchasingprogramsandneverhavetonegotiate
withcardealers,theyhavelittleexperienceofwhatbuyingacarislikefor
mostpeople.
Emotionalbias
Decisionsaboutchannelopportunitiestendtobelowonfactsandhighon
emotion.Onetelephonecompanydefendeditsuseofanexpensivedirect
salesforcebyasserting,Weneedtocontroltheentiresalesprocess.Few
woulddisputetheimportanceofmaintainingsomedegreeofconsumer
contact,butthisall-or-nothingattitudeinhibitedearlyanddeeppenetration
oftheemergingcellularmarketand
causedtheunnecessarylossof
marketshareandprotability.
Entrenchedrelationshipso?tenmake
businessesreluctanttoexitunprot-
ablechannelsordropunderper-
formingintermediaries.Admittedly,therearelegalconstraintsonabrupt
changesinchannelrelationships,butwinningcompaniesunderstandthese
restrictionswellenoughtoknowwheretheboundarieslie.Theyknowhow
toimplementchangeslegally(usuallypossiblewhenthereareperformance
problems)andndwaystoaugmentorreplacelow-performingelements.
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
THEMcKINSEYQUARTERLY1996NUMBER1107
Winningcompanies
understandtherestrictions
andknowhowto
implementchanges
Losingcompaniestendto
throwuptheirhandsand
complainthatitisimpossible
tochangechannels
Losingcompanies,ontheotherhand,tendtothrowuptheirhandsand
complainthatitisimpossibletochangechannels.
Signsoflatentopportunity
Therearesixtell-talesymptomsthatpointtoadevelopingchannel
opportunity:
1.Unhappyendusers
Unhappyconsumersaredi?culttodetect,especiallywhenanentire
industryisperformingbadly.Butindustriesthatuniversallyunder-serve
consumerspresentthebiggestopportunities.
ComputerlorehasitthatMichaelDellstartedDellComputera?tertrying
tobuyequipmentfromdealerswhoknewlessaboutcomputersthanhedid.
Hisfrustrationpromptedhimtocreateadirectchannelthatallowed
consumerstoobtainproductinformationoverthephonefroma
knowledgeablecompanyemployeeinsteadofastoreclerk.Dellprovided
high-performancecustomizedcomputers,directtechnicalsupport,and
othervalue-addedservicestoasmallsegmentofsophisticatedPCusers.
A?terreplicatingitsUSdirectmarketing
strategyoverseas,itsawinternationalsales
growfrom$40millionin1989toover$1
billionin1995.
Theautoindustryhaslongsu?feredfrom
unhappycustomers;indeed,manyratea
dentalappointmentasmoreenjoyablethanavisittoacardealer.Asurvey
conductedbyJ.D.Powerfoundthat68percentofconsumershated
negotiatingpriceswithdealers,andoverone-thirdofrecentbuyersfeltthey
hadbeencheated.GeneralMotorsSaturndivisionsetouttoexploitthis
dissatisfactionwithtraditionalchannels.Itsdealershipsfocusedon
providingapurchasingexperiencelikethatassociatedwithluxurycars.
Saturnalsointroducedaoneprice,nohagglingsalesmethod.In1992,it
receivedthethirdhighestcustomersatisfactionratinga?terLexusand
Inniti.Unitsalesapproached300,000in1994,upfourfoldon1991.
2.Unexplorednewchannels
Emergingchannelsorcapabilitiesinvitefreshconsumerexpectationsand
canredenecostorservicestandards.
Takedirectinsurers,whichestablishednewstandardsbothincostandin
theprecisetargetingofconsumerneeds.GEICOusestelevision,radio,and
mailtomarketitspropertyandcasualtyinsurancedirectlytoconsumers.
Itavoidstheexpenseofasalesforceoragencyandleveragesitslowcost
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
108THEMcKINSEYQUARTERLY1996NUMBER1
Emergingchannelsor
capabilitiesinvitefreshconsumer
expectationsandcanredene
costorservicestandards
positiontopassonsavingsof10to15percent.TheUnitedKingdoms
DirectLineisoneoftheworldsmostprotableautoinsurers,withthe
bestretentionrateandexpenseratiointheindustry.Itusesinformation
technologytoprovidearapidserviceatapricecompetitorscannotmatch.
Inconsumergoods,warehouseclubsredenedsizeandprice/value
relationships,andenjoyedsubstantialcostadvantagesnotavailableto
traditionalretailers.Buttheyalsodemandedafreshapproachfromtheir
suppliers.Thepackagedgoodscompaniesthathavebeenmostsuccess-
fulinthischannelhavecreateduniqueSKUsforclubsinsteadofbun-
dlingtogethermultipleretailpacks,adaptedtheirshippingprocessesto
reduceclubshandlingcosts,anddevisedspeciallytailoredpricingand
promotionprograms.
3.Gapsinmarketcoverage
Channelstendtoservedistinctmarketsegments,whichmeansthata
companythatdoesnotparticipateinachannelmissesthesegmentitserves.
Thishardlymattersifthesegmentisofnointerest,butinattentive
companiesareo?tensurprisedtodiscoverthattheirtargetcustomersprefer
tobuyfromachannelwhichtheyhaveoverlookedordismissed.One
computerequipmentcompanylostitsbiggestpotentialmarketsegmentby
neglectingsystemintegrators.Amoreastuterivalsteppedinanddeveloped
specialprogramsforthem.
Similarly,itsrefusaltopaycommissionsexcludedalargehealth
maintenanceorganizationfromthebrokermarket.Yet30to50percent
ofallhealthplansalestoemployerswere
madethroughbrokers—ahugemissed
opportunityfortheHMO.
Inthe1980s,Xeroxdominatedthehigh-end
corporatesegmentsofthecopiermarket.
TheJapanese,meanwhile,targetedlow-end
segmentsandachieveddeeppenetrationbyusingMomandPopdealers.
Xeroxlackedthelocalrelationshipsitneededtoservesmallandhome
o?ces,soithiredindependentsalesagentstotargetthepersonalcopier
segment.Asaresult,itsmarketshareinthissegmentrosefromnothing
in1987to27percentin1994.
4.Deterioratingtotalsystemeconomics
Competitivecostanalysisandbenchmarkingarecommonenough,butthey
usuallystopatthecompany.Disregardingthecostimplicationsofthe
channelmeanstheyfailtocapturethecompetitivenessofthewholesystem.
Yetthegreatestleverageo?tenliesinthechannel,andimprovementsthere
mayfaroutweighabusinesssinternalcostreductionsoroperatinggains.
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
THEMcKINSEYQUARTERLY1996NUMBER1109
Companiesareo?tensurprised
thattheircustomerspreferto
buyfromachannelwhichthey
haveoverlookedordismissed
Oneoilcompanyrealizedintheearly1980sthatthenetcostpergallonof
gasolinesolddependedonthethroughputpersiteandthecontribution
fromancillarybusinessessuchasconveniencestores.Thisinsightprompted
ittorestructureitsentireretailingnetwork.Itintroducednewancillary
businesses,reviseddealercontractssoastocaptureagreatershareofthe
surplus,boughtoutdealersinthebestsitesandtookovertheiroperations,
andreplacedunderperformingdealers.Thankstothistotalsystem
perspective,therevampednetworkenjoysthehighestvolumeandlowest
costinitsmarket.
5.Complacentintermediaries
Fat,happydistributorswhoareunwillingtoadapttonewmarketconditions
plaguemanycompaniesinmatureindustriesastheystruggleforgrowthor
confrontchangingcompetitivechallenges.Someautomakershavefoundit
hardtoraisechannelperformancewhenmanyoftheirdealershavesettled
intocomfortablelivesandseenoneedtoimproveconsumerserviceor
expandsales.Thisisonecasewheresatisfactionisnotnecessarilyagood
thing;yourintermediariescontentment
maybecomingatyourexpenseortothe
detrimentofendusers.
Atonetime,healthcareinsurersinthe
UnitedStatesmerelypaidthedoctorsbills.
Withtheadventofmanagedcare,however,
theyhavebecomeincreasinglyactiveinutilizationreviewandother
activitiestomeasurephysicianperformance.And,inbuildingupnetworks
ofphysiciansassociatedwiththeirinsuranceproducts,theleading
companieshavemadepatientsatisfactionakeycriterionindetermining
bothphysiciancompensationandmembershipinthenetwork.Payorsthat
focusmoreonphysiciansatisfactionthanonpatientsatisfactionarelikely
toloseoutasthemarketbecomesmorecompetitive.
6.Datedsystemsatinterfaces
Businessreengineeringhasbeenfashionableforsometime,butithasusually
beencarriedoutinsideanorganizationsboundaries.Withgiantstrides
towardimprovede?ciencyande?fectivenessbehindthem,somecompanies
arediscoveringpromisingnewopportunitiesattheinterfaceswithchannels
andendusers.Thesamekindofpotentialpreviouslyunlockedbyadopting
crossfunctionalapproachesandbreakingdowninternalsilosisnowbeing
releasedthroughtheredesignoftheseinterfaces.Sincemanufacturers
channelrelationshipstendtobeinformation-intensiveandtogrowmore
complexovertime,theyareo?tenripeforthesebroaderchangee?forts.
Manypackagedgoodsmanufacturersaretakingabiteoutofexcess
inventoriesandunnecessarypaperworkbyinstallingEDI(electronicdata
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
110THEMcKINSEYQUARTERLY1996NUMBER1
Fat,happydistributorswho
areunwillingtoadapttonew
marketconditionsplaguemany
companiesinmatureindustries
interchange)andECR(e?cientconsumerresponse)programsthathelp
retailersmanageinventoriesandcuttotalcosts.JeansmakerVFCorp.,
forexample,usesanewarticial
intelligencesystemtocreatemodel
assortmentsofitswaresforindi-
vidualstores.
Capturingtheopportunities
Whatdistinguishesthecompanies
thatsucceedintappingchannel
potentialisthedegreeofrigorand
objectivitytheybringtothetask.
Manyothershavefailedbecause
theytookanarrowandsupercial
lookatchannelperformanceandneverprobedalternativesobjectively.The
winnersrefusetoacceptconventionalwisdomoractonunsubstantiated
biases,investingtheirtimeandenergyinevaluatingoptionsthoroughly.
Whatyoucandotocapturechannelopportunitiesdependsonthesymptom
thatbetrayslatentpotential(Exhibit2):
1.Clarifyandemphasizekeydriversofconsumersatisfaction
Toomanycompaniesmakeassumptionsaboutserviceandperformance
requirements,insteadofresearchingconsumerpreferencestounderstand
thefewthingsthattrulymakeusershappy.Theyendupwithalonglistof
performancestandardsthatmayormaynotincludethethingsconsumers
value,andthatburiesgenuineprioritiesundertrivia.Whattheyshoulddois
investinthethingsthatarelowincostbuthaverealconsumerbenets,and
avoidorreduceheavyexpenditure
onfeaturesthatarenothighly
valuedbytargetcustomers.
Onefast-foodfranchiserusedexten-
sivemarketresearchtostreamline
itsqualitychecklist.Itlearnedthat
itscustomerscaredmostaboutgettingtheirfoodhotandfast.Whenit
cametocleanliness,allthatconsumerswantedwasasanitaryfacility,
notnecessarilyasparklingone.Sofranchiseesshi?tedsomeoftheire?forts
frompolishingcounterstodeliveringfood.Revenuesandconsumer
perceptionssoared.
2.Thoroughlyevaluatecurrentandalternativechannels
Channelsshouldbejudgedbothbytheirabilitytomeetconsumerneeds
andbytheirunderlyingeconomics.Lookathowe?fectivelyande?cientlya
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
THEMcKINSEYQUARTERLY1996NUMBER1111
Companiesmakeassumptions
insteadofresearchingconsumer
preferencestondthefewthings
thattrulymakeusershappy
UnhappyendusersClarifyandemphasizekey
driversofcustomersatisfaction
Unexplorednew
channels/capabilities
Quantifythevalueofeach
channel
GapsinmarketcoverageIfnewchannelsarerequired,
transitionbycarefully
definingroles
DeterioratingeconomicsRestructurenetworksto
improveeconomics
ComplacentintermediariesRealignincentives
Datedsystemsfor
interfacingwithchannels
Redesignsystems
OpportunitySolution
Unlockingopportunitiesinchannels
Exhibit2
channelperformsalltheseparaterolesitplays—sales,distribution,service,
andsoon—andassessitsperformancefromtheviewpointofeach
importantendusersegment.
Manyconsumerindustries,forinstance,havecustomerswhowillaccepta
lowerlevelofserviceinexchangeforacheaperpricewhenbuyingthrough
adiscountoutletoroverthetelephone.
Suchasegmentcanonlybeservedby
addingthistypeofchannel.Forexample,
almostallofthecompetitorsthatonce
sco?fedatDellsdirectmarketingapproach
inpersonalcomputersnowo?fercatalogues
andtelesales.Channeleconomicswillo?ten
dictatewhichchannelshouldbeusedtoservelow-volumeorlow-margin
consumersprotably.Themorecomplexneedsandhigherprotabilityof
largecustomerso?tenjustifyadirectsalesforcewhilesmallercustomersare
moreeconomicallyservedbyamultiproductbrokeroragent.Healthcare
andtelecommunicationsarejusttwoexamplesofindustriesthatusethis
rathercommonpractice.
3.Managetransitionscarefully
Asyouaddnewchannelsorrestructureexistingonestollgapsinmarket
coverage,clearlydeneandcommunicatetheroleofeachchannel
participantintermsofthesegmentsitserves,theproductsito?fers,andthe
functionsitperforms.Channelconictisathornyproblemthato?tendeters
companiesfromchangingchannelstrategies.Itcanbeavoidedifyoumake
sureintermediariesarenotcompetingforthesameconsumersinthesame
circumstances.Eliminatingoverlaps
willbeeasierifyouhavedistinct
valuepropositionsforwell-dened
consumersegments.
Thisway,addingnewchannelswill
expanddemand,ratherthancanni-
balizingoldchannels.Addressingdi?ferentsegmentswithdi?ferentchannels
ismoste?fectivewhentherestofthemarketingmix(pricing,packaging,
andsoon)isalignedwiththesegmentstrategy.
LeviStraussisonecompanythatmarketssuccessfullythroughmultiple
channelsbytargetingdi?ferentsegmentswithdi?ferentbrands.Dockers
AuthenticandSilverTabaresoldbydepartmentstoresandspecialty
outlets,Dockersand501sbymiddle-marketretailers,andBritanniaby
discountchains.PackardBellhasmanagedconictbydi?ferentiatingits
personalcomputersandtailoringproductsandmarginstoindividualretail
channels.Itcurrentlyo?fersvedi?ferentPCmodels,eachconguredto
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
112THEMcKINSEYQUARTERLY1996NUMBER1
Manycustomerswillaccepta
lowerlevelofservicefora
cheaperprice,throughadiscount
outletoroverthetelephone
Channelconictisathorny
problemthato?tendeters
companiesfromchanging
channelstrategies
supporttherequirementsofaspecicchannel.Suchastrategyallows
retailerstoremaincompetitiveacrosschannels,andprovidesincentivesto
stocktheproductintheformofincreasedprots.
4.Restructurechannelnetworkstoimproveeconomics
Deterioratingsystemeconomicsareunlikelytogetbetterontheirown.
Successfulchannelmanagersactivelymaintainthecompetitivenessofthe
entiresystem,notjusttheinternalelements.Sincechannelcostsare
frequentlysensitivetoeconomiesofscale,companiesinmatureindustries
maybeabletostrengthentheirnetworksbyencouragingconsolidationand
rationalizingtomakesurvivorsmoreviable.
PhilipMorrisfacilitatedmergersamongitsdistributorsinthe1980sto
createintermediariesthatcouldsurviveinashrinkingcigarettemarket.
VolvorecentlyannouncedaprogramtoconsolidateitsUSnetworkand
makedealershipsmoree?cient.Aswellasimprovingintermediaries
coststructures,proactiverationalization
upgradesthewholechannelnetworkby
favoringsuccessfulparticipants.
5.Realignincentiveswithobjectives
Tochangethebehaviorofcomplacent
intermediaries,companiesmayhaveto
rethinktheirincentives.Thosedesignedtosupportperformanceobjectives
—suchassalesvolumegrowthorimprovementsinconsumersatisfaction
ratings—arethemostdirectandeasytoadminister.Intheearly1980s,one
automotivecompanydiscoveredthatconsumercomplaintsaboutservice
werepartlyattributabletothefactthatdealersmadeverylittlemarginon
repairs,particularlyonwarrantyrepairs.Whenitrestructuredreimburse-
mentstosupportwarrantyserviceandintroducedintensiveconsumer
satisfactionmeasurementprograms,serviceperformanceandconsumer
satisfactionimproveddramatically.
Designingincentivesisusuallystraightforwardonceyouknowwhatyou
wouldlikeyourchannelstodo.Butcompanieso?tenoverlookthehidden
incentivestheycreatethatcanleadtocounterproductivebehavior.
Onelubricantmanufactureralloweditsdistributorstosellproductsintwo
ways:inventorysales,whichattractedagrossmargin,andsalesonbehalfof
thecompany,whichearnedaxedfeeforservicesrendered.Itsintention
wastogivedistributorspricingexibilitysothattheycouldselltobig
endusersthatdemandedlargediscounts.Butthedistributorseventually
begantouseservices-renderedsalesasawaytoo?ferheavydiscounts,
thusguaranteeingthemselvesaxedspread.Theresultswerepredictable:
services-renderedsalesgrewandthemanufacturersmarginsfell.
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
THEMcKINSEYQUARTERLY1996NUMBER1113
Companieso?tenoverlook
thehiddenincentivesthey
createthatcanleadto
counterproductivebehavior
6.Redesignsystemsatinterfaces
Reshapingthecompany-channelinterfacetoreducetotalcosts—for
example,byintroducingautomaticinventoryreplenishmentsystems—has
paido?finmanyindustries.Tohelpitsdealersremaincompetitive,General
Electricsappliancedivisiondevelopedextensivesupportprograms,
includingacomputerizedinventorysystemtoaccelerateinventoryturns
andreducecarryingcosts.Caterpillarscomputerizeddealernetworkisable
tolocateanddeliverpartswithin48hoursworldwide.
Redesignusuallyhastheaddedbenetsofmakingacompanyapreferred
supplierandraisingswitchingcostsforthechannel.Buildingsystemsthat
constantlymeasureperformancebyproductforeachoutletenables
companiestospottrendsearlyandworkproductivelywithintermediaries.
Companieshavemanywaysofunlockingprotsintheirchannelsof
distribution.Somearefamiliar;othershaverecentlyemergedinthewake
ofITdevelopmentsandinnovationsinmanagementtechniques.Many
improvements,suchasrealigningincentives,canbemaderelatively
quickly.Others,suchasmakingthetransitiontoanewchannelstructure,
takelonger.
Whateverthestrategy,thecrucialrststepistorecognizethatanoppor-
tunityexists.Thisisseldomeasy,aswitnessedbythehostofbusinessesthat
keepfailingtotakeadvantageofnewchannelpossibilities.Towininchannel
management,companiesmusttakearigorous,systematic,andcontinuously
innovativeapproachtondingandcapturingtheseopportunities.
AREYOUTOUGHENOUGHTOMANAGEYOURCHANNELS?
114THEMcKINSEYQUARTERLY1996NUMBER1
THINKLOCAL,ORGANIZE?
ItseemstherearepositivethingsaCEO
candothatenhanceacompanysprospects
ofinternationalsuccess.Fromasurveyof43
USconsumercompanies,wehaveidentied
11distinctivetraitsthatarecorrelatedwith
highperformanceininternationalmarkets.
Characteristicsofsuccess
Internationallysuccessfulcompanies
￥Takeadi?ferentapproachtointernationaldecision
making
￥Di?ferentiatetreatmentofinternationalsubsidiaries
￥Letproductmanagersinsubsidiariesreporttothe
countrygeneralmanager
￥Haveaworldwidemanagementdevelopmentprogram
￥Makeinternationalexperienceaconditionforpromotion
totopmanagement
￥Haveamoremultinationalmanagementgroup
￥Supportinternationalmanagerswithglobalelectronic
networkingcapabilities
￥Managecrossborderacquisitionsparticularlywell
￥HaveoverseasR&Dcenters
￥Focusoninternational
￥Remainopentoorganizationalchangeandcontinuous
self-renewal
IngoTheuerkauf,DavidErnst,andAmirMahini
TheMcKinseyQuarterly,1993Number1
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