Strategies and Processes for a Changing Economy
The sky is falling! Batten down the hatches! Cut back on everything. The economy is coming to a complete stop! HOLD IT! Do you really want to throw all of the good things you have been doing out the window because conditions have changed and the economy is slowing down?
Examine your situation before you make any significant alterations in your course and direction. What has made your company successful? How have you been able to improve your market share and profitability? How have you become more competitive in the face of increasing competition?
Mostly, you paid attention to some basic tenets of business. You improved your effectiveness, utilizing your capital and human resources more efficiently. You planned where you wanted to go and how you were going to get there. Then you monitored your situation so you could adjust to changing economic conditions by making modest mid-course corrections.
When there are more significant economic upheavals, why would you change the way you react?... Think before you act.
Well, when there are more significant economic upheavals, why would you change the way you react? Why would you make large changes with minimal reflection on what effect these changes might have on your long-term profitability, growth-ability and survivability? Why abandon the process that has brought you success because there are changes in your environment? Think before you act.
Know your costs! This cant be emphasized enough. If you have good knowledge of where you are spending money and why, you have the basic tools to allow you to analyze where you can cut costs without cutting into key elements of your company. It is a good idea to trim fat, but dont cut into the muscle that drives your business.
You have spent years building up the specific group of key employees with the skills and knowledge that power your company. If there is any way possible to keep the core group together, you should strive to do so. A detailed knowledge of costs is necessary so you can safely cut. You will also know where it would be unwise to cut.
There are many reasons for this. First, one should assume that eventually the economy will turn around. If you have cut key people, it would be unlikely that they would be available when you want to hire them back. Thus, you may be in the position of having to redevelop the level of talent and knowledge you currently have in the company. This will have to be done at a potentially high cost and with considerable time delay.
Second, during the slower times, you will want to concentrate on the core parts of your business. These are the parts of the business with the highest potential and greatest likelihood of holding up under less than optimal economic conditions. Third, by cutting muscle, you will damage your long-term competitiveness, and you will cripple your ability to gain dominance in your chosen markets.
Each of these relationships should be investigated for what can be mined quickly and economically for the immediate and long term benefit of the company and of the supplier or customer.
Look at how you have done in your core business. This is the backbone of your success. How has each segment of your business contributed to effective use of your resources? What do you need to do to assure that your core is strong and viable? You must first concentrate on the elements that have brought you to the position you have earned.
To do this effectively, start at the beginning, with Strategic Planning. If you have a good strategic plan in place, review it to be sure it takes into account the current economic conditions. If you do not have a strategic plan in place, start from the beginning of the process and quickly, but thoughtfully, develop one.
concentrate on the core parts of your business...with the highest potential
The process is a very logical, well-thought out and documented one: First, you establish where you are with regard to your markets (customers), your competition, etc. Next, the fundamentals of the company: finances, capital and human resources are examined. Third, you establish formally your strategic competencies. What are the specific strategic or core strengths, combinations of skills, processes and knowledge? What key combinations of your knowledge and human capital will make a distinctive difference in the market place? How will you differentiate yourself from your competition?
Once you have established your strategic competencies, you need to take advantage of them in the market place. You need to look into how you can sell more of your products and services to your existing current customers and to potential customers who look and function essentially the same as your current customers.
Look at how you can sell current products and services to new customers, in markets that are closely related to your current markets, and in some cases, not so closely related. While other opportunities may exist, with the current economic situation, it may be that you are less willing to make the investment of resources, human and capital, to develop new products or services. Common sense indicates you should be concentrating on those things you do best: your core business.
What can you do to make your core business prosper in times like these, with the economy slowly contracting, and businesses everywhere being much more cautious in their spending plans? The answer, in general, is quite straightforward: Become the leader in your markets, the best value proposition in your areas of expertise. It is, like many other things, not as obvious or easy when one gets down to the details.
One suggestion is to start with an exercise that is well labeled Smart Bombing. Analyze your company. What would you do if you were your closest competitor looking to attack your own company? Put yourself in your competitors position and think about how they might try to counter or off-set your advantages in the market place. Where are you possibly vulnerable?
Have your sales and marketing people do the same exercise. Do your answers and theirs match, or are there two (or more) significant schools of thought about where you stand in the market place? If you are in agreement, then you probably should start to attack the next logical step. If not, youd better find a common ground. Step back from your day-to-day perspective to look at your organization.
Why do your customers buy from you? What is it that you offer that they value? Establish the benefits and write them down. Talk to your sales and marketing people. What is their perspective on the same question? Have them list the benefits of buying your products and services, and have them rank them in approximate order of importance. Analyze how you can gain dominance of the insight you have just gained. This will help give you a better-defined advantage in the market places where you compete.
BUILD ON STRENGTHS
If you have analyzed your strengths and weaknesses, you can take advantage of your strong points to build your business. You can allow for your weaknesses, which should give you flexibility to adapt as the world changes around you. And you will not shoot yourself in the foot by letting key people leave, when you will need their skills and knowledge in the future.
In his book Profit from the Core, author Chris Zook indicates that the single most important theme is that to be successful, one must build a strong core business as a foundation for driving company growth. This concept echoes what CSSP and many others have been saying: focus on your core business and excel at it to succeed.
The critical elements of building your business include:
Thats right, focus and differentiation. Keys to building your core business, and to being able to sustain your market position.
One key element might well be how you strategically position your business in the market place. Per Michael Porter, there are Six Principles of Strategic Positioning (HBR, March 2001). He writes: To establish and maintain a distinctive strategic positioning, a company needs to follow six fundamental principles.
First, it must start with the right goal: superior long-term return on investment. Only by grounding strategy in sustained profitability will real economic value be generated. Economic value is created when customers are willing to pay a price for a product or service that exceeds the cost of producing it. When goals are defined in terms of volume or market share leadership, with profits presumed to follow, poor strategies often result. The same is true when strategies are set to respond to the perceived desires of investors.
Second, a companys strategy must enable it to deliver a value proposition, or set of benefits, different from those that competitors offer. Strategy, then, is neither a quest for the universally best way of competing nor an effort to be all things to every customer. It defines a way of competing that delivers unique value in a particular set of uses of for a particular set of customers.
Third, strategy needs to be reflected in a distinctive value chain. To establish a sustainable competitive advantage, a company must perform different activites than rivals or perform similar activities in different ways. A company must configure the way it conducts manufacturing, logistics, service delivery, marketing, human resource management and so on differently from rivals and tailored to its unique value proposition. If a company focuses on adapting best practices, it will end up performing most activities similarly to competitors, making it hard to gain an advantage.
Changing Economy: Strategies
Fourth, robust strategies involve trade-offs. A company must abandon or forgo some product features, services, or activities in order to be unique at others. Such trade-offs, in the product and in the value chain, are what makes a company truly distinctive. When improvements in the product or in the value chain do not require trade-offs, they often become new best practices that are imitated because competitors can do so with no sacrifice to their existing ways of competing. Trying to be all things to all customers almost guarantees that a company will lack any advantage.
Fifth, strategy defines how all the elements of what a company does fit together. A strategy involves making choices throughout the value chain that are interdependent; all a companys activities must be mutually reinforcing. A companys product design, for example, should reinforce its approach to the manufacturing process, and both should leverage the way it conducts after-sale service. Fit not only increases competitive advantage but also makes a strategy harder to imitate. Rivals can copy one activity or product feature fairly easily, but will have much more difficulty duplicating a whole system of competing. Without fit, discrete improvements in manufacturing, marketing, or distribution are quickly matched.
Finally, strategy involves continuity of direction. A company must define a distinctive value proposition that it will stand for, even if that means forgoing certain opportunities. Without continuity of direction, it is difficult for companies to develop unique skills and assets or build strong reputations with customers. Frequent corporate ‘reinvention, then, is usually a sign of poor strategic thinking and a route to mediocrity. Continuous improvement is a necessity, but it must always be guided by a strategic direction.
One way to improve your opportunities for success is to reduce impediments to your employees effectiveness. One function of every leader is to make the jobs of every person in the company as effective as possible. This means each manager should seek out every possible means to eliminate barriers to each employees effective use of company tools, processes, and assets.
Visualize an inverted pyramid, where the job of top management is to support the next layer of management (above them in the inverted pyramid), and the job of the next layer of management is to support the layer above them, and so on. When it is clear that the responsibility of senior management is to eliminate barriers to success for all employees, the effectiveness of the company should be improved directly. Get the barriers out of the way and watch your people go!
What else might one do to survive a downturn? Fortunately, there are many possibilities available to many firms. Some of the simpler options may include:
The list is nearly endless, limited more by your imagination than anything else.
The essence of this whole process is that you must concentrate on doing those specific things that enhance your core business segments. You must focus on your strategic competencies, specific strengths that give you a distinctive advantage in the market place, and give your customers a real value proposition. This will result in your customers having good reasons to buy from you and not from your competitors.
You need to develop a good strategic plan and follow it, making appropriate mid-course corrections as circumstances dictate. There are significant advantages to this process.
First, with a good strategic plan, well communicated throughout your company, all your people will be working from the same roadmap.
Second, because you have analyzed your situation, market conditions, competition and other factors, and have made assumptions about where each could be going, you are in a much better position to make adjustments as conditions dictate. Because you have already made the effort to analyze relevant factors, you have considered the options available to you. You are in much better position to adjust to changes, even unexpected changes, because you have already considered what might happen.
Finally, having looked at your strategic competencies and core businesses, you know where you can reduce costs, improve services or products and what key people to retain so you have your core assets, your people, their skills and knowledge, as you go forward.
You have determined your strategic focus, allowing you to zero in on what you do best, and on what your customers will want enough to buy from you. You have set a target of market dominance in your core businesses and defined what it will take to get there. Isnt this better than a panicked reaction that could end up with you losing the very assets that got you to the successful position you have enjoyed up to now? Think through your response to the current situation, and proceed with the logical, orderly analysis, and an ordered, well thought-out response that will allow your company to survive any downturn, and to prevail in the coming resurgence.