16 January 2017 09:47 am Views - 1777
Some businesses have grown a little exhausted and just need some sprucing up. You see this in your local restaurant that closes for remodelling during the first two weeks in August and opens thereafter with the same cuisine but with new paint, new tables and chairs, an updated menu and a warm handshake for returning customers.
On the other hand, we often see businesses in need of a thorough overhaul.
In the case of a restaurant that’s located in a part of town that has become shabby and crowded, remodelling is not going to bring the customers back. The owners may need to move the restaurant and find new opportunities or go out of business forever.
What about businesses with multiple product lines or business units? What if you are a department store with Rs.100 million monthly turnover? Do you paint your stores to make them look nicer or do you rethink your business model to differentiate your locations and offerings because you are in an industry with too much capacity?
Scan
What do you do after you’ve looked for clues about the current, evolving and potential changes? Use the following tools to start making some sense out of them. They won’t give you magic answers but they will stimulate your thinking: Assumption testing, (2) Life cycle mapping, (3) Matrix, (4) Crafting your business model, (5) Evaluating your willingness to change.
Assumption testing
All strategies are valid only so long as the assumptions on which they were built remain true. Hopefully your business was founded on a set of assumptions that have been tested and refined over time. Unfortunately, that is not always the case.
A classic example is Sears of the USA, which built a business that thrived for nearly a century because of the assumptions they made about the habits and buying trends of middle-class Americans. However, the needs of a middle-class family in the 1950s were hardly the same as they are 2000s. Families changed but Sears did not keep up with them. They have declined within their industry and they may not survive long unless they make dramatic changes into the assumptions made at the time the business began.
Now make a list of these assumptions of your organisation using the following categories: customers, products and services, people and organisation, resources, location, information and communication technology, policies and procedures, metrics, suppliers, competitors.
Now after each assumption, find facts and figures from your current financials, annual reports, forecasts, etc., that relate to each assumption. Divide them into two columns: those that support the founding assumptions and those that invalidate them.
When you’ve completed this part of the exercise, it should be quickly apparent to you which of your original premises for the business still hold true and which will have to be revised or discarded.
Here are some questions for you to ponder.
Customers: Do you have loyal customers? Do you really know what they want?
Products and services: Do your products and services meet the evolving needs of future customers? Do they provide the best value?
People and organisation: Do you have the right workforce? Does your workforce have the best leaders?
Resources: Are your resources relevant? Are they effective and efficient?
Location: Are you located in the best place for the customers? Are you in the best place for the workforce?
Information and communication technology: Is your technology ‘user-friendly’? Is it up to date?
Policies and procedures: Are your policies and procedures convenient for your customers! In what ways, do you make it hard to do business?
Metrics: Are you measuring the right things!
Suppliers: Do your suppliers see you as a ‘partner’? Have you picked suppliers based on price or on competency?
Competitors: Do you know all of your competitors? Do you know what motivates your newest competitors?
Life cycle mapping
Some weeks ago, we discussed in detail about the life cycle map. On one hand, it is simply a description of sales volume over time. But it’s more than that also. It can be an analysis tool that you use to chart your position at a point in time or to chart the evolution of your business. It might seem that many established businesses are in the mature stage for a long time. However, product lines and business units can mature quickly and you want to seek out signs of maturity in time to work on renewal.
Apple experience
The classic example here is Apple. They did a brilliant job with the introduction of the iPod, iPhone and iPod touch. From the time the first iPhone launched 10 years ago, Apple’s sales numbers have grown from US $ 24.01 billion to US $ 233.72 billion in 2015. The rapid growth of Apple’s revenue was fuelled by iPhone sales and the company is still dependent on iPhone sales for a major portion of its revenue. During 2016, Apple’s annual sales declined to US $ 215.639 billion with the iPhone bringing in US $ 136.7 billion, accounting for nearly 63.4 percent of their revenue.
Leading research firm Gartner has predicted the worldwide device sales will stagnate until 2019. The company added that mobile phone shipments are only growing in the Asian and Pacific markets.
The sales curve shows the mature portion of a lifecycle curve. The challenge to Apple’s leadership then is to renew its business model or face continued and accelerating decline. Given the attitude of its organisation toward risk taking and its excellent track record, analysts believe it will succeed. A likely candidate for this renewal may be its iPad tablet computer.
Lesson from Apple
As you look across your business, evaluate your assets and your customer base to see where you have the best chances of renewal success. Look at your assets and customer base as they’ve evolved over the life cycle of the business; not enough to evaluate your customers as they are now; you have to, at how they’ve changed since the business started and what the customers of tomorrow will look like. You have assets, either hard or soft, that are healthy and can be repurposed!
Can you adapt them to new customer needs while keeping the business going! Likewise, as you examine your customer base, do you see a base that is in decline or a base that is still viable but has moved away from your existing offerings? To identify high potential renewal candidates, you will need to build deep insight into the customers’ current and future needs and their willingness to pay if you satisfy those needs.
Kodak experience
A generation ago, a ‘Kodak moment’ meant something that was worth saving and savouring. Given that Kodak’s core business was selling film, it is not hard to see why the last few decades proved challenging. Cameras went digital and then disappeared into cell phones. People went from printing pictures to sharing them online. The company filed for bankruptcy protection in 2012, exited legacy businesses and sold off its patents before re-emerging as a smaller company in 2013. Why did this happen?
An easy explanation is myopia. Kodak was so blinded by its success that it completely missed the rise of digital technologies. But that doesn’t square with reality. After all, the first prototype of a digital camera was created in 1975 by an engineer working for Kodak. It clearly had massive disruptive potential.
Spotting something and doing something about it are very different things. Doing something and doing the right thing are also different things. Kodak ultimately embraced simplicity, carving out a strong market position with technologies that made it easy to move pictures from cameras to computers. It didn’t work because the real disruption occurred when cameras merged with phones and people shifted from printing pictures to posting them on social media and mobile phone apps. And Kodak totally missed that.
Lesson from Kodak
But consider Fuji – a distant second in the film business to Kodak. While Kodak stagnated and ultimately stumbled, Fuji aggressively explored new opportunities, creating products adjacent to its film business, such as magnetic tape optics and videotape and branching into copiers and office automation, through joint ventures. Today the company has annual revenues above US $ 20 billion, competes in healthcare and electronics operations and derives significant revenues from document solutions.
(Lionel Wijesiri is a retired corporate director counting three decades of senior management experience. He is now an independent consultant and a freelance journalist. He may be contacted on lionwije@live.com)