Seeing numerous Blockbuster stores around town closing their doors reminded me of the
need for us to constantly re-examine our businesses and our strategic direction. In fact,
with changes accelerating as fast as they are, we should be re-examining every aspect
of our business including:
- Manufacturers and suppliers on whom we depend
- Product lines - Especially their profitability, stage of product life, the role they play in your mix and risk of obsolesce).
- Distribution- Constant vigilance of the value chain is happening at all levels with new channels always being considered.
- Sales - Coverage changes, sales force consolidations/downsizing,compensation re-engineering, etc.
5 Business Reality Checkpoints
You are responsible for interpreting business realities Even in mature industries, it is in the top executives best interest to maintain the core business status quo. There is still enough gas in dying industries to throw off stock options, large salaries and pensions down the road for them to keep rearranging the business to keep these perks going until they retire. And good for them. They put in an inordinate amount of time into their jobs and have worked their way to where they are.
However, if you are further down the food chain, the changes in the business realities may come a lot quicker and have more devastating impact which we have all seen on a too frequent basis including divisions being shut down, personnel layoffs and culling of brands.
So the first step in being able to react is to understand the realities and make valid decisions based upon what you believe to be true.
What are those trends that have now become permanent reality? What are those temporary trends that are going to vastly affect my short term viability (i.e., if you shifted focus to government sales over the last few years, the coming budget cuts are going to have a significant impact. Just the anticipation of the cuts are already having an effect).
The Proverbial "Tale of the Tape" - One of the most important realities is about business segments/line viability. While other realities may be more fuzzy, profitability and sales are clear black and white.
How many years have you been hoping that the margins would come back to one of your most prevalent lines? Will it ever come back or has it become a commodity? A realistic look at where you are making your revenues and where you are losing market share/business helps you to develop a product mix that includes lower margin products that cover the overhead and high margin business that brings profitability.
Vigilance of the Value Chain - Don't think for a moment that high level executives and/or your major suppliers aren't constantly thinking about how to become leaner. This includes looking at the distribution channels (can we go direct?), the sales territories (and how much the top producers are earning) and efficiencies (should we bring that service/product in-house?). A change in any of these areas could mean a sudden and significant difference in your business
Constantly be reassessing and be realistic as to how much value you are bringing throughout the chain and if you have an inkling that your offering is at risk, change it so it is not. It is much less traumatic if you change your business model than if outside forces do it.
Diversify - Like investing, the most smooth revenue flow comes when you diversify. A healthy mix of mature and emerging products and services is healthy.
I recently talked with a businessman who had a core business in asphalt and recently started an internet commerce company. No surprise, the internet company had high profit and low overhead. The asphalt company was labor/capital intense and low margins. Is he going to throw away his asphalt business? No because it allows for diversification and stability. The internet is fickle and while the money is good presently, the meteoric product lives of applications before everyone else develops similar applications and saturation/consolidation happens is brief.
The lesson to be learned is that a stable business complemented by a constant outlook for new businesses/services that can change with and take advantage of market demands can be a nice model.
"You can't export a haircut" - In another conversation, a more traditional manufacturer (stamp & die) manager really put me back on my heels with realization when he stated that in China his labor costs were 3% instead of 35% domestically. My first reaction was concern with what a work world my son is going to encounter when the time comes.
My second was wondering how anyone can not have a service aspect to their business.
It's no secret that technology and the internet creates global competition and "knock off" (both legal and illegal) at an accelerated rate. Consequently, the economic product life and/or the ability to defend its position in the marketplace is greatly compressed. Combining a service with a product extends that life, can create a relationship instead of a single purchase and provides the opportunity to preserve margin.
What are the services (related or not) that you could be providing for your customers? The payoff could be increased margins, a steadier revenue flow and a more comprehensive relationship with your customers from which it is difficult to separate.
So make yourself a note, or print out this e-mail, and pin it above your work surface, do whatever it takes to keep these considerations at the forefront as they should be revisited and thought about on a regular basis.
To quote Heraclitus, "Nothing is constant but change".
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