Business as usual? Not for the winners. When the economic foundations of business are undergoing the kinds of transformation we're seeing today, winning organizations find ways to pursue paths that, though they look unorthodox right now, are essential for securing their future.
An IBM study identifies key moves such businesses are making.
Business as usual just doesn't work when cracks have opened in the foundations of the economy. To help figure out how winners are succeeding and seizing opportunities in this challenging time, IBM recently undertook a study to determine what distinguishes outperforming companies right now. We identified 61 companies in diverse sectors as early winners, based on 2008 data, and we studied the strategies that were enabling them to thrive.
Our findings, supported by our experiences with our clients, revealed three main characteristics common to these winners. First, they focus on value without sacrificing long-term goals, which means they always evaluate cost reductions in a strategic context and with a clear focus on their core. Second, they exploit opportunities unique to the downturn, which can mean anything from using adversity to gain new customers to pressing forward with innovation. Third, they act quickly, with an agility that lets them keep pace with, or move ahead of, rapid changes in the business environment.
So far, companies have focused mostly on the first and third of those three characteristics. They've worked to trim unnecessary costs, and they've tried to move fast. What takes more imagination and resourcefulness is the second item, exploiting opportunities. How successful companies have been doing that offers a particularly rich set of lessons for any organization determined to become a vanquisher, not a victim. Below are highlights of what we found.
Keep an Eye on Growth
Winners, we found, are organizations that continue to selectively pursue growth even as they control costs and conserve capital. With valuations down, acquiring weaker competitors is a fast path to growth. The turmoil in the financial services sector has created major merger-and-acquisitions opportunities there, of course. Pharmaceuticals and retail are also dynamic areas. With the closing of Woolworths' stores in Britain, the frozen food retailer Iceland moved in, acquiring 51 of them after an earlier bid to buy all 682 was rejected. Companies with cash reserves are doing well by buying up bargain-priced assets that support their overall strategies.
Emerging markets such as Southeast Asia and China, and to a lesser extent Eastern Europe, are another prime area for growth. That growth may not involve companies' traditional competitors, but they have to deal with local cultures and customs, regional economic and social policies and new business channels, all of which push them beyond their comfort zones. Consequently, hiring, developing and partnering with the best people available are crucial for firms that leap these geographic boundaries. Also, they need to be sure that any efficiencies they pursue in human capital management don't hamper their ability to grow in these new markets.
Pursue Business Model Innovation
We found that a commitment to innovation, especially concerning business models, was one of the most widespread elements of winning strategies. Most companies these days get so wrapped up in just coping that they lose sight of attainable rewards ahead. Organizations that continue to pursue business model innovation can really pull ahead of those that stick to business as usual.
Business leaders must judge whether their industries are likely to consolidate, grow, shrink or even die. They also must understand how their competitors, suppliers, consumers and new entrants are responding to economic change, and whether barriers to entry are increasing or decreasing. Only then can they perceive the opportunities and risks in new business models.
Companies that pioneer new industry approaches and standards also gain unique opportunities with their suppliers, partners and customers. As many whole industries restructure, there is ample opportunity for new entrants to take disproportionate share, and for existing players to reposition. Rolls-Royce, for example, designed a fuel-efficient engine that can be customized for a wide range of aircraft, making the company the only major engine builder that can design for all three of the major new airliners. That's a disruptive move in an industry accustomed to designing each plane from scratch.
The ability to identify and exploit new revenue models is key to business model innovation. In media and entertainment, the ongoing transition to digital delivery has substantially reduced inventory costs, creating downward pressure on revenues. Companies need to be nimble in locating alternative revenue streams while focusing on the efficiencies that can come from digital processes. In fact, the strength of supply chain management in media and entertainment is expected to make the downturn end sooner there than it otherwise would.
Cultivating strategic partnerships is also a quick route to business model innovation. Many firms are adapting by rethinking what they do in-house and what they do through collaboration and partnering.
This is only an excerpt. Read full post here.
Published in Forbes, Saul Berman, 06.10.09
For a copy of IBM's study "Succeeding in the New Economic Environment," click here.