For many companies, the weak economy is presenting some of the toughest struggles in the company’s history. On top of decreasing sales, organizations are left to battle inflation, exchange rate issues and regulation shifts. CEOs and executive teams are working hard to create the most solid strategies by putting their heads down and working diligently. However, according to the Harvard Business Review, this strategy simply isn’t enough to survive in today’s marketplace.
Executives need to brainstorm fresh new strategies to tap into hidden opportunities. They need to expand thinking to include broader and more creative approaches to business. Even in the most challenging market conditions, there are still untapped opportunities. Finding these opportunities is a little like striking gold; it allows you to prosper during difficult times. The Harvard Business Review studied companies that struggled with difficult market conditions. The study found there are several attributes successful companies have in common.
Missing the Best Opportunities
Some companies are overlooking some of the most valuable opportunities. The most effective way to find these opportunities is reviewing real time data. Share data trends throughout the organization. Encourage the management team to generate creative ideas for finding new opportunities based on the trends.
Front line employees are also valuable for uncovering new opportunities. These employees are in contact with customers every day. The employees are listening to the customer’s product needs every day and can anticipate new trends in the market. When you combine employee feedback with real time data, executives have an opportunity to identify some valuable trends.
For example, a retail store can anticipate which items are selling and which aren’t. Employees may share what customers are asking for when visiting the store. The organization can boost production on the best selling items and cut back on items that aren’t successful, allocating resources and time better.
Reward High Performance
Some organizations are moving away from traditional bonus structures. However, results from study conducted by the Harvard Business Review indicate that these organizations should reconsider. The strategy behind discontinuing bonuses is that it fosters teamwork. This strategy appears to hamper productivity and long-term success. Companies need to reward employees for a job well-done. A bonus structure or pay increases are the easiest way to accomplish this.
Create measurable goals for employees. Employees who meet and exceed these goals should be rewarded. The company should also tie rewards to long-term performance. By recognizing long-term performance for employee’s contributions, it will train staff to think about the long-term implications of actions.
Update Core Values
A company’s core values need to be updated to strengthen the organization. Values need to focus on recognizing employee leadership, ownership for results, teamwork, creativity and integrity. Most companies hang core value posters throughout the company. This is fine, however, it’s even more important for executives and managers to live and breathe the values. Leadership must act as an example to create the right company culture.
Promote employees based on their ability to demonstrate the company’s core values. Performance reviews should weave core values into the evaluation. When human resource departments interview new job candidates, select individuals with a track record of acting in accordance with the company’s core values. This will create a culture that is true to the organization’s most basic goals. Employees who aren’t willing to accept and incorporate the company’s values into daily activities should be reconsidered.
Create High-Impact Conversations
Executives and managers spend approximately 75 percent of their time in business discussions. Leading effective discussions will assist in strengthening the company. Conversations need to have execution requirements, deciding which actions need to be taken to accomplish success.
Each manager has a specialty. For example, a manager who is excellent in leading conversations on strategy may struggle with effective execution conversations. Give managers the skills needed to develop in all types of conversations and experience the best results.
Avoid Getting too Comfortable
It’s easy to get stuck in a business rut. When the economy is struggling, however, you simply can’t afford to do this. Some employees and managers will cling to safe strategies. Among your management team, you need some people willing to explore new territory, brainstorm new ideas and pioneer new strategies. Having these key players will assist in keeping your company stable and growing during difficult times.
Stick to Core Values
When the economy is struggling, leaders often go into panic mode, rushing around to put out fires. Leaders must be involved in solving these problems, but it shouldn’t consume all of their time. Organization leaders need to be focused on building and guiding the company’s core values. A leader must be willing to walk away from an attractive opportunity when it isn’t a good fit for the company’s core values. A leader can accomplish this by hiring plenty of creative talent to look for new opportunities that are a good fit for the organization. This will keep your company relevant in the current economic condition and boost performance.
Resources
Donald Sull. “Are you Ready to Rebound?” The Harvard Business Review, 2010.
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Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Monday, September 20, 2010
Anticipate Competitors More Effectively
Successful businesses are able to accurately identify the most threatening competitors. Having this ability allows your company to defend its place in the market. However, many managers make the error of overlooking some of the most threatening competition. According to the Harvard Business Review, there are several forces that are often missed when shaping competitive strategies.
Companies need to look beyond typical rivals. They need to focus on prospective new entrants, suppliers, customers and substitution threats. Creating strategies to address these threats will allow your company to sustain and grow market share.
Risk of New Entrants
A new company entering the market causes ripples in the industry. For example, when Pepsi entered the bottled water market, competitors were taken by surprise. The company leveraged assets from complementary products to secure a prominent position in the market. Apple used the same strategy when capturing the music distribution marketplace. These large companies quickly capture market share, even when competitors didn’t see it coming. The entrance of a new player in the market puts pressure on pricing and the return on investment necessary to compete. For companies already struggling, this is a serious challenge.
Industries have different risks for new competition entering the market. This risk depends on the barriers the new company faces when entering the playing field. If barriers are high, your company can expect a low risk for new entrants. If barriers are lower, however, you should pay attention to companies that may pose a threat.
Bargaining Power of Suppliers
Powerful suppliers are a hidden threat to your company. Suppliers charging high prices and limiting products or services can threaten your business model. If suppliers increase pricing, this puts the squeeze on companies who can’t afford to pass costs along to customers. For example, if the marketplace is saturated with competitors, the company may have limited ability to raise prices, fearing customers will chose the competitor’s product instead.
When a supplier is used by many companies in the industry, the supplier is usually powerful. For example, Microsoft is a large seller of operating systems. Companies have very few options when deciding to make a change, which makes the supplier a threat. Switching suppliers is also expensive. If a company can’t afford to pony up the resources to make the switch, the supplier gains power. Suppliers that offer a unique product, which can’t be easily be substituted, also have more leverage.
Bargaining Power of Buyers
Buyers are another force that is often overlooked. Powerful buyers have the ability to drive down prices, increase quality and play industry competitors against each other. If a single company makes up a large portion of your business, the company is usually a powerful buyer. A customer who has large fixed costs and low margins usually puts more pressure on your business.
Powerful buyers are aware of their leverage. Some of these buyers are willing to play your company against the competition to find the best deal. Buyers who don’t lose much money when switching vendors also have more power. If the customer can secure lower pricing elsewhere without a penalty, the organization doesn’t have anything to lose. Some buyers with significant resources may leverage better pricing with your company by threatening to take the service in-house. For example, soda companies have threatened packaging manufactures by showing they can produce the items in-house, if needed.
Substitution Items
The final threat to consider is substitution. A substitution product or service provides the same function to the customer, but is a different item. For example, online travel companies are a substitute for old fashion brick and mortar travel agents. Videoconferencing is a substitute for business travel. Businesses often overlook substitution products when planning for potential threats. However, these items can surprise a business and substantially affect the company’s success.
If your products and services have many prospective substitutes, profitability may be at risk. Substitute products may also interfere with your company’s pricing strategy. For example, once the product’s price exceeds a certain level, the customer may prefer the substitute which is less expensive.
Combat substitute products by differentiating your product or service. This can be accomplished through marketing campaigns, product quality or other strategies.
Understanding some of the most overlooked threats will assist in developing more effective strategies. A company should always consider these risks when evaluating potential strengths and weaknesses. If a new company is entering the market, evaluate the organization’s largest threats to identify their weaknesses. Taking a detailed look at the industry will also uncover potential opportunities. These opportunities are important to boosting performance and gaining market share. Your company will be positioned better in the market and have a more effective strategy in place.
Resource:
Michael E. Porter. “The Five Competitive Forces that Shape Strategy.” The Harvard Business Review 2006.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
Companies need to look beyond typical rivals. They need to focus on prospective new entrants, suppliers, customers and substitution threats. Creating strategies to address these threats will allow your company to sustain and grow market share.
Risk of New Entrants
A new company entering the market causes ripples in the industry. For example, when Pepsi entered the bottled water market, competitors were taken by surprise. The company leveraged assets from complementary products to secure a prominent position in the market. Apple used the same strategy when capturing the music distribution marketplace. These large companies quickly capture market share, even when competitors didn’t see it coming. The entrance of a new player in the market puts pressure on pricing and the return on investment necessary to compete. For companies already struggling, this is a serious challenge.
Industries have different risks for new competition entering the market. This risk depends on the barriers the new company faces when entering the playing field. If barriers are high, your company can expect a low risk for new entrants. If barriers are lower, however, you should pay attention to companies that may pose a threat.
Bargaining Power of Suppliers
Powerful suppliers are a hidden threat to your company. Suppliers charging high prices and limiting products or services can threaten your business model. If suppliers increase pricing, this puts the squeeze on companies who can’t afford to pass costs along to customers. For example, if the marketplace is saturated with competitors, the company may have limited ability to raise prices, fearing customers will chose the competitor’s product instead.
When a supplier is used by many companies in the industry, the supplier is usually powerful. For example, Microsoft is a large seller of operating systems. Companies have very few options when deciding to make a change, which makes the supplier a threat. Switching suppliers is also expensive. If a company can’t afford to pony up the resources to make the switch, the supplier gains power. Suppliers that offer a unique product, which can’t be easily be substituted, also have more leverage.
Bargaining Power of Buyers
Buyers are another force that is often overlooked. Powerful buyers have the ability to drive down prices, increase quality and play industry competitors against each other. If a single company makes up a large portion of your business, the company is usually a powerful buyer. A customer who has large fixed costs and low margins usually puts more pressure on your business.
Powerful buyers are aware of their leverage. Some of these buyers are willing to play your company against the competition to find the best deal. Buyers who don’t lose much money when switching vendors also have more power. If the customer can secure lower pricing elsewhere without a penalty, the organization doesn’t have anything to lose. Some buyers with significant resources may leverage better pricing with your company by threatening to take the service in-house. For example, soda companies have threatened packaging manufactures by showing they can produce the items in-house, if needed.
Substitution Items
The final threat to consider is substitution. A substitution product or service provides the same function to the customer, but is a different item. For example, online travel companies are a substitute for old fashion brick and mortar travel agents. Videoconferencing is a substitute for business travel. Businesses often overlook substitution products when planning for potential threats. However, these items can surprise a business and substantially affect the company’s success.
If your products and services have many prospective substitutes, profitability may be at risk. Substitute products may also interfere with your company’s pricing strategy. For example, once the product’s price exceeds a certain level, the customer may prefer the substitute which is less expensive.
Combat substitute products by differentiating your product or service. This can be accomplished through marketing campaigns, product quality or other strategies.
Understanding some of the most overlooked threats will assist in developing more effective strategies. A company should always consider these risks when evaluating potential strengths and weaknesses. If a new company is entering the market, evaluate the organization’s largest threats to identify their weaknesses. Taking a detailed look at the industry will also uncover potential opportunities. These opportunities are important to boosting performance and gaining market share. Your company will be positioned better in the market and have a more effective strategy in place.
Resource:
Michael E. Porter. “The Five Competitive Forces that Shape Strategy.” The Harvard Business Review 2006.
--------------------------------------------------------------------------------
Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Hard Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition” and “Selling Your Business The Practical Guide to Getting It Done Right”. For more information, contact him at 770.399.9512 or by email.
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