Looking Further Than The Next Sale
Deep strategic change doesn’t happen very often in a business and most companies have a ‘me too’ approach to their marketplace that relies on being better at delivering a strategy than their competitors. Nothing wrong with that and many companies have grown and made good money on operational excellence alone but…..operational excellence is not a strategy, it’s a tool and it won’t rescue an outdated approach to a market.
There are some interesting similarities between our market and the semi conductor market which has mushroomed and matured over a very short period, much faster than most markets because of the pace of product development. A doubling of computer power every year and the rapid pace at which technology was copied soon led to a commoditisation of computer chips and the manufacturers began to only have price as the differentiator. Capacity chased demand and chip companies consolidated and got bigger and it is generally acknowledged that ‘last man standing’ is now the strategy of these giants. Low margins and fierce competition are the environment for the players to contend with and size, deep pockets and an ability to withstand profit ‘drought’ are the weapons.
Are system companies now adopting the ‘last man standing’ approach? We can see the consolidation and reduction in margin and the market is probably shrinking if not static…..is the trade frame market next?
Edmund Burke the 18th century philosopher said : "A state without the means of some change is without the means of its conservation.” And that applies to companies and business models. Just because a business model was right for the last 20 years doesn’t mean it’s right for the next 20 and businesses that lead sectors and cling on to old strategies and tactics often end up being the biggest casualties.
Strategies can become exhausted and that can happen for a number of reasons. Firstly it is true that growth strategies cannot be sustained as a market reaches saturation, especially if there is little or no differentiation. So if the strategy (and bear in mind that strategy is the means to reach a goal…. A PROFIT goal) is to grow then it could need a radical rethink as the market matures.
Secondly when a competitor comes in to a market unburdened by the cost structures of the pioneers that built that market they can destroy an established strategy. Take Direct Line in the insurance market, they reduced the cost to the consumer not by reducing the service level by reducing their own cost but cutting out brokers and red tape doing business direct and on the phone. Competitors simply could not reduce their own fixed costs and their business models and markets declined. Arguably we can see this in the PVCu systems company market.
Thirdly a company might need to have a radical rethink about the places along the value chain where profit is earned lie. If a company’s strategy relies on a shrinking profit pool that strategy may well be exhausted. Apple computer are a good example, they nearly lost their shirt as a PC manufacturer when the profits in that part of the market were targeted by low cost generic PC manufacturers. They didn’t continue to fight a battle they could never win (they would never be last man standing in that fight) they shifted to music and are again a very profitable organisation.
Looking further than the next sale may make for some uncomfortable conclusions and even if they look some management teams decide to defend the status quo, particularly if they feel they have had a sector leading position in the past. The big question for senior management is “Where Does Our Future Lie?”….. not asking this question may be more risky than where any answer can take you.
A final closing thought “the time to repair the roof is when the sun is shining” (John F Kennedy)….. looks like rain??
Chris Ball is a Director of MBA and a member of the institute of management consultants, MBA Associates Ltd is a specialist consultancy that partners clients to Recruit, Retain and Develop Top Performing Teams. MBA can be contacted on 01242 821 432 , email@example.com or through the websites at www.mba-associates.co.uk or mbaprofiles.hopto.org