We are living through what the Chinese euphemistically call ‘Interesting times’, interesting business times in any event and planning and budgeting based on history is probably as difficult as it’s ever been. Gauging the economic environment is not helped by the many contrary predictions from the economists whose opinions are not just variant they are widely divergent! Someone once said that “An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today” and I confidently predict we’ll see the truth of that over the next twelve months, after all they can’t all be right!
However market is only one of the factors that affects a businesses performance and after the paralysis of a near meltdown in the economy we are beginning to see big businesses in all sectors look to management as a defining factor and we can see that in our own corner of the world. Businesses in this sector operate in the same market albeit subdivided into trade commercial and retail yet performance is as divergent as an economists opinion!
Markets change, customers requirements change and businesses must change with them in order to prosper. In times of change it’s not the most successful at exploiting the old conditions that prosper it’s the best equipped to learn and adapt. Our most successful clients are the ones who do not look to be rescued by the market but who look at the market and see what opportunities it throws up and exploit them. The window market has been in decline since long before the current economic ‘unpleasantness’ and a pathetic 0.1% rise in GDP (as announced today for the last quarter of 2009) is not going to rescue a business that can’t adapt. Right sizing as it is called, that is shrinking a business to make money at it’s reduced ability to sell is a short term fix but not a long term strategy unless you are looking for a lifestyle business and the ‘right size’ is capable of fulfilling your aspirations. In declining and changing markets you probably won’t be able to ‘right size’ once, it’ll be a downward spiral that has only one end. So we see companies selling the same product into the same markets with similar resources performing in vastly different ways, not all animals are equal!
Clear thinking becomes essential and pressures on the business day to day and the emotion they engender can cloud that judgement, the recent spate of profile price rises are a case in point. Systems companies are faced with increasing costs that they have no control over and economic recovery is going to put more upward pressure on commodity prices. The UK may only be growing by 0.1% (and the cynic in me says that is a positive 0 in any event – we could not accept a further quarter of decline so a bit of rounding up maybe?) but China is growing in excess of 10% and these emergent markets and a recovery in the ‘old world’ will likely fuel commodity price increases. Even if this is not the case look at the profitability of system companies in the UK, they all need volume increases (not going to happen whilst there is overcapacity) or price rises. I’m not trying to justify price rises especially if they are the result of inefficient manufacture that’s not our role but they are proving inevitable and no matter unpleasant they are out there.
System companies should make no mistake though these are not just unpleasant for fabricators they can be survival threatening. Downstream customers are not disposed to accept increases passed on and if system companies find themselves the ‘bacon in the sandwich’ then so do fabricators and installers. The natural reaction to these price rises is to ‘spook the cattle’ as one system company sales director famously put it and there will be a round of musical chairs for short term perceived advantage whilst fabricators look to hold the line by changing supplier. Will this be a material advantage to supplier or customer in a changing market and in the long run – no. The costs of changing often negate short term advantage (for both supplier and fabricator), it takes the fabricators eye off the ball with the real issues facing the business and a couple of % here and there on profile price is not the defining success factor for a fabricator installer anyway!
There are clear Darwinian parallels in business (as well as Orwellian yes yes I know) and studying success leads you to conclude Darwin was right when he said “In the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed” If system companies and fabricators are not to vertically integrate then they must cooperate and innovate, there is a level of mutual dependence that sometimes both seem to forget.
So if you are a fabricator then change system if your supplier does not engage to help you make money and work with one that does. Price is a factor but not the only factor in the choice of supplier. Your system company should not put you at a competitive disadvantage but that does not mean only supplying product at the lowest cost compared to an alternative system. System companies similarly need to look at how they cooperate and if price rises are inevitable unless you work to protect the profitability of winning fabricators then rising prices may mean less customers not because they may jump ship (after all the cost base as a whole is rising for fabricators) but because they drown. Creating ‘hostage’ customers who cannot change systems because of cash or operational issues short term and who are forced to take price increases that they cannot ameliorate by improved performance will damage their upstream suppliers as well.
Cataclysmic events force natural selection and in a symbiotic relationship like systems supplier and fabricator both need to pick a winning partner and work together if they are to be the animals that survive and thrive.
© Chris Ball January 2010