In this rapidly changing world, business models and product/service lifecycles have become shorter, customer/user expectations have changed, and technology has altered the way we live and make purchasing decisions.
The most followed methods of planning, operational management and decision making are typically short-term in nature with a focus on near-term (quarterly) performance reporting. This leads to a mindset of reliance on status-quo strategies and tactics that can be detrimental to achieving long-term market position and profitable growth.
How often have you witnessed businesses failing due to lack of preparation to address marketplace interruptions, competitive challenges, technology advances and other industry changes? Even onetime industry leaders have failed or stagnated. Where are Sears, Kodak and Blockbuster today? Their competitive advantages had limited lifecycles. They ignored plans to achieve short-term to long-term continuity.
Marketplace acceptance and industry leadership are not guaranteed. Strategic direction needs to be continually updated and reinforced with validated transitional strategic plans and realistic tactical plans of execution. To make this happen, a mindset of innovation is not an option, but a necessity!
Takeaways from “The Quest for Durability”
One strength by itself does not make for a long-term successful business. Interrelated and interdependent unified parts, and collaborative attitudes working together is the formula for making a business successful – relevant, resilient and durable.
Some Durability Enablers
Effective business planning requires a well-defined series of planning steps and implementation actions:
1. Deliver substantiated customer solutions.
Only business models that are customer-facing (while addressing true buyer motivations) and have the flexibility to meet market timing requirements will have longevity. In this fast-moving landscape, real-time market research is required to remain relevant, resilient and durable.
2. Maximize revenue.
Revenue (recurring and nonrecurring) can be increased in multiple ways. Strategic and tactical plans need to focus on options for both revenue growth and for defensive reasons…to combat competitive pressures or strategies. For example, Apple® always has new products, functions and features available to stay ahead of the competitive curve.
3. Establish and maintain targeted marketplace leadership and grow market/segment share.
Growth programs should always be part of Perpetual Planning and Continuous Improvement (in addition to day-to-day activities) to enhance your business’s competitive advantage. They can include organic strategies – modifications to maximize existing business models.
Adding new products, changing customer service approaches, developing alternate advertising and promotion programs or implementing inorganic strategies
Mergers and acquisitions, expanding into new locations / territories, joint ventures
Adding human capital resources and technological capabilities to increase marketplace intelligence and understanding will be an ongoing requirement. Transformational leadership (in all functions of your business) will be the drivers of durability. Communicate frequently to unlock pent-up innovation.
4. Enhance efficiency and control cost.
Improving efficiency should be part of your Continuous Improvement initiatives agenda. It should include improving margins, simplifying workflow, enhancing the customer engagement process, manufacturing or sourcing practices or just maximizing the use of your business’s tangible and intangible resources.
Cost reductions should eliminate nonessential things that do not match the needs of strategic and tactical plans. Before eliminating, always consider repurposing to utilize resources or substituting resources between products / services or between business entities.
5. Create and maintain required cash flow and profitability.
Cash-flow demands (inflows and outflows) represent real numbers and are critical influencers driving short-term and longer-term strategy formulation prioritization. Strategy formulation has to consider product / services sales, pricing, customer payment forecasts, inventory practices, and vendor agreement terms and conditions. Positive cash-flow means you can operate and grow your business.
Any potential investor looks at cash-flows (especially growth rate of cash flows) as an indicator of a business’s ability to maintain current levels of operations, secure financing, attract investment and potentially to grow. Consider cash-flow statements as the key document –especially the “cash burn rate” projections (the rate cash is being utilized).
Profitability (an accounting term) on the other hand, is not as valuable a performance indicator, but still required by most business evaluators. Profitability (sometimes called paper profits) includes non-cash transactions (depreciation and amortization) which lowers tax liabilities. Depreciation is not something you can spend. Profitability calculations also can include accruals and entries anticipated in the future.
Profitability is considered a key measurement of primary importance for a publicly traded business where share price is pegged to profits and growth of profits. Businesses can survive without profits for a period of time as long as they are experiencing rapid revenue growth. Look at the unicorn companies (privately held startup companies with a value of over $1 billion), which are typically not initially profitable.
6. Be prepared for change, challenges, interruptions and opportunities.
All business models have limited lifecycle longevity. Marketplace changes, disruptive products and services, evolving customer preferences impact the ability of all businesses to retain market share and a durable competitive advantage. Only through real-time market research and constant ecosystem evaluations can a business maintain year-over-year durability.
Business Models need to be relevant, flexible, and timely, changing when necessary to be effective. Successful businesses accept the fact that business model change is inevitable and that the marketplace is not a constant. They avoid complacency, stagnation and possibly bankruptcy.
Business Lifecycles around the world are getting shorter – in some industries faster than others. Status quo legacy practices (unless modified) generally will not carry your business to a position of being a long-term durable entity.
7. Utilize concurrent sources of insight and knowledge.
To be a cutting-edge business, you need to have the ability to continuously grow, create value and adapt expeditiously as needed and as planned.
To accomplish this, a business needs to follow an insightful Perpetual Planning process, to phase-in new and Improved ways of satisfying customer requirements and stimulating business growth while dealing with day-to-day business activities and implementing Continuous Improvement programs.
8. Risk avoidance as a Competitive Advantage
One thing is certain, there is some degree of risk in every strategy you select. Risk mitigation (risk awareness, risk avoidance and recovery) should be a major part of business model design. Risk disruptions can occur from many different sources. It needs to be a major ongoing consideration.