DOC

Developing New Business Opportunities - The consequences of not

By Matthew Hall,2014-07-09 11:10
13 views 0
Developing New Business Opportunities - The consequences of not ...

    In Business, Old is Not Always Gold

    To Meet The Challenges Of The Future Sometimes You Have To Take

    A Radical Break With The Past

    The dictum „Old is Gold‟ may be true for everything else, but not for business. In a competitive business environment that we are facing today, if a corporate does not

    respond to change, and respond fast, it will put its many interests at stake ---

    growth, future security, and at times, survival. Let‟s examine these issues in detail.

Four things can happen to a business that does not pursue an aggressive growth

    path. It may lose market share; its profits will shrink; its costs will escalate; and

    finally it will lose out to competition. In the long run, the job security of its

    workers and the future prospects of the company will also be threatened because it

    will not have viable products, services, or customers to meet the changed market

    conditions.

The basic tenet in all businesses is, that unless the entire market is growing, a

    company must do everything possible to increase its' individual share in order to

    sustain a steady growth. To illustrate this point, let‟s take the case of a company

    „X‟, operating in a stable market environment.

If this company were to grow at a steady rate of ten per cent, it will have to

    consume ever-increasing shares of this stable market. Sustained growth is

    otherwise impossible. In fact, it will have to bite a bigger piece of the pie every

    third year (rough estimate). Even with a lower starting point, growth will otherwise

    remain a pipe dream for this company. The table below illustrates this hypothetical

    situation better:

    Ten Percent Growth Target For a Stable Market Environment

    Year

    100M 30% 80% 1.

    110M 33% 88% 2.

    121M 36% 97% 3.

    132M 40% 106% 4.

    145.2M 44% 116% 5.

As is clear from the above table, if the market is shrinking, remaining the same size

    will not yield any growth. Even normal maintenance calls for some increase in

    market share under stable market conditions. But in a shrinking market this share

    will have to be considerably bigger. The following table explains how keeping up

    in a shrinking market requires an excessively bigger market share:

    No Growth in a Shrinking Market at Five Percent

    Year

    100M 30% 80% 1

    100m 31.6% 84.2% 2

    100M 33% 88.6% 3

    100M 35% 93.3% 4

    100M 36% 98.2% 5

The important question to ask here is: What is the cost of increasing your market

    share? If past history is any indication salary and benefits are frequently a victim of

    the need to reduce costs in order to remain competitive. The reduction in labor

    rates is often the price we pay for surviving in a price competitive industry.

As the company reduces its prices to overcome competition, profits are among the

    first victims. Even if profits remained the same, as in the above illustration, their

    value would go on steadily decreasing over time, with the result that by the end of

    this period, the original fifteen percent profit margin is only worth eighty-one

    percent (81%) of it's original value!

In addition to making growth or survival tough in an adverse market environment,

    failure in locating new business opportunities can also have other potentially

    adverse impacts, such as the threat of losing a job or the prospect of confronting a

    dramatic change in the traditional market that one is operating in.

In short, becoming tied to a single or small number of markets does threaten job

    security. Look what happened to the airline companies in the aftermath of 9/11 ---

    businesses had to be shut down and so many people were thrown out of work due

    to the abrupt turn in events. Almost similar was the fate of many technology

    companies during the dotcom bust.

Change is one constant in life. If you are alive you are changing. History also bears

    testimony to the unpredictable consequences of this change process. Death or the

imposition of new taxes are other inevitable features of life. The recent recession

    has shown that nothing is as sure as change. And, when that comes, there is

    nowhere you can hide. "The enterprise that does not innovate must age and

    decline." (Drucker, 1981)

But you can offset change if you look for ways of periodically penetrating new

    markets; offering new goods and services, or presenting a higher value

    replacement in goods/services. Why do successful companies falter? Typically, its

    because their managers are paralyzed by some drastic shift in the environment (a

    change in technology, consumer preferences, or regulation), notes Harvard

    Business School Professor Donald N. Sull in his new book Revival of the Fittest.

    “They tend to respond quickly. Nevertheless, the steps that they take are

    ineffective because they exhibit active inertia, the tendency to respond to even the most disruptive shifts in environment by accelerating actions that worked out in the

    past,” writes Sull.

Over time, the distinctive success formula that earlier helped a company beat out

    the competition can ossify. What were once insightful, strategic perspectives can

    become blinders. Innovative processes can become mindless routines and defining

    values turn into dogma. Instead of asking whether the logic that once made the

    formula successful still holds, company managers respond to market disruption by

    doing more of the same. (Is Your Company a Prisoner of Its Own Success?

    Harvard Management Update, September 2003).

Busting out of this prison, no doubt calls for a powerful intervention. To appreciate

    just how powerful, it‟s useful to compare a transforming commitment with a

    similar concept: the catalytic mechanism. As noted management guru Jim Collins explains in Turning Goals into results: The Power of Catalytic Mechanisms, a

    catalytic mechanism is a “galvanizing, non-bureaucratic means” of turning objectives into performance.

For example, Graniterock, a California-based company that sells sand, concrete,

    and crushed gravel, adopted a short pay policy, which gave customers “complete

    discretionary power to decide whether and how much to pay based on their

    satisfaction level.” An unhappy customer who doesn‟t feel that he should pay the full invoice has only to send the company a note explaining his frustration.

Such innovative strategies “impels managers to relentlessly track down the root

    cause of problems, “Collins writes. To give you another example, the one that Sull

    describes in his book, George Mosonyi and Istvan Kapitany, the local managers of

royal Dutch/Shell‟s business in Hungary, achieved dramatic success when they

    committed to “increasing non-fuel revenues from the Shell Select gas stations with convenience stores” by turning the gas station managers into mini-CEOs with the

    power “to decide for themselves what to sell and what prices to charge.” In 1991,

    Mosonyi and Kapitany‟s efforts increased non-fuel retail sales by 60%!

    Review Let us recall some of the points made in this chapter. This lesson addresses the

    consequences of not developing new business. Among the consequences discussed

    are:

    It can jeopardize growth. In a stable, or stagnate market, growth would

    require increasing market shares.

    • Modest long-term growth could outstrip the market.

    • It can jeopardize job security. Serving a small community of customers

    is bad even when a company is otherwise performing superbly.

    • Change is inevitable.

    • Over time, the distinctive success formula that helped a company beat

    out the competition can ossify. What‟s needed then is a heavy dose of

    “catalytic mechanism.”

    • Shrugging off complacency often calls for total commitment to the

    change process and powerful intervention at every level.

    Practice Questions 1. What can be the potential consequences of not pursuing new business

    opportunities?

2. If your initial market share was sixty percent (60%) and you desired five percent

    growth over the next five years what would:

    (a) Your final market share be in a stable (zero growth) market?

    (b) In a shrinking (minus two percent) market?

3. Or, what should be the ideal size of the market be to able to support your growth

    without making it necessary to change your share of the market?

4. What does Sull mean by “catalytic mechanism”?

5. How do innovative tools help managers?

Report this document

For any questions or suggestions please email
cust-service@docsford.com