Two years after the collapse of the Lehman’s Brothers investment bank the business outlook is still largely bleak. New rules in Basel iii aim to regulate the global financial system and thereby, presumably, to inch the rug back under business’s feet from where it was unceremoniously pulled in 2008. But companies continue to face constant challenges to survive and succeed. Is it just a question of riding out the recession or should we be looking at other factors for business success?
5 challenges to business success
Certainly the economic climate has had a huge effect and the economic recession continues to take its toll on businesses. Many companies have gone through so many rounds of cost-cutting, slimming down and staff reductions that the pressure on individual managers to perform the ordinary tasks to keep the machine turning and the business going is overwhelming.
2 Competitive threats
This is probably the oldest of all business challenges! Organizations need to reinvent themselves by seeking new sources of competitive advantage that are difficult, at least in the short-term, for competitors to imitate. There are many examples of the damaging or even fatal consequences of failing to do this. To take just three examples:
- Marks and Spencer – the late 1990s and early 2000s started to see a dramatic fall-off in revenues, profits and share value; this was attributed largely to complacency.
- EMI, one of the most successful record labels of all time, counting artists such as The Beatles, Pink Floyd, Queen, Robbie Williams and Lily Allen amongst its stars, is struggling to adapt its old business model, to take into account a new environment in which file sharing and free or almost-free music downloads are more attractive than the traditional CD.
- Woolworth’s – once synonymous with the UK high street, went into administration in 2008, after almost 100 years of operation, resulting in the closure of 807 outlets and the loss of 27,000 jobs.
3 Disruptive innovation
Businesses need to introduce new paths and innovative products, services or business models to the market, and then to exploit and hone them to increasingly perfect them. But this “disruptive innovation” is inherently risky and examples abound of companies that have come up with great ideas that then fail to catch on in the marketplace or that apply complex technologies that fail in their implementation. Sony’s Betamax video recorder, although technically superior, lost out to JVC’s more market-friendly VHS recorder.
4 Environmental and social pressures
Businesses are having to pay increasing attention to the green agenda and their own Corporate Social Responsibility (CSR)profile. The two main pressures for this are:
- The drive for sustainability, to do as little harm to the environment as possible and to respond to legal and social pressure to reduce excessive waste and the use of hazardous materials, which must now, by law, be a factor in the decision-making process for all businesses.
- “Bottom of the pyramid” campaigns which aim to attack poverty by encouraging firms to do business with the billions of people in the world who must survive on $2 a day or less (those at the bottom of the pyramid).
CSR is not just a tickbox on a company’s template; it is taken increasingly seriously by governments and individuals alike.
5 Regulation and bureaucracy
A major frustration in large organizations can be the convoluted bureaucracy and labyrinthine processes for getting acceptance of new ideas. Large organizations are inherently risk-averse and hide-bound by the way they have always done business in the past. In addition, particularly in the US, companies tend to be driven firstly by their lawyers, secondly by their finance people and thirdly by investor relations. The combined forces of tight regulation and the shareholder pressure to perform today are major obstacles to risk-taking for the sake of the future.
In trying to address these challenges, there’s one further issue – talk to managers today and one of their biggest complaints is lack of time to think and do things differently. They are drowning in day-to-day operational tasks and struggling under an avalanche of endless meetings that focus on pressing current issues and short-term forecasts rather than strategic innovations. Yet if most, if not all, of their attention is focused on the present, what then about securing the future?
So how do businesses get the balance right? Is it just a question of becoming leaner and toughing out the recession until rosier times emerge? Or should they be stepping up to the plate right now, developing new capabilities, exploring new ideas and implementing innovative business models?