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| Best Practices: The Chaos Factor |
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| Written by Brad Dawson |
| Tuesday, 30 June 2009 23:00 |
 {mosimage} We are all familiar with this quote (or its derivatives): “You must have chaos within you to give birth to a dancing star.” (Friedrich Nietzsche). But how do you accomplish effective change when all around you is crumbling? The answer rests in the ability to dissect your market environment looking for new opportunities—product and service offering omissions that can be resolved through your corporate innovation. It is now, while the economy is in chaos, that your company can successfully evolve to its next corporate level. Knee jerk reaction “Environment” is defined as attributes that are uncontrollable by you but have a direct impact on your business. Examples include laws, competition, customers, raw material costs, availability of qualified labor, and, most visible right now, the economy. These attributes are the foundation blocks that form your strategic initiatives, followed by your corporate operating practices, technology initiatives, and organizational roles. Now, with the environment changing, what corresponding corporate changes have been implemented in your organization? For many corporations, the changing economy has brought about a reactive response. Strategies have been shelved, and the focus has been to reduce the cost of operations, an effort that usually takes the form of layoffs. Although most corporations can reduce their operating expenses by 20% without negatively affecting productive output, the reality is many corporations have sliced upward of 40% of their costs without making any allowances for innovative strategic initiatives or improved operating practices. On the surface, the default corporate strategy appears to be “Hold our collective breath until the recession passes.” Horizontal transformation The right answer to an ever-changing environment is business transformation. It’s a proactive response that takes these “uncontrollable” attributes and leverages them to your corporate advantage. In general, business transformation can take either a horizontal or vertical direction. Horizontal transformation occurs when corporations move into different, yet complementary, industries. Vertical transformation seeks to narrow the focus on your current industry into a series of niche markets. During periods of economic stability, vertical transformation is the preferred form. Although it narrows your industry focus and represents a smaller customer base, the upside includes more diversity of products and services, usually at higher per customer revenue (and corresponding profit margin) levels. The green movement is a good example. Nearly every industry has environmentally safe product offerings that can protect the planet and use fewer natural resources. However, it’s still a niche market—part of a larger industry picture. In periods of economic uncertainly, horizontal transformation is the better option. It diversifies your industry focus and, in many cases, puts your corporation into larger customer pools. Numerous examples can be found, but my favorite involves a large international cemetery company. While exploring the concept of horizontal transformation with a group of funeral directors, I asked for examples from their respective businesses. After a brief period of silence, the cemetery director representing the Philippine operation said his company had built a Buddhist temple next to its cemetery. As temple followers passed on, his cemetery was, in effect, the beneficiary. His company had essentially transformed into the religion industry. Stop the cycle, I want to get off Every corporation evolves through a five-phase business cycle: opportunity-related research, market release, shareholder reward, corporate reinvestment, and cycle review. Total business cycle duration is industry dependent and varies from 18 months (for dynamic companies such as media and technology firms) to 20 years or so (building and highway construction). For many corporations, the key to adaptation necessitates changing your industry focus while putting your business on a different business cycle. Take the case of a large, national concrete masonry company. Situated in a construction business cycle that presumed another three years of recessionary turmoil, this corporation sought a different answer: manufacturing pool furniture to complement its depressed pool deck and patio installation business. With a single acquisition, the business cycle for this company went from 20 years (the construction industry cycle) to about four years (the leisure furniture cycle). The net result was a quicker recovery from the recession and a more diverse base of revenue. Heads-up analysis The bookshelves are stocked with business gurus touting the single-fix solution. Those of us with a more than a few years of business experience can quote principles from Total Quality Management (TQM), Business Processing Reengineering (BPR), and Six Sigma texts. The reality is that no single management solution will work. There is no silver bullet. Innovation is the key, and it can only be realized through “heads-up” market analysis and observation. What do your customers really need? How is their market evolving, and what product omissions can you identify as result of those changes? Do your current offerings make sense, or have your products gone the way of the wagon wheel (useful in its day but hardly relevant now). Adaptation to an ever-changing environment is hardly a new concept. There are stories of Genghis Khan adapting his attack strategies to coincide with periods where humidity was at its lowest point—a prerequisite for good bow-and-arrow performance. The same philosophy holds true today. The environment is always changing. Your challenge is to identify the change and leverage its benefits through strategy and operational and organizational modifications. Ignorance, as we have seen lately in many industry giants, is not an alternative. Instead, heads-up analysis coupled with corporate innovation ensures not just your entity’s longevity but, in many cases, its competitive edge. Brad Dawson is the managing director of LTV Dynamics and has more than 28 years of management consulting experience. He is a frequent lecturer to international entrepreneurial businesses and serves as a contributing writer to several national and international business and leadership magazines. He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it . |